Monday 29th is a public holiday in Switzerland and there will be no Weekly review.
Instead we are sending this brief note to highlight some of the developments in financial markets.
Equities started the week on a very negative note, but they are finishing with a catch-up rally. At the time of writing, major global indices are still below where they started the week , alhtough the S&P500 is attempting again to break the sigificant resistance at the 4200 level ,which is were it closed last Friday. The index fell to a low of 4100 on Wednesday, an almost 3% drop, only to recover on Thursday and Friday. Nasdaq, however, is looking to close the week at a new year high and with a 2% gain for the week. Europe is still down for the week, despite the Friday rally.
Two were the major themes of the week, in chronological order:
a) The lack of progress in the debt ceiling discussions in the US, where as we speak (or rather... write), there is still no agreement and we are only a few days away from the date that Mrs. Yellen, the Treasury secretary has penciled in as when the government will run out of cash: June 1st. It seems that the two parties are still insisting on their own red lines and the soap opera is expected to reach a climax (positive or negative) over the weekend. We should highlight the fact that the House must vote the deal , after a 72 -hour reading period, which means 3 days, and the Senate will also have to approve it, to go to the President for the final signature.
b) More news about the ever increasing use of artificial intelligence surfaced on Wednesday night, when the semiconductor company, Nvdia, raised its revenue forecast for the next quarter by almost 50%, showing huge demand for its chips. It did not take long for its shares to jump 25%, after already having rallied 100% this year and the euphoria spilled to the whole Technology and space and eventually to the broader market.
In macroeconomic news, we would highlight:
a) the downward revision of the German GDP which has officially brought the economy ito a recession, which is defined as two quarters of negative growth (4th of 2002 and 1st of 2023).
b) the further drop of Manufacturing PMIs both in the US and the Eurozone. The worst numbers were posted by Germany, where manufacturing PMI has dropped to level last seen during the early weeks of the pandemic (April 2020). The services sectors continue however to show solid reading, although they have to dropped with respect to previous months.
c) the improvement of the weekly initial jobless claims in the US. After spiking to a new high of 265k three weeks ago, the weekly number of unemployed people who claim for benefits dropped again to 230k. This still remains relatively high, compared to the sub-200 levels of late last year, but for they have not moved towards the 300k level either.
A FED hike in June or July is becoming more likely again. As the market has almost completely forgotten the failure of three US banks and the problems of a few more, and the artificial intelligence craze is sending equities higher, the market feels less fearful and has started to price out the rate cuts that were being forecasted for the second half of the year. On the contrary, with no new information, the market is now pricing another rate hike in June by 25bp, with a 60% probability. As a consequence, bond prices fell and yields shot up to a two-month high. The 2-year yield is now trading at 4.60%, up from 3.80% in mid-March and the 10-year yield is back at 3.80%.
Gold lost its support at the 50-day moving average and is drifting towards 1950$. The improvement in the investors mood has driven bond yields and the USD sharply higher. The combination of these moves have never been friendly to the yellow metal. It is really not clear whether investors should buy the dip here, or wait for the big support which lies beliw 1900$ and closer to 1850$. The EURUSD is again trading closer to 1.0700, after its short trip to 1.1000 a few weeks ago.
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• Sources: Chart of the Week :