Hey everyone, another very interesting week in the markets and I pose the question; are we in a Risk On or a Risk Off market at this time? Get my take in this week’s market round-up.
WEEKLY SOUND BITES:
This past week major indexes ended higher while the S&P neared all-time highs and recorded its 3rd consecutive week of gains however, we did see this past Wednesday marked one of the lowest trading volumes of the year.
Initial jobless claims surged way above expectations and posted their highest weekly number since August 2023. Consumer sentiment also plunged way below expectations and hit its lowest level since November 2023 and is adding to economic data showing the economy is slowing and it may be broadening. However, equity investors didn’t seem to care a great deal, pushing the S&P 500 higher by another 1.9%. It’s the composition of this move, however, that’s important. What was the best performing sector of the week? Again, it was utilities gaining more than 4%. Consumer staples and healthcare, two other defensive sectors, also outperformed the broader market. Gold was up 2.7%. The April jobs report adds a bit of hope to the possibility of a rate cut this summer versus this fall, but traders in interest-rate futures still think the likelihood is below 50%.
Expectations for the Fed’s first rate cut to come in September rose, however, from 60% before the jobs report to 70% after. Equity and bond markets also seemed to embrace this labor market weakness – stocks rose over 1% on the day of the release, while the yield on the 10-year U.S. Treasury bond fell from 4.569% to 4.498%. Keep in mind that yields have been very low by historical standards. Over the past 10 years the 10-Year Yield averaged2.36%. and the current rate at 4.50% remains lower than the average of 5.93 over past 60 years.
Long-term Treasuries posted a modest gain. The dollar was up again. This does not seem like a risk-on market when the most significant markers of bearish sentiment are posting the biggest gains and have been for several weeks?
In the U.K. the BoE held its key interest rate steady at 5.25%, while indicating it could ease policy as soon as June. They also updated U.K.’s economic forecasts expecting inflation to slow more sharply to 1.9% in 2026 and to 1.6% in 2027.
In Japan, we saw the Yen depreciated to the high-JPY 157 range against the USD, from about 153. A summary of opinions expressed at the BoJ’s April meeting showed participants turning overwhelmingly hawkish, with one hinting at an accelerating pace of monetary policy normalization. However, some signs of weakness in economic data may delay the BoJ’s rate hike plans. Real, or inflation-adjusted, wages fell 2.5% in March from a year earlier, worse than the previous month’s 1.8% drop.
In China we saw stocks advanced as recovery hopes rose following buoyant holiday spending during the prior week’s Labor Day holiday. The S&P Global survey of services activity reached 52.5 in April, down from March’s 52.7, as expected, and marked its 16th monthly expansion. China’s exports rose by 1.5% in April from a year earlier, up from a 7.5% decline in March, and broadly in line with consensus estimates. However, policymakers in the U.S., Europe, and elsewhere are concerned that the Chinese government is pouring money into China’s vast manufacturing sector, thereby flooding the global economy with cheap goods that Chinese consumers don’t want.
Enjoy This Week’s Market Round-Up
Don’t Be A Rat Brain Trader – Be The Red Strip Zebra !!
Trade Smart !
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