Hey Folks, very interesting week with some market price action that continues to confuse some while also disappointing others. Get my take on this week’s market action below in our Weekly Round-Up.
WEEKLY SOUND BITES:
- Stocks declined as a surprisingly hawkish outcome from the Fed’s June 15–16 policy meeting and late-week comments from a Fed official about potentially earlier-than-expected rate hikes dragged the DOW lower. On the other hand, the tech-heavy Nasdaq posted a much more modest loss while the S&P 500 declined. While Financials took a bigger than normal hit due to a move lower in Yield Curves the better news is that the FEDs are set to release the results of its annual stress tests (after close on Thurs) for the largest of banks and what we can expect it they will all pass with flying colors which means restrictions on stock buybacks and dividends will be eased. This would be a net positive for banks next week.
- The Summary of Economic Projections released after the meeting showed that policymakers now expect two rate hikes by the end of 2023, indicating a faster pace of tightening than in earlier projections. Powell reiterated that high inflation is likely to be transitory but stressed uncertainty about the inflation outlook. And on Friday, stocks took another leg lower after St. Louis Fed President James Bullard said that he expects the Fed’s first rate hike in late 2022, before the early 2023 beginning of the tightening cycle that market participants expected. Friday’s decline affected cyclical stocks the most, and the Volatility Index (VIX) hit its highest level since late May.
- U.S. Treasuries were volatile following the Fed policy meeting. The 10-year U.S. Treasury yield increased sharply after the Fed meeting on Wednesday before falling on Thursday and Friday. Short- and intermediate-term Treasury yields experienced more sustained increases. The difference in yield on five- and 30-year Treasuries reached a lower level than where it started 2021, a trend that could weigh on financial stocks because banks tend to profit from larger spreads between short- and long-term rates.
- Shares in Europe fell after the U.S. Federal Reserve indicated that it would increase rates earlier than previously expected. UK inflation jumped again in May, accelerating to 2.1%, on higher prices for clothing, fuels, and meals in restaurants and bars. Industrial production in the eurozone was stronger than expected in April, rising 0.8% sequentially and 39.3% year over year
- Chinese stocks recorded their third weekly loss. Weaker-than-expected May economic data from the National Bureau of Statistics led some China economists to conclude that the country’s growth momentum has peaked. Retail sales grew a below forecast 4.5% based on a two-year average annual growth rate. Meanwhile Japan’s exports rose 49.6% year on year in May (mostly to the US), the highest growth since 1980. The jump in exports largely reflected a rebound in shipments from last year’s plunge in the wake of the pandemic shock.
Enjoy This Week’s Round-Up;
Don’t be a Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
