Financial Markets’ Weekly Recap, 23 – 27 May

Wall Street closed sharply higher on Friday, as signs of inflation peaking and then data on consumer spending increased investor optimism that the Federal Reserve would be able to tighten monetary policy without pushing the economy into recession.

All three major US stock indexes halted their longest streak of weekly losses in decades.

Standard & Poor’s and Nasdaq fell for seven consecutive weeks, the longest period since the end of the crisis known as the Internet bubble between 1995 and 2000, while the decline of the Dow Jones blue-chip for eight weeks was the longest since 1932.

During seven consecutive weeks of losses, from April 1 to May 20 last Friday, Standard & Poor’s gave up 14.2 percent of its value.

Generally optimistic earnings expectations and strong economic indicators have boosted hopes that the US central bank’s tough policies to contain high inflation, its highest level in decades, will not deflate the economy.

Friday’s data showed that consumer spending was better than expected, confirming that inflation, which has dampened corporate earnings expectations and weighed on investor sentiment, has peaked.

The annual pace of inflation in the US according to the Core PCE Price Index fell to 4.9% in April. That comes after the Core PCE Price Index had prices rising at a pace of 5.2% YoY in March. The MoM pace of inflation according to the index came in at 0.3% in April, also in line with the median economist forecast for an inflation rate of 0.3%.

The University of Michigan’s final estimate of US Consumer Sentiment fell to 58.4 in May from 65.2 in April, below the flash estimate released earlier this month of 59.1, data released on Friday revealed. Meanwhile, the Consumer Expectations index was revised lower to 55.2 from the flash estimate of 56.3, after coming in at 62.5 last month and the Current Conditions index was revised lower to 63.3 from 63.6, having printed 69.4 in April.

The dollar fell on Friday, heading towards the decline for the second week in a row, after traders cut their expectations for raising US interest rates and with improving inflation and consumer spending data, which allayed fears of falling into recession.

The dollar index, which measures the performance of the greenback against a basket of six major currencies, fell to its lowest level since April 25 at 101.43. On a weekly basis, the index fell 1.3 percent, following a 1.45 percent decline last week. And the dollar fell 0.147 percent to 101.57 by 1445 GMT on Friday.

Minutes of the Federal Reserve’s May meeting showed last week that most participants believed a 50 basis point increase would be appropriate at policy meetings in June and July, but many believed that large and early increases would allow room to pause in the meantime. later in the year to assess whether tighter monetary policy is helping to tame inflation.

The main beneficiary of the dollar’s decline is the Euro but this momentum has also stalled, as investors believe that many of the expected interest rate increases from the European Central Bank have already been taken into account at current levels.

The euro rose 0.06 percent to 1.07395 dollars, after rising earlier to its highest level in a month. The pound rose 0.31 percent to $1.2646.

The risk-sensitive Australian dollar rose 0.89 percent to $0.7163, while the New Zealand dollar jumped 1.08 percent to $0.6548.

The digital bitcoin did not benefit from the increased appetite for risk, and it fell 0.64 percent to about $ 28,997, continuing its gradual decline this week from the level of $ 30 thousand.

When asked if there had been any change to the policy after remarks on Monday where he said that the US will get involved militarily to defend Taiwan, a self-governed island claimed by China, President Joe Biden said “No.”

China’s Foreign Ministry warned the US not to underestimate its resolve on Taiwan following Biden’s comments a day before.

Gold

Gold prices rose on Friday as continued dollar weakness helped move the yellow metal towards gains for the second week in a row, as expectations of a stronger monetary policy tightening from the Federal Reserve ebbed.

And gold rose in spot transactions 0.4 percent to $ 1857.79 an ounce by 0802 GMT. US gold futures also rose 0.4 percent to $1,855.50. And gold rose since the beginning of the week by about 0.7 percent.

“Gold was supported this week by some moderation in the market’s expectations about the Federal Reserve’s monetary policy for the next year and, more importantly, the weakness of the US dollar,” said Ilya Spivak, currency analyst at Daily Forex.

The minutes of the Fed’s May 3 and 4 monetary policy meeting, which were released on Wednesday, highlighted that most participants favored a 50 basis point rate hike at the June and July meetings, as the market had expected.

Higher interest rates and US bond yields increase the opportunity cost of holding non-yielding gold.

The dollar index fell, heading for the second consecutive weekly decline, which makes gold less expensive for buyers of other currencies.

As for other precious metals, silver rose in spot transactions 0.9 percent to $22.19 an ounce. It is up about 2 percent this week.

Platinum rose 0.2 percent to $951.63 an ounce. Palladium rose 0.7 percent to $ 2028 an ounce, and is moving towards achieving a weekly gain of about 3.5 percent, the highest since early April.

Oil

Oil prices rose on Friday, supported by the possibility of lower supplies due to increased gasoline consumption in the United States during the summer, as well as the possibility of a European Union ban on Russian oil imports.

By 1545 GMT on Friday, Brent crude rose 58 cents, or 0.5 percent, to $117.98 a barrel, while West Texas Intermediate crude rose 14 cents, or 0.1 percent, to $114.23 a barrel.

Data from the US Energy Information Administration on Wednesday revealed that US gasoline stocks fell 482,000 barrels last week to 219.7 million barrels. Consumption in the United States usually increases at the start of the summer travel season.

The two values ​​received support from the European Commission’s continued efforts to obtain the approval of all member states of the European Union on proposed new sanctions against Russia, which Hungary still constitutes a stumbling block in the way of approving them.

Six sources in OPEC + told Reuters that the group is expected to abide by the oil production agreement approved last year during its meeting on June 2, with an increase in production targets in July by 432,000 barrels per day, which represents a rejection of Western calls for faster increases in production. In order to curb high prices.