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The Long and Short of it, week ending 03 June 2022

Posted: 07 June, 2022

Topic: Telecoms , Financials , Basic Materials , Energy , Healthcare , Industrials , Technology

Publication Type: Market Commentaries

A choppy week for U.S. stock markets with investor sentiment pushed and pulled by uncertainty surrounding the Fed’s tightening of monetary policy, the trajectory of inflation, the strength of the economy and whether major stock market indexes have bottomed. Down almost 1.5% through Wednesday, the S&P 500 Index rose just under 2% Thursday, buoyed by hopes of a slowing economy and peaking inflation following a much weaker-than expected ADP jobs number released Wednesday. That sentiment was reversed Friday after the release of the Non-Farm Payroll report showing larger-than-expected job growth and continued wage pressures. The 10-yearr U.S Treasury rate rose 20bps last week, with slightly more than half of the increase coming from rising inflation expectation and slightly less than half coming from rising real rates. At week’s end, the S&P 500 Index fell 1.2% to 4,108.54, the Nasdaq Composite Index lost 1.0% to close at 12,012.73, the Dow Jones Industrial Average decreased 1.0% to 32,989.91, the 10-year U.S. Treasury rate jumped 20 bps to 2.94% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.4%.

European stock markets moved lower last week pressured by record high euro zone inflation levels. UK stock markets were closed Thursday and Friday due to the Queen’s Platinum Jubilee celebrations. Both the FTSE 100 and STOXX 600 Indexes moved slightly higher Monday benefiting from China’s planned relaxation of Covid-related restrictions beginning June 1 and on announced Chinese stimulus measures. Those gains, however, were negated by record high euro zone inflation levels (released Tuesday) and increased expectations of the ECB tightening monetary policy more aggressively (The ECB meets this Thursday).Inflation levels in Germany, France and Spain remained elevated and came in above expectations while the UK’s BRC reported retail prices rose at the fastest pace in more than a decade. 10-year rates jumped in both the UK and Germany with the 10-year UK government rates increasing 25bps and the 10-year Bund rate rising 31bps. At week’s end, the FTSE 100 Index decreased 0.7% to 7,532.95, the STOXX 600 Index fell 0.9% to 440.09, the 10-year UK government rate rose 25bps to 2.16%, and the euro and the British pound weakened 0.1% and 1.0%, respectively, both with respect to the U.S. dollar.