Weekly Market Report: June 16th, 2023
Markets last week had plenty to digest ahead of a long holiday weekend with a series of closely watched central bank meetings alongside a busy and closely watched economic calendar. The S&P 500 managed a nice and fifth consecutive weekly gain of +2.6% with most global equity indices following suit. A general pickup in soft landing expectations and continued trends in both disinflation and AI hype were primary drivers on the week. Interest rates edged slightly higher, mostly on the short end, in a week with some hawkish-leaning monetary policy on display. Commodity markets were broadly higher last week with oil up to $72 while the USD weakened 1.3%.
Market Anecdotes
- The FOMC met market expectations by ‘skipping’ June but made clear in the post-meeting press conference that future hikes are on the table. The ECB stepped down to a 25 bps hike following a path of two 75 bps and three consecutive 50 bps moves while the BOJ made no changes.
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U.S. inflation numbers eased slightly in May creating a little more breathing room for Fed officials to skip in June and wait on more data for the July decision which is now trading at a 60% probability for a 25 bps hike.
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Consumer surveys are adding to the disinflation narrative with UofM and NY Fed responses showing 1yr forward expectations falling materially while longer term expectations have remained relatively anchored under 3%.
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Yield curve slope indications for growth and monetary policy conditions have changed meaningfully. The 3m/10yr slope has ‘flattened’ from peak inversion of -1.89% to -1.57% while the 2yr/10yr has ‘deepened’ from -0.72% to near record inversion of -0.93%.
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The past couple weeks had seen breadth measures improve but still leaves the S&P 500 well into short-term overbought territory with 14-day RSI above 70, 2.37 standard deviations above the 200 dma, and 2.85 standard deviations above the 50 dma.
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The latest data on banks’ aggregate holdings indicate loan portfolios slightly above pre-SVB levels and deposit balances at March 22nd levels – following three straight weeks of outflows.
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With over 40% of banks reporting tightening lending standards, a BCA research study noted that on average, private credit outperformed private equity by 40%-50% over the following five years and by 10%-20% over the following 7rys with no adjustment for risk disparity in either case.
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The case for a stimulus response in China grew last week with property investment (-7.2% vs -6.7%), decelerating retail sales (12.7% vs 13.7%), industrial production decelerating from 5.6% to 3.5%, and new home prices falling 0.1% MoM.
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An OPEC report projecting 2023 oil demand at 2.3mbpd above 2022 levels served to boost oil prices and offset weak growth/recession price action early in the week. Some would argue that may be under appreciating potential demand destruction as we approach year end.
Economic Release Highlights
- CPI inflation in May was generally in line but cooled versus April’s reading with headline and core readings of 4% and 5.3% respectively alongside MoM of 0.1% and 0.4%. Headline readings were slightly under consensus while core reads were spot on.
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Producer Prices (PPI) in May cooled more than forecasted with YoY headline (1.1% vs 1.6%), core (2.8% vs 2.9%), and super core (2.8% vs 3.3%) all below consensus. MoM numbers were also soft with headline (- 0.3% vs -0.1%), core (0.2% vs 0.2%), and super core (0.0% vs 0.1%).
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May’s NFIB Small Business Optimism Index of 89.4 was slightly better than consensus 88.4 and above the forecast range of 87.5 to 89.0.
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Retail Sales for May stayed healthy, beating the forecast (0.3% vs -0.1%) and landing at the high end of the range. Ex-vehicles (0.1% vs 0.1%) and ex-vehicles & gas (0.4% vs 0.2%) were both at and above estimates respectively.
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Industrial Production for May slipped -0.2%, below consensus estimate of 0.1% and at the low end of the forecast range.
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U of M Consumer Sentiment for June came in above consensus (63.9 vs 60.0) and the high end of the range of estimates (59.4 to 63.0).
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Weekly Jobless Claims again surpassed estimates (262k vs 248k) and the four-week average increased from 237.5k to 246.75k.
