Hey folks, with the Debt Ceiling Deal being finalized the markets can move on to other key measures. And with the Feds showing a higher probability of a pause in rate hikes on June 14th we are seeing strong equity performance this is holiday shortened week.
WEEKLY SOUND BITES
In a holiday shorted week, US indexes ended with solid gains for the week, with the S&P 500 Index touching its highest intraday level since mid-August 2022. In addition, Nasdaq had its sixth consecutive weekly gain and hit its best level since mid-April 2022 as well. In contrast with the past several weeks, however, the rally was broad-based, with strong gains in both value and growth stocks, as well as small caps. Coming to an agreement on the US Debt Ceiling also helped provide a lift to the markets.
Fridays closely watched nonfarm payrolls report also surprised on the upside, but the details in the report seemed to suggest that the labor market might be cooling. Employers added 339,000 jobs in May, well above consensus expectations for around 190,000. But the unemployment rate—estimated by surveys of households—also surprised by rising to 3.7% from 3.4%. Another encouraging sign for interest rates and investors was the release Thursday of the Institute for Supply Management’s (ISM’s) Manufacturers Purchasing Managers’ index for May. The ISM’s gauge showed a seventh straight monthly contraction in factory activity.
The encouraging inflation signals appeared to drive a decrease in longer-term U.S. Treasury yields, while the finalization of a debt ceiling agreement led to a plunge in the yield on one-month Treasury bills, from 6.02% intraday the previous Friday to 5.28% at the end of the week. And with the passing of the US Debt Ceiling through 2025, the US Treasury will ramp up sales of shorter-term T-Bills to rebuild depleted cash balances which in turn will act as a drain on liquidity. This should help income investors and put more drag on technology. The Feds preferred Inflation gage is now at 4.7% with their target still at 2% which will continue to put pressure on the Feds to keep rates elevated for longer. However, the upcoming Fed meeting on June 13-14 shows a 70% probability of a rate pause to give the FEDs an opportunity to gage the effects thus far of a higher rate environment.
In Europe, headline inflation slowed to an annual 6.1% in May from 7.0% in April—below a consensus estimate of 6.3%. The core rate—which excludes volatile food and fuel prices—came in at 5.3%, which was also an improvement from the prior month and below expectations. Although the ECB President Christine “Queen Bee” Lagarde reiterated in a speech that inflation was still too high and “it is set to remain so for too long.”
In Japan, the yen strengthened to about JPY 139 against the U.S. dollar from the prior week’s JPY 140.66. The Japanese currency had weakened to around a six-month low against the greenback in anticipation of continued monetary policy divergence between Japan and the U.S. Buoyed by a weak Yen, the country’s hotels and other accommodation facilities recorded over 10 million overnight stays by foreigners in April for the first time since the outbreak of the coronavirus pandemic three years ago.
In China, their official PMI Index fell to a below forecast 48.8 in May from April’s 49.2, marking the second consecutive month of contraction and the lowest reading since December 2022. Industrial profits fell 20.6% in the first four months of the year from the prior-year period, according to the National Bureau of Statistics, slightly narrower than the 21.4% decline recorded in the first quarter amid waning domestic and external demand.
Enjoy this week’s Round-Up Below
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