A slide in banking shares on Friday and concerns that US lawmakers may not reach a deal to avoid a default weighed on sentiment on Wall Street to finish the week.
United States
House Speaker Kevin McCarthy on Friday said negotiations had reached an impasse over spending cuts stating “We’ve got to get movement by the White House and we don’t have any movement… So yeah, we’ve got to pause”. The chief global strategist at LPL Financial, Quincy Krosby commented, “With the walkout of Republican debt-ceiling negotiators hindering chances for a viable conclusion before the upcoming X-date, that would weaken chances for the Fed to raise rates on June 14”. Meanwhile, in a speech on Friday Fed Chairman Jerome Powell signaled a pause in future interest rate hikes amid the fallout from the banking crisis. Powell repeated their view that inflation remains too high and is a significant threat to the US economy, with the central bank strongly committed to bringing inflation back to the 2% target. However, given tightening lending amid banking turmoil, rates may not need to go as high as they otherwise would.
The S&P 500 closed -0.14% lower on Friday. Consumer discretionary was the biggest laggard, falling by -0.84%, communications fell by -0.50% and financials slid down -0.45%. Energy closed 0.73% higher, healthcare was up 0.46% and materials added 0.26%. The Dow fell by -0.33%, the Nasdaq lost -0.24% and the Russell 2000 Index slid -0.62%. The yield on the US 10-year note was up 3 basis points to 3.67% and the VIX index climbed 4.74% to 16.81.
In the coming week, investor focus will be on the upcoming S&P PMI reports for May to be released on Tuesday. Thursday and Friday will be the highlights of the week, with the release of the latest Federal Reserve policy minutes coupled with the 2nd estimate of Q1 GDP expected to show the economy advanced at a 1.1% annualised rate. Several Federal Reserve policymakers are also due to speak throughout the week. Friday will bring the release of PCE inflation data expected to show little changes in prices over the 12 months compared with March. In addition, durable goods orders for April will be released along with the final reading of the University of Michigan’s consumer sentiment survey for May.
Europe
In Europe, markets were up with the Euro STOXX 600 Index rising by 0.60%. All sectors closed in the green, except consumer discretionary which slipped by -0.01%. The star performer was information technology rising 0.91%, followed by industrials up by 0.87%, and financials gaining 0.86%. The CAC added 0.61%, the DAX firmed 0.69% and the FTSE jumped 1.05%. Ahead for the week, Eurozone consumer confidence for May is in focus on Monday followed by PMI reports on Tuesday. Wednesday will be the highlight of the week with UK inflation data for April released, expected to show a solid easing in headline inflation with core prices unchanged, coupled with Germany’s IFO business climate survey for May. Thursday will bring the final reading of German GDP for Q1 along with consumer confidence data and Friday will round the week off with UK retail sales data for April.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open lower today, with ASX futures down by 11 points or -0.01% to 7289. Markets rallied on Friday on the possibility of the US debt ceiling negotiations landing a deal by next week although headlines from over the weekend have seen this sentiment reversed somewhat. The ASX 200 index was up by 0.59% to close at 7279. Nine out of the eleven sectors closed in the green. Information technology boosted the index by jumping 2.22%, financials climbed 1.54% while communications rose 1.25%. Utilities and materials were the only laggards, falling by -0.46% and -0.24% respectively. Xero added 5.4% after reporting higher-than-expected cashflows and improved subscriber growth. In financials, Commonwealth Bank rose 1.8% and Macquarie Group 1.7%. In the lithium industry, Green Tech Metals rocketed by 14.1% after securing a $20 million investment from South Korean battery giant LG Energy. The yield on the Australian 10-year treasury bond rose 10 basis points to 3.60% while the local currency strengthened against the greenback by 0.4% to 66.51.
PMI reports for May are in focus on Tuesday followed by an RBNZ rate decision on Wednesday where the central bank is expected to hike interest rates by 0.25% to 5.5%. Friday will see the release of Australian retail sales data for April forecast to show prices increased 0.3% confirming higher interest rates and inflation weigh on household spending.
Commodities
In commodities, oil prices declined with WTI and Brent falling by -0.43% and -0.37% to $71.55 and $75.58 respectively. In precious metals, the price of spot gold was up by 1.04% to $1,977.81, while the price of spot silver was up by 1.53% to $23.85. Industrials metals were mixed, with copper climbing 1.11% to $372, nickel gaining 1.74% to $21,226, while SGC Iron Ore fell by -1.36% to $105.38.
Economic Calendar
22nd May 2023
US Fed Bullard Speech 23:00
23rd May 2023
EUR Consumer Confidence (MoM May) 00:00
US Fed Barkin and Fed Bostic Speech 00:50
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
