US job report, US 10-year below 1.60%, meme-stocks mania: our Top 10 stories of the week

Read the 10 stories to remember from the week which ended June 4. . 

Story #1: Markets higher in quiet week as “meme” stocks grab headlines.The major US equity indexes closed moderately higher in a shortened trading week, with markets closed Monday in observance of Memorial Day. Energy shares performed best within the S&P 500 Index as oil prices reached their highest level in two years. Consumer discretionary shares lagged, weighed down by a decline in Tesla. Trading volumes were generally light, as is typical of the start of the summer holiday season. We note that global stocks market cap is getting closer to a key milestone – the $120T bar.

Story #2: A Meme-orable week The headline grabber for the week was the return of the meme-stock-mania from January with Reddit Rebels sending “meme” and heavily shorted stocks "to the moon". This was the biggest weekly gain since the last week of January for the Reddit shorts. Shares of theater chain AMC experienced particularly heavy trading and volatility, closing the week with an 87% gain. GTT stock gained more than 100%.

Story #3: US jobs report sends mixed signals. Friday brought the closely watched monthly nonfarm payrolls report. The Labor Department reported that employers added 559,000 jobs in May, below consensus forecasts of around 650,000. The labor force participation rate ticked down to 61.6% from 61.7%. On the positive side, the employment-to-population ratio ticked higher, and the unemployment rate fell more than expected, from 6.1% to 5.8%. Average hourly earnings rose 0.5%, above consensus and indicative of a tighter labor market.

Story #4: Another set of strong US economic data Much of the rest of the week’s economic data came in above consensus. Payroll processing firm ADP reported that its tally of private sector jobs increased by 978,000 in May, well above consensus expectations for a gain of 650,000. Restaurants and other leisure and hospitality businesses were responsible for 440,000 of the new hires, and IHS Markit’s gauge of service sector activity reached its highest level in records going back to 2009. Manufacturing signals generally remained strong, although construction spending grew less than expected, and construction employment surprised many by contracting a bit in May.

Story #5: US 10-year bond yield fell back below 1.6%. Core eurozone bond yields drifted lower.After increasing early in the week, the yield on the benchmark 10-year U.S. Treasury note fell back below 1.6% following the May payrolls report on Friday, suggesting that most investors expected it would give the Federal Reserve additional time to keep monetary policy highly accommodative. On Tuesday, Fed Governor Lael Brainard and Vice Chair Randal Quarles both stressed that significant slack remained in the economy and that the Fed was far from achieving its inflation and employment targets. They both stressed, however, that the Fed would be quick to act if the recent increase in inflation does not prove to be “transitory.” Core eurozone bond yields drifted lower as comments from some policymakers contributed to expectations that the European Central Bank would likely opt to maintain the pace of bond purchases at its June 10 meeting. Yields in peripheral European bond markets tracked their core counterparts. UK gilt yields largely followed the upward move in U.S. Treasury yields.

Story #6: The Fed will start to unwind its corporate bonds holdings. On Wednesday, the Fed announced plans to begin selling its corporate debt holdings from the Secondary Market Corporate Credit Facility (SMCCF). The Fed will first draw down $8.6B in bond ETFs, followed by the sale of $5.2B in corporate bonds later in the summer. The entire process is expected to be completed by year-end. #SMCCF holdings are tiny relative to the $7.3 trillion worth of assets in the Fed’s balance sheet. According to many analysts, corporate bonds spreads are thus expected to stay tight.

Story #7: European equity markets continued to move higher.Shares in Europe rose amid optimism about the prospect of an economic recovery. However, worries that central banks might begin withdrawing stimulus sooner than expected because of inflationary pressures curbed equities’ advance. The pan-European STOXX Europe 600 Index ended the week 0.80% higher. Italy’s FTSE MIB Index outperformed with a 1.59% weekly gain. The UK’s FTSE 100 Index rose 0.66%. On the Covid side, the European Union is planning to lift all quarantine rules for those who have been vaccinated, starting July 1, and to introduce digital passports for travelers. In the UK, a sharp increase in cases of the highly transmissible Delta variant of the novel coronavirus stoked concerns among scientists and government officials, sparking a debate on whether lockdown measures should be fully lifted on June 21.

Story #8: Eurozone inflation exceeds ECB target; PMIs point to strong economic growth. Eurozone inflation increased 40 basis points sequentially to 2% in May — above the ECB’s stated target of “below but close to 2%.” Higher energy costs were a big part of the increase in consumer prices. Core inflation, which excludes volatile food and energy costs, ticked up to 0.9% from 0.8%. Final purchasing managers' survey data for the eurozone confirmed a revival in the service sector that was accompanied by booming manufacturing activity. Meanwhile, retail sales in the bloc fell in April by a greater-than-expected 3.1% sequentially, although they rose 23.9% year over year on a calendar-adjusted basis. Unemployment in Germany fell more than expected in May.

Story #9: China equity markets declined for the 1st time in 4 weeks as the RMB weakened. Chinese stocks retreated after recording three weeks of gains. The large-cap CSI 300 Index shed 0.7%. Foreign investors bought USD 8.7 billion of Chinese stocks in May, the highest single month this year, Reuters added. In currency trading, the renminbi weakened slightly against the U.S. dollar to end at 6.40 per dollar. On the economic front, the private Caixin manufacturing PMI rose to 52.0, its highest reading this year as demand picked up. In contrast, the official manufacturing PMI fell slightly to 51.0. On May 1, China’s authorities announced that they would relax the current two-child policy and allow couples to have a third offspring. Many economists believe that the measure will do little to alter the trajectory of the country’s looming demographic crisis. Many analysts point to the relatively low number of births that occurred the last time China relaxed its birth policy starting January 2016, when the government allowed two children per family.

Story #10: ETFs flows on pace to break new record. ETFs are on pace to break annual flow record (set last year) by July 4th. As of June 1st, $398 billion of inflows have been recorded into ETFs on year-to-date basis. Breadth in the ETF market is outstanding. 67% of ETFs have inflows this year with tons of different area's punching above their weight with many beating their annual records in just the first 5 months of 2021.

Sources: T-Rowe Price, www.zerohedge.com 

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