Dow -2.73%, S&P 500 -2.91%, Nasdaq -3.52%, Russell 2000 -2.73%, SOX -3.60%, Eurostoxx -3.36%, SMI -2.10% .
On Friday, after the release of the US consumer price index, which shows that inflation is still rising, which means that the famous peak has not yet been reached, on Friday, there is again a risk aversion. Most surprises come from food and energy. The main CPI (consumer price index) continues to slow compared to last year – it fell from 6.2% to 6%, but not as fast as expected. Growth in May by 8.6% since May 2021 reaches a new 40-year high. Many economists had
hoped believed that March will mark the famous peak, this is unfortunately not the case. Analyzing the statistics in more detail, we notice that inflation extends to almost all categories. 70.6% of the CPI basket is more expensive by more than 4% year on year, which is a new high. While the most important contributions come from housing, food, plane tickets, new and used vehicles, health care, furniture, leisure and clothing are also progressing. We also see that demand varies from goods to services.
The inflation report on Friday shows that the Fed still has a lot of work to do to curb rising prices. Market sentiment was already feared earlier this week: the European Central Bank (ECB) turned out to be more bitter than expected, while the World Bank and the OECD revised their forecasts for overall growth. Let’s not forget about the coronavirus management in China, which is worrying the markets more and more, and we are getting more than favorable ground for a sharp drop in indices on Friday night.
Yields on 2-year US bonds go into orbit and break 3% to rise to 3.16% this morning, we have not seen this since 2008. The 30-year term falls below the 5-year term (3.22% vs. 3.33%) and the 10-year term again began testing 3.20% very early this morning to return to 3.19% now. Now the market is considering an increase of 75 points on Wednesday night, it is starting to do a lot, the norm is 25 basis points. Now everyone understands that the Fed will have to step up the fight against inflation, so everyone fears a sharp drop in economic growth. The Federal Reserve is even more questionable, the pressure is still growing on the shoulders of Jerome Powell, and the market is now waiting for a higher peak of inflation, this is a kind of worst case scenario, which is afraid of bulls.
The S & P500 (SPX) recorded its ninth weekly decline in 10 weeks, falling 5% in 5 days and falling to 3,900 points on Friday night. His next levels of support are 3,815 points (38.2% Fibonacci correction rose from 2,191 to 4,818 points), followed by 3,810, the lowest level of the session on May 20. The Nasdaq100 (NDX) index, for its part, is very close to its support at 11,768 points (50% Fibonacci correction), closing at 11,832 points on Friday. Then it will be 11,492, the minimum session on May 20. Instability is progressing, but not as much as one might think, VIX rose 6.4% to 27.75, remember it has a place to 37-39. All sectors of the SPX retreated on Friday, the worst performance of the day fell on finance, technology and consumer discretion.
The dollar continues to recover, the dollar index (DXY) rises to 104.55, while the pair euro / dollar this morning traded at 1.0481, market prices for exchange rate differences between the United States and the euro area, hidden in dollars, and given the real the risk that Emmanuel Macron will not get an absolute majority in the Assembly in a week. The latest low for the euro / dollar pair is 1.0354, reached on 12 May. Gold rose slightly, despite the strength of the dollar, this morning the ounce traded at 1863 dollars. Oil remains in demand, a barrel of WTI Light Crude rose to 118.23 dollars, despite a new increase in inventories, which was observed last week.
The week ahead is tense, and investors will not have a respite, as the Fed’s actions are driven by the Fed’s fight against inflation and supply chain problems, which are always present in almost every sector. In the macroeconomic menu, investors are waiting for a report on US producer prices, retail sales and manufacturing before the announcement of FOMC rates on Wednesday night at 20:00, as well as a press conference by Jerome Powell, which will follow. This week we will also be eligible for decisions from the Bank of England and the National Bank of Switzerland (Thursday) and the Bank of Japan (Friday).
Emmanuel Macron may lose an absolute majority in the French parliament, forcing him to compromise to advance reforms. His party and its allies are expected to win 262 to 301 seats after yesterday’s first round of voting. To get a majority, you need 289 deputies. The second largest group is Nupes, an alliance of left-wing parties led by Jean-Luc Melanchon. The second round will take place on June 19.
Today is a day of macroeconomic respite for investors, which will not prevent this rather gloomy situation.
TotalEnergies: Berenberg remains on the buying side with the target price raised from 58 to 66 euros. Qatar has provided TotalEnergies with 25% of the new national company to increase the country’s total liquefied gas export capacity. Shares of US beauty brand Revlon fell 53% on Friday due to fears of bankruptcy. A British financial police officer is putting Credit Suisse under surveillance, according to the Financial Times. The US SEC is investigating Goldman Sachs through ESG funds. BlackRock offers the opportunity to vote at the general meeting of almost half of its customers who have index products. Tesla will split its stake into three parts to make it more affordable and increase stock liquidity. Netflix is launching its second season of Squid Game. Google is paying $ 118 million to settle a class action lawsuit for sex discrimination. Novartis provides positive data on Kymriah in leukemia.
Last night and this morning in Asia, indices fell sharply, sympathizing with Wall Street. Tokyo fell 3.01%, Hong Kong fell 3.44%, Shanghai lost 1.25% and Seoul returned 3.52%. SPX futures fell 1.8% and Europe opened 1.9%. Bonds are also falling, cryptocurrencies are being dumped, and we are getting rid of everything little by little this Monday morning, two days before a very important Fed meeting. As we know, excesses in finance are often corrected by excesses. The current period is very difficult, no one denies it, but it will allow calm minds to take advantage of opportunities, quality companies remain high quality even in storms. So, of course, today we are hardly talking about TINA or FOMO, but rather about VUCA (volatility, uncertainty, complexity, ambiguity). Is it worth remembering that in the finances of patience – to have virtues? it seems so…