Weekly Market Update (June 5, 2022)
US equities pull back from previous week‘s surge by 1.2% for S&P 500 and 1% for Nasdaq. Positive job data supports Fed’s tightening policy, plus Tesla dropped almost 10% after announcing their layoff plan have dragged down overall index performance.
Nonfarm Payroll data in May beats expectations. 390,000 jobs have been added to the economy according to the Non Farm payroll data released on Friday, exceeding the consensus expectation of 322,000. The strong labor market reinforces the wager on Fed aggressive rate hikes. As the job market is the gauge of recession, implying that there are still spaces for raising rates in order to suppress inflation.
OPEC+ discussed its supply policy in July last Thursday, and they agreed to increase about 50% of the oil production in the coming 2 months. Intuitively oil price is supposed to drop when supply increases, while the market reacted the opposite. One of the driving factors is whether OPEC+ members (e.g. Saudi Arabia and the United Arab Emirates) able to boost their output rapidly remain questionable.
China announced a package of 33 measures on Tuesday to stimulate the economic slowdown triggered by the country‘s zero-tolerance policy against COVID-19. After a holiday shortened week, capitalization-weighted Shanghai Composite Index rose roughly 2.1%, and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, climbed 2.2%.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Morgan Stanley: Inflation expectations and nominal rates are dropping. Market is pricing in a 2.6% policy rate at the end of this year, down 20bps from 3 weeks ago.
UBS: The 10-year breakeven inflation rate dropped 0.4% from the start of the month, markets seem to be more confident on Fed to control inflation. Inflation is expected to have passed its peak, supported by the Personal Consumption Expenditures (PCE) data of last month.
Goldman Sachs: UK government announced fiscal support package with focus on energy bills, adding pressures to inflation which align with the BoE hawkish implications. ECB’s plan implying a July rate hike and an end of negative rates by the end of September.
Morgan Stanley: While duration is the bond’s sensitivity to interest rate, it can also be applied to equity. US equities have the highest duration compared to other developed markets. Investors should seek diversification if they want to better manage the interest rate risk.
Deutsche Bank: ECB is expected to halt bond buyback in June and start rate hikes in July. Whether the hikes will be 25bps or 50bps are uncertain, while the consensus is the probability of lager increments is increasing, given the current inflation situation.
Deutsche Bank: The energy price freezes and tax cuts are alleviating the energy prices. The disruption of Russian-EU energy supply remains the main concern of the energy market.
Morgan Stanley: With the strong pricing power, Retailers’ earnings reached record high in two decades. However, their operating margin is falling due to recovered inventories and change of consumer spending pattern from goods to services.
Goldman Sachs: In the US, the rate sensitive housing market is showing signs of softness. Affordability is plummeting due to high house prices and rapidly growing rates. The lack of land and dropping number of labors also give pressure on the supply side, while demand is growing as millennials are contributing more to the housing purchases.
Confused about what happened to UST and LUNA? Here's all you need to know about the event!