The Long and Short of it, week ending 30 June 2023
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Stock markets registered gains last week with all 3 major indexes rising 2% or more. The gains occurred even as Fed Chairman Jerome Powell continued to voice hawkish views regarding the Fed’s fight against inflation in the face of strong economic data. Fed fund futures are now pricing a near certain rate increase in July’s FOMC meeting though with sharply diminishing probability of a rate increase priced into the September meeting. Expectations of a recession or even markedly slower growth faded progressively last week, despite the overhang of tight monetary policy, with data showing falling inflation (a lower-than-expected PCE Price Index release) accompanied by resilient job and housing markets, expanding GDP and robust consumer confidence. 10-year Treasury rates rose last week with the increase coming almost entirely from rising real rates reflecting, it seems, the Fed’s inclination to maintain higher rates while inflation falls and the economy hums along. For the week, the S&P 500 Index rose 2.4% to 4,450.38, the Nasdaq Composite Index increased 2.2% to 13,787.92, the Dow Jones Industrial Average added 2.0% to finish at 34,405.99, the 10-year U.S. Treasury rate increased 10bps to 3.84% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) was unchanged.
European stock indexes moved higher last week with the STOXX 600 Index noticeably outperforming the FTSE 100 Index. BoE and ECB rate hike intentions capped gains for both indexes while expectations of more/increased Chinese stimulus helped drive the STOXX 600 Index higher over the week. Lower-than-expected euro zone inflation did little to nothing to reduce ECB rate-hike expectations while higher-than-expected German inflation only added to them. European markets did take comfort from strong U.S. economic data and lower-than-expected U.S. inflation as revealed by Friday’s PCE Price Index release, helping move index levels higher on the week. For the week, the STOXX 600 Index rose 1.9% to 461.93, the FTSE 100 Index increased 0.9% to 7,531.53, the 10-year Gilt rate increased 7bps to 4.39%, the 10-year Bund rate increased 3bps to 2.39%, the British pound weakened 0.1% and the euro strengthened 0.2% both with respect to the U.S. dollar.
Top performing ETPs over the week
| . | 3x Long ETPs | 3x Short ETPs | ||
|---|---|---|---|---|
| UK | +3x Barclays (3LBC) | +17.2% | 3x Rolls-Royce (3SRR) | +6.1% |
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The Long and Short of it, week ending 30 June 2023
