Read the 10 stories to remember from the week which ended June 25.
The latest week’s stock market rise pointed to a reversal from the prior week as the major US indexes recovered the previous week’s losses and then some. U.S stock indexes continued their record climb earlier in the week, the positive momentum extended some more throughout the week, and push up the S&P 500 and the NASDAQ above previous record highs seen in May and April. Overall, the indexes roughly added 3% to the week.
U.S. crude oil prices climbed for the fifth week in a row, rising 4% and reaching $74 a barrel. This is the highest level seen since October 2018. As recently as early April, oil was trading below $60, and now analysts are beginning to forecast a potential $100 price point from easing supply chain disruption, OPEC action and pent up summer demand for travel. Energy shares fared best within the S&P 500, utilities and real estate stocks lagged behind.
The wholesale used car market peaked suggesting that retail vehicle prices could be next in line. This sharp increase has contributed to one-third of the recent overall rise in CPI as inflation has risen to its fastest pace since 2008. The yield on the 10-year note jumped as the Fed’s preferred inflation gauge—the CPE index—rose to its fast pace (3.4%) since 2008. Supply chain pressures that saw commodity prices soar are however easing: lumber prices continued their decline from record highs, and metal prices came under pressure as China released stockpiles to the market.
Ahead of the mid-July start of quarterly earnings season, nearly twice as many firms who have already issued guidance prior to earnings releases indicated a new rise in their expectations. 66 companies in the S&P 500 have issues a positive guidance as of Friday, while only 37 have done the opposite.
On Thursday morning Biden announced that a bipartisan group of 10 senators agreed on a plan to spend roughly $1T on infrastructure investments. Some suggest the deal will be faced with resistance from counterparties and has yet to be drafted. This deal will further add to the manufacturing sector’s rebirth; the IHS Markit’s gauge of June manufacturing activity beat expectations and rose to a record 62.6 (above 50 means expansion).
Shares rose in volatile trading upon the reaffirmation of ultra-loose monetary policy and a bipartisan agreement on an American infrastructure spending plan. Core eurozone government bond yields ended the week marginally higher. The UK saw covid-19 cases jump to its highest since February, mostly due to infection by the highly transmissible delta variant. ECB’s Lagarde said the outlook for the eurozone economy was improving and that more is ahead. The BoE voted to keep rates at 0-1% and maintain their asset purchasing program steady until the end of the year.
China’s CSI-300 ended a three-week losing streak as financial stocks led the rally after the PBoC injected liquidity into the financial system for the first time since February. Most banks cut their long-term deposit rate ceilings by 30 to 50 bps following a long-anticipated technical change in the rate setting mechanism. In bond markets, the net bond supply was less than expected for June, shedding off some of the pressure on yields. The yield on the 10-year sovereign bond fell 10 bps. The renminbi began the week on a weak note but rallied to end flat against the greenback. Covid-19 continues to affect ports in the South, forcing many factories to reduce or suspend operations, but 20 million doses have been delivered on peak days.
Japanese stocks had a difficult start to the week. Sentiment went south after the Fed’s hawkish pivot increased worries about a sooner-than-expected tapering of accommodative policies. The yen fell against the greenback to its lowest level since March 2020 throughout the week. A falling yen is attributed to disappointing domestic economic data. But Japan ha reached its vaccine target of administering 1 million doses per day in the first half of June. The goal is the get everyone vaccinated by November, but uncertainty around the Tokyo Olympics attendance remains loud.
In a surprising move, Mexico’s central bank Banxico, hikes rates to 4.25%. The peso gained 2% against the US dollar before pulling back. Stocks moved lower immediately following the announcement, but finished the day with a gain. Recent upside surprises in consumer inflation reports along with the central bank’s desire to build credibility and better anchor inflation expectations caused the central bank to act. Mexico’s CPI was up to 6%, much higher than Banxico’s 3% target.
The price of Bitcoin briefly tumbled below $30,000 on Tuesday shedding off billions of market capitalization—global investors worried about disruptions from new regulations in China, which is trying to slow down bitcoin mining-led pollution, enhance the fallout. However, there seems to be a resistance level being established around the $30,000 level, news that should oppose fear of yet more falling.
Source: John Hancock Investment Management, T-Rowe Price, CNN