WE HAVE A DEAL!
Last week, US stocks rallied as a deal on the US debt ceiling was ratified by Congress and the Senate, while May labour data from the US was strong. Meanwhile, Eurozone inflation cooled and this helped support bond prices in the region.
This week, economic data is light but activity data from the Eurozone may be of interest. Markets are also likely to be looking ahead to next week's Fed and ECB meetings.
Last week, the S&P 500 rallied by 1.8% (+2.5% MTD, +11.5% YTD), while the Euro Stoxx 50 fell by 0.3% (+2.5% MTD, +14.0% YTD). US stocks were bolstered by the US debt ceiling deal being approved by Congress and the Senate, as well as strong labour data while weaker than expected data from the Eurozone weighed on sentiment in the region's stockmarkets.
US May labour data suggested continued strength. Average hourly earnings remained healthy, at 4.3% yoy, marginally above expectations. In addition, 339K non-farm jobs were added against a consensus estimate of 195K, while figures for March and April were upwardly revised by a total of 93K. This is based on the establishment survey, which only takes account of those who received pay over the period. However, the unemployment rate rose from 3.5% in April to 3.7%, the highest level since October as the household survey, which includes people on unpaid leave from their jobs, showed a fall in employment of 310K.
Eurozone May consumer price inflation decelerated in May to 6.1% yoy, from 7.0% in April and the lowest since February 2022. Core price inflation also fell from 5.6% to 5.3%, driven mainly by transport services as Germany launched a subsidised public transport ticket (€49/month). This, combined with softening economic data, was supportive of bond prices (bond prices rise as yields fall). The 10-year German bund yield fell by some 23bps last week to 2.31%.
ECB President Lagarde reiterated that inflation remains "too high", indicating that further hikes were to come. However, other members of the ECB Governing Council last week suggested that rate hikes were close to ending. Rate markets expect a 25bps rise in the ECB deposit rate to 3.50% at next week's meeting.
This week, economic data is light, but activity data from the Eurozone, including April retail sales and industrial production, may be of interest. Markets are also likely to be looking ahead to next week's Fed and ECB meetings, with the former on a communication blackout period prior to its meeting on 13-14th June.
Tue 6th
Eurozone - April retail sales, Germany April manufacturing orders
Wed 7th
US - April consumer credit
Europe - Germany April industrial production, UK May house price index
Thu 8th
US - initial jobless claims
Fri 9th
US - Q1 services survey
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.