GLOBAL CAPITAL MARKETS OVERVIEW, ANALYSIS & FORECASTS:
Author: Dr. Alexander APOSTOLOV (researcher at Economic Research Institute at BAS)
As investors reassessed the outlook for monetary policy and focused on the debt-ceiling impasse, the Dow fell more than 50 points in Wednesday afternoon trading, while the S&P 500 and Nasdaq rose more than 1 percent. On Thursday, House Speaker Kevin McCarthy stated that the House could vote on a debt-ceiling agreement as early as the following week. Concurrently, the prospect of another Federal Reserve rate hike has reemerged. The president of the Dallas Fed, Lori Logan, stated that the most recent data did not yet justify a pause in rate increases. The number of Americans filing new claims for unemployment benefits decreased more than anticipated last week, indicating that the labor market remains constrained. On the corporate front, Cisco Systems shares declined marginally after the company reported a 23% decline in orders for the quarter. Walmart, on the other hand, increased in value following an increase in its full-year earnings forecast.
The Baltic Exchange's primary sea freight index, which measures the cost of shipping goods around the globe, declined for a sixth consecutive day on Thursday, falling approximately 1.6% to a near one-month low of 1,402 points due to weaker demand across all ship segments. The capesize index, which tracks ships typically carrying 150,000 metric tons of cargo such as iron ore and coal, fell 1.9% to a more than three-week low of 2,142; and the panamax index, which tracks ships that typically carry coal or grain cargoes of about 60,000 to 70,000 metric tons, posted its 17th straight daily decline, falling about 2 percent to its lowest since Feb. 23 at 1,235. The supramax index for smaller vessels decreased by 5 points to 1,085 points.
The DAX index in Germany rose 1.1% to its highest level since January 2022, with Commerzbank and Volkswagen posting gains of 4.7% and 3.0%, respectively. Aside from this, shares of Deutsche Bank climbed 0.8% after the bank reached an agreement to pay $75 million to resolve lawsuits filed by women who claim they were abused by the late financier Jeffrey Epstein and accuse the German bank of facilitating his sex trade. Optimism about a potential breakthrough in U.S. debt-ceiling negotiations boosted the value of other European stocks, with the Stoxx 600 index gaining 0.4%. Burberry reported a notable 16% increase in comparable store sales for the fourth quarter, while Royal Mail posted an annual adjusted operating loss of £419 million, exceeding market expectations. Separately, the telecommunications company BT Group announced plans to eliminate 55,000 positions, despite reporting a 5% increase in core earnings for the full year. The FTSE MIB retraced early gains to close just above the flat line at 27,236 on Thursday, as investors weighed optimism over a U.S. debt-ceiling deal against fresh concerns about further Federal Reserve rate increases. In the meantime, ECB Vice President Luis de Guindos stated that the ECB will need to continue raising interest rates to return inflation to its 2% medium-term objective. The best performing stock was Stmicroelectronics (+3.5%), followed by Saipem (+3.3%) and Stellantis (+2.1%); the worst performing sector was utilities, with A2A (-4.1%), Hera (-3.8%), and Italgas (-2.6%). The CAC 40 index rose approximately 0.7% to a three-week high of 7,450 on Thursday, following gains in global equities as investors remained hopeful that the U.S. debt-ceiling impasse would soon be resolved. The top performers were Airbus (1.7%), Total Energy (1.7%), and STMicroelectronics (+1.7%), while the banking sector was also in the black. In contrast, shares of ArcelorMittal were among the worst performers (-0.8%).
After two consecutive sessions of losses, the FTSE 100 closed around 0.3% higher at 7,742 on Thursday, amid positive sentiment on international markets and encouraging signs that a deal to raise the U.S. debt ceiling may be reached shortly, thereby avoiding the risk of default. BT's announcement that it would eliminate 55,000 positions over the next decade resulted in a sharp decline (-5%) in the company's stock price. JD Sports (+5.9%) continued its rapid ascent after announcing yesterday that it could earn £1 billion this year. In the meantime, sales at the luxury fashion house Burberry increased by 16% but were still down by about 5%, primarily due to robust demand from Chinese consumers.
The ruble-based MOEX Russia index rose 0.5% to nearly 2,650 on Thursday, coming close to its highest level since April 2022. Banks and energy producers drove the increase. Following the success of St. Petersburg Bank and Sberbank, the financial sector had the greatest performance year-to-date, rising more than 33%. St. Petersburg Bank posted a profit of 14.6 billion rubles during the first quarter of 2023, while Sberbank reported a record-breaking profit of 357.2 billion rubles. Oil producers, led by Bashneft, Surgut, and Rosneft, added support after EIA data revealed that Russian oil exports were at post-invasion highs, indicating a larger market for Asian energy importers. According to the most recent data, Russia's economy contracted less than anticipated in the first quarter.
Hongkong Hang Seng gained 166.68 points, or 0.85%, to conclude at 19,727.25 on Wednesday, shrugging off sharp losses from the previous day. A strong session on Wall Street on Wednesday following the announcement that debt-ceiling negotiations would continue aided in this. After recent domestic data indicated that the economic recovery appeared to be losing momentum, China is under increasing pressure to ease policy. However, the market reversed its early gains on indications that some market participants were growing impatient with the reopening of the mainland. Technology, financials, and consumer sectors led gains, while real estate fell. ZTO Express increased by 7.1%, Zhongsen Group by 3.8%, Trip.Com by 3.7%, and Semiconductor Manufacturing by 3.5%. Alibaba Group rose 2.7 percent ahead of its earnings report. Investors' attention is now turning to data on U.S. initial jobless claims, which could provide clues on where the Fed might tighten monetary policy next.
New Zealand shares rose 24.42 points, or 0.2%, to close at 11,976.08 on Thursday, after two subdued sessions, buoyed by hopes that the 2023 federal budget will provide more support for the economy this year. New Zealand's Treasury said it no longer expected a technical recession in 2023 due to improving tourist numbers, rebuilding after the country's North Island's severe weather event, and less austerity fiscal policy. A rally on Wall Street on Wednesday also helped to boost sentiment because President Joe Biden is confident that the United States won't default and there are reports that a deal on the debt ceiling talks in Washington is close. Consumer durables, healthcare, and manufacturing were mainly up, with top performers including Serko Limited (7.7%), Scott Technology (3.5%), Summerset Group (3.1%), Hallenstein Glasson (2.4%) and Mercury NZ Ltd. ( 2.2%).
Australia's S&P/ASX 200 rose 0.8% to close above 7,250 on Thursday, snapping a two-day losing streak led by tech stocks. Australian shares also followed Wall Street's sharp overnight gains, as investors remained hopeful that the U.S. could avoid a default. The top gainers in the technology sector were Computershare (1.2%), Block Inc (2.8%), Seek (1.5%), NextDC (1.2%), and Technology One (1.9%). Xero also rose 6.4% on optimistic full-year results Mining and energy companies also rose on higher commodity prices, with BHP Billiton Group (1.6%), Rio Tinto Group (1.7%), Fortiscu Metals (1.2%), Woodside Energy (0.6%), and Santos Corp (1.4 percent) rose. Meanwhile, gold stocks fell on lower gold prices, with industry leaders Newcrest Mining Corp and Northern Star Resources Corp falling 0.9 percent and 1 percent, respectively.
The Shanghai Composite rose 0.7 percent to close above 3,300 points, while the Shenzhen Composite rose 0.2 percent to close at 11,120, snapping two days of losses, supported by a strong rebound in technology stocks. The buoyant global sentiment also helped the local market, as investors remained hopeful that the U.S. government could reach an agreement on the debt ceiling and avoid a default. Meanwhile, investors continued to assess China's economic outlook after a flurry of data pointed to a challenging recovery path. The top gainers in the technology sector were Zhongji Innovation Technology (20%), Yitong Technology (17.8%), Kunlun Technology (9.1%), Sugon Information (5.8%) and Foxconn Industry (7.9%). Heavyweight telecom, financial, and commodity-linked stocks also rose.
The Nikkei 225 rose 1.2% to around 30,500 on Thursday, its sixth straight session of gains and its highest level in 20 months, as strong domestic earnings and a weaker yen boosted the outlook for Japanese stocks. The Topix also rose 0.9% to around 2,150, climbing to its highest level in 32 years. Japanese shares also followed Wall Street's sharp gains overnight as investors remained hopeful that a U.S. default could be avoided. Meanwhile, investors reacted to data showing Japan's export growth slowed in April, while imports fell more than expected. Tokyo Electron (3.4%), Advantest (5.6%), and Recruit Holdings (3%), which led the gains in technology stocks. Other index heavyweights also rose, including Sony Group (3.6%), Nintendo (1.9%), and Fast Retailing (2%).
India's BSE Sensex rose 171.9 points, or 0.3 percent, to 61,731.2 in early trade on Thursday, shrugging off losses from the previous two sessions, boosted mainly by the metals, financials, and banking sectors. Investors are poised for more quarterly earnings later today from State Bank of India, ITC, Bata India, and Sumitomo Chemical India. The index also followed Wall Street's overnight gains on hopes of progress in U.S. debt-ceiling talks to avoid a default. The technology index rose 0.3 percent after Amazon Web Services said it plans to invest $11 billion in India by 2030. L&T Technology Services rose 0.8 percent, while Coforge and Infosys gained 0.7 percent and 0.5 percent, respectively. HDFC Bank rose 0.6 percent after India's central bank approved SBI Funds Management Ltd's purchase of a 9.99 percent stake in the lender. India's Whirpool edged up 0.3% after reporting a sharp drop in consolidated net profit.
Brazil's Ibovespa stock index traded lower below the 109,200 level on Thursday as investors weighed in on hawkish comments from several Federal Reserve officials and as the latest US claims report reduced further bets on a potential pause in the Fed's tightening cycle reserve in June. Meanwhile, concerns over the US debt ceiling crisis eased as US President Biden expressed confidence in reaching a deal, a sentiment echoed by House Republican Leader Kevin McCarthy. Internally, Brazil's lower house of Congress voted on Wednesday to fast-track the government's fiscal framework bill, allowing it to be put to a vote without going through committee debates.Among individual stocks, Braskem (-2.7%) fell the most, followed by Petrorio (-1.7%), heavyweight Petrobras (-0.8%), and miner Vale (-0.8%).
REVIEWING THE LAST ECONOMIC DATA:
Reviewing the latest economic news, the most critical data is:
- FR: Following two consecutive declines, the CAC 40 index rose 0.6% on Thursday to a near three-week high of 7,447, putting it on par with its European counterparts. Investors remained optimistic that an agreement would soon be reached to raise the U.S. debt ceiling, but their optimism was tempered by fears that the Federal Reserve and European Central Bank would increase interest rates further. Among individual equities, STMicroelectronics (+3.6%), Renault (+2.9%), and Dassault Systèmes (+2.8%) posted the greatest gains. Carrefour (-2.6%) and Engie (-1.6%) exhibited the greatest declines.
- US: U.S. utilities added 99 billion cubic feet of natural gas to storage in the week ended May 12, 2023, missing market expectations of 108 billion cubic feet. This compares to an increase of 87 Bcf during the same week last year and an average five-year increase of 91 Bcf (2018-2022). Mild weather has kept demand for heating and cooling materials at a low level. The increase in inventories last week increased stockpiles to 2.240 trillion cubic feet, which is 52.1 billion cubic feet greater than a year ago and 340 million cubic feet greater than the five-year average of 180.9 million cubic feet. Total working gas was 2.240 scf, which fell within the five-year average.
- US: U.S. existing-home sales, which include closed transactions for single-family homes, townhomes, condominiums, and co-ops, fell 3.4 percent to a seasonally adjusted annual sales rate of 4.28 million for the three-month period in April 2023 The lowest level yet, compared with a forecast of 4.3 million. Total housing inventory rose 7.2% from March to 1.04 million units, which at the current sales pace represents a 2.9-month supply, up from 2.6 months in March. Additionally, the median existing home price for all housing types fell 1.7 percent from last year to $388,800. Prices rose in the Northeast and Midwest, but fell in the South and West. "Home sales are bouncing back and forth, but remain above recent cyclical lows," said Lawrence Yun, chief economist at NAR. "The combination of job growth, limited inventory, and volatile mortgage rates over the past few months has created a push-pull environment for housing demand.”
- CA: Canadian new home prices fell 0.1% month-on-month in April 2023 after being flat the month before, in line with market forecasts. Prices fell or stayed the same in 20 of the 27 census metropolitan areas. House prices fell the most in London (-1%) and Guelph (-0.8%), with builders citing weak market conditions as the reason for the fall. New home prices in the most expensive housing markets (Vancouver and Toronto) were unchanged for the month. Quebec (+2 percent) and Winnipeg (+1.1 percent) saw the biggest home price increases, driven by rising construction costs. Residential construction costs continue to climb due to a shortage of skilled labor and rising material costs in the construction industry. Canadian new home prices fell 0.2% year-over-year in April 2023, the first decline since November 2019, after rising 0.2% in the previous month. Rising borrowing costs have continued to drive down new home prices since April 2022.
- HK: Hong Kong's seasonally adjusted unemployment rate fell to 3% in the three months to April 2023, down from 3.1% in the January-March period the previous year, but slightly above market expectations of 2.9%. It was the lowest unemployment rate since the first three months of September 2019, and the number of unemployed fell to 114,400 from 700 a month earlier, while employment rose by 18,000 to 3,655,900. Unemployment fell significantly in the construction, transport, warehousing, decoration, repair, and maintenance of transport support activities. Looking ahead, the labor market is expected to improve further in the coming months as the economic recovery continues.
- AU: Australia's seasonally adjusted unemployment rate unexpectedly hit 3.7% in April 2023, compared to market estimates of 3.7%, after a near 50-year low of 3.5% in March and February. The latest figures also recorded the highest unemployment rate in three months, with the number of unemployed up by 18,400 to 528,000 and those looking for full-time work up by 15,500 to 364,800, while those looking for part-time work fell by 3,500 , reaching 163,900 people. Meanwhile, payrolls unexpectedly fell by 4,300 to 11.88 million, the first drop in three months and below market forecasts for a rise of 25,000. Full-time employment fell by 27,100 to 9,726,500, while part-time employment rose by 22,800 to 4,155,600. The participation rate fell to 66.7% from 66.8%, in line with the market consensus. The underemployment rate edged down to 6.1% from 6.2%. Monthly hours worked for all jobs increased by 29 million hours, or 2.6%, to 19.74 million hours.
- JP: n April 2023, imports to Japan fell 2.3% year-on-year to JPY 8,720.8 billion, compared with consensus for a 0.3% decline, contrary to March's 7.3% rise. This is the first decline in purchases since January 2021.
- JP: In April 2023, Japan's exports increased by 2.6% year-on-year to 8,288.4 billion yen, compared with market forecasts of 3.0%, and increased by 4.3% in March. It was the 26th month in a row that sales rose, but also the slowest since a decline in February 2021 amid mounting cost pressures.
- NZ: Producer input prices in New Zealand inched up 0.2% quarter-on-quarter in the three months ended March 2023, down from a 0.5% rise in the previous quarter and marking the eleventh consecutive quarter of positive growth. This was the slowest quarterly gain since the December 2020 quarter, as prices rose at a slower pace in construction (0.5% in Q4 compared to 1.5% in Q4); leasing, hiring, and real estate services (0.4% vs. 1.5%); wholesale trade (0.2% vs. 0.9%); retail trade and accommodation (0.5% vs. 1%); and electricity, gas, water and waste services (+20.7% vs -10.6%). On the other hand, manufacturing costs fell (-2.6% vs. -0.3%); agriculture, forestry, and fishing (-0.5% vs. 1.2%).
Today, investors should watch out for the following important data:
- EUR: German PPI m/m, ECB Economic Bulletin, and ECB President Lagarde Speaks.
- GBP: GfK Consumer Confidence, and MPC Member Haskel Speaks.
- USD: FOMC Member Williams Speaks, FOMC Member Bowman Speaks, and Fed Chair Powell Speaks.
- NZD: Trade Balance, and Credit Card Spending y/y.
- JPY: National Core CPI y/y, and Tertiary Industry Activity m/m.
- CAD: Core Retail Sales m/m, and Retail Sales m/m.
KEY EQUITY & BOND MARKET DRIVERS:
Кey factors in the stock and bond market are currently:
- US: U.S. 10-year Treasury yields continued to climb to 3.6%, the highest level in nearly two months, as investors focused on the debt-ceiling impasse and tried to assess the Federal Reserve's next move. Congressional leaders and President Joe Biden expressed optimism about the deal and said the U.S. would not default. At the same time, bets that the Federal Reserve will cut interest rates this year have eased, as have the chances of a pause in rate hikes in June. Dallas Fed President Lori Logan said on Thursday that current economic data does not yet justify a pause in the rate hike cycle. Retail sales data this week showed consumer spending remained resilient, with initial claims falling more than expected.
- US: U.S. futures were mixed on Thursday, with the Dow Jones contract down nearly 30 points, while the S&P 500 and Nasdaq were both above the flat line. Walmart raised its full-year forecast and beat earnings, sending its shares up 1.7% in premarket trading. Meanwhile, traders are growing optimistic that the debt-ceiling impasse will be resolved soon and the U.S. will avoid a default. Additionally, regional banks are also expected to extend gains as the market opens. However, the latest data showed that weekly claims fell more than expected last week, suggesting rates may need to stay elevated for longer.
LEADING MARKET SECTORS:
- Strong sectors: Information Technology, Communication Services, Consumer Discretionary.
- Weak sectors: Real Estate, Utilities, Consumer Staples.
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
Кey factors in the currency and commodities market are currently:
- USD: The U.S. dollar index rose above 103 on Thursday, its highest in two months, buoyed by growing optimism that the U.S. government will reach a deal on the debt ceiling and avoid a default. U.S. President Joe Biden and House Speaker Kevin McCarthy both expressed confidence late on Wednesday that the U.S. government will not default on its debt after a months-long stalemate. Beyond that, a pullback in jobless claims suggested the labor market remained tight, dashing hopes of a rate cut soon. Elsewhere, Chicago Fed President Austan Goolsbee said it was "too early to talk about rate cuts," while Cleveland Fed President Loretta Mester said rates had not yet reached a level where the central bank could hold steady due to stubborn inflation.
- NZD: The New Zealand dollar rose 0.2% to $0.6261 on Thursday, strengthening for a second straight session, backed up by a statement from Finance Minister Grant Robertson, which said the country's economy would benefit from rising tourist arrivals, recovery from cyclones. With less contractionary fiscal policy, New Zealand will be able to avoid recession. The 2023 budget, released today, mentions that the country's gross domestic product will grow by 1 percent by June 2024, with growth in every quarter this year, according to Bloomberg News. Market participants continued to bet that the Reserve Bank of New Zealand would raise the cash rate by 25 basis points to 5.5% next week, possibly in July, as headline national inflation remained high at 6.7% in the first quarter of 2023, outpacing the central bank by 1%. -3% mid-term target. Meanwhile, the U.S. dollar index held steady around 102.9 as traders focused on progress in Washington's debt ceiling talks, with a deal reportedly "feasible" later this week.
- GAS: US natural gas futures jumped 6% to above $2.5/MMBtu, the highest in two months, led by tighter supply and stronger demand. Gas exports from Canada, a major supplier to the U.S., fell to a near 25-month low as wildfires in Alberta shut down oil and gas production and affected pipeline flows in the past few weeks. At the same time, meteorologists are predicting higher-than-normal temperatures in the U.S. in the coming period, which will increase demand for cooling. Also, U.S. utilities added 99 billion cubic feet of gas to storage in the week ended May 12, 2023, below market expectations for a 108 bcf increase.On the other hand, gas flows to major US LNG export plants fell from record levels seen in April due to maintenance work at several facilities.
- GLD: Gold prices fell for a third day in a row to below $1,960 an ounce on Thursday, nearing levels not seen since late March, as bets that the Fed would end its current tightening cycle or possibly cut interest rates this year fell. The claims report reinforced perceptions that the labor market remains stable, while comments from several Fed officials suggested the expected pause in June rate hikes was uncertain. Meanwhile, optimism surrounding the resolution of the US debt ceiling boosted the dollar and government bond yields, subsequently weighing on bullion.
8 hours ago
- RIC: Rice futures hit a near three-year high of $18.5 a hundredweight on May 12 before easing to $17 as supply constraints persisted. Fitch Solutions recently forecast that rice shortages for the 2022–2023 season will be the largest in two decades, mainly due to adverse weather conditions in key rice-producing countries such as China and Pakistan. Meanwhile, rainfall from the Indian monsoon in 2023 is expected to be within normal limits, but there is a 90% chance of an El Niño weather pattern developing, which could lead to reduced rainfall and adversely affect rice production.On the other hand, the two-month extension of the Black Sea grain deal provided temporary price relief as rice was used as a substitute for other staple grains amid the ongoing conflict in Ukraine. Also, the USDA expects a 20% jump in US rice production in the 2023–24 season. Global production rose 2% to a record 520.5 million metric tons.
CHART OF THE DAY:
After two consecutive declines, the CAC 40 index rose 0.6% to a near three-week high of 7,447 on Thursday, bringing it in line with its European counterparts. Concerns that the Federal Reserve and European Central Bank would raise interest rates further dampened their optimism, though. STMicroelectronics (+3.6%), Renault (+2.9%), and Dassault Systèmes (+2.8%) posted the greatest gains among individual stocks. Carrefour (-2,6%) and Engie (-1,6%) experienced the largest decreases.
Long-term Channels Trading Strategy for: (France CAC 40 index).Time frame (D1). The primary resistance is around (7580). The primary support is around (7331). Therefore, the next most probable price movement is a (consolidation/down) trend. (*see all other details on the chart).