US stocks broke its winning streak
Market Summary
Last week, the US and EU markets closed lower as the Fed and the European Central Bank maintain their hawkish stance. The Asian markets also closed lower.
U.S. stocks market broke its winning streak, with the Nasdaq Composite and the S&P 500 Index both experiencing declines. Economic data, including a decline in manufacturing output and suppliers slashing prices, raised concerns about a potential recession. However, the housing sector showed strength with high housing starts and better-than-expected sales of existing homes.
European markets faced a decline due to worries about potential recession, with concerns about interest rate increases in the UK and eurozone.
Japanese stocks retreated from their highs as profit-taking occurred. May's core consumer inflation was above target, and the Bank of Japan's commitment to loose monetary policy caused the yen to weaken against the dollar.
Chinese stocks declined as investor confidence waned over the lack of stimulus measures and concerns about the economic outlook.
Major News
US government bonds faced selling pressure as Federal Reserve Chair Jay Powell indicated that interest rates may need to rise further to address inflation. The two-year Treasury yield reached its highest level since March, while the 10-year yield also rose.
The Bank of England has raised interest rates to 5% in an effort to combat persistent inflation. Prime Minister Rishi Sunak emphasized the need for fiscal discipline to control inflation, which stood at 8.7% in May.
People's Bank of China (PBOC) cut key lending rates to stimulate investment and consumption following a softening of the country's post-pandemic recovery. The one-year loan prime rate was lowered by 10 basis points to 3.55%, while the five-year rate was reduced by 10 basis points to 4.2%.
What Caught Our Attention
Energy prices have remained stable despite various disruptions. Brent crude has hovered around $75 a barrel, and gas prices in Europe are significantly below their peak. The stability can be attributed to factors such as disappointing global demand due to lower economic growth expectations and the impact of interest rate rises. On the supply side, increased production outside of OPEC and countries under Western embargoes has helped balance the market and dampen prices.
While there are concerns about inflation and interest rates, the appeal of commodities as an inflation hedge has diminished, resulting in a decrease in speculative positioning in oil futures markets. Physical traders are also offloading crude stocks due to higher interest rates. However, forecasts indicate a potential rise in prices later in the year, driven by expected record global oil demand and a possible market deficit.
Source: Kredens Capital Management, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia
