Traders were in a choppy mood all week as earnings data, concerns about the debt ceiling, banking sector jitters, and the Fed’s narrowing outlook weighed on sentiment.
Stock and commodity indices managed to rally around the middle of the week thanks to positive earnings turnout from tech companies, as well as legislation that would allow Congress to raise the debt ceiling.
Notable economic news and updates:
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The Chinese president reportedly spoke with Zelensky of Ukraine in a “long and meaningful” phone call in which he discussed the importance of the parties in pursuing peace.
Alphabet’s first-quarter results beat estimates for revenue and operating income, as Google’s advertising revenue came in stronger than expected
The House of Representatives narrowly passed a bill that would raise the debt ceiling and cut federal spending
Amazon reported 9% year-over-year revenue growth in the first quarter to $127.36 billion, more than 2% above consensus estimates.
The Energy Information Administration reported that on or in the week ending April 21, 2023, commercial crude oil inventories (excluding the Strategic Petroleum Reserve) decreased by 5.1 million barrels, to 460.9 million barrels.
The Bank of Japan halted any changes to its monetary policy (interest rate remains at -0.10%; yield curve control band on 10-year notes remains at 0.50% on both sides of the 0.0% target) on Friday; It removed forward guidance and announced its intention to revise monetary policy
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Tensions returned in the banking sector on Wednesday as First Republic Bank considered selling $100 billion in assets amid $72 billion in deposits in the first quarter.
Sweden’s central bank raised interest rates by 50 basis points, to 3.5%, on Wednesday. It indicated at least one high in June or September
US consumer confidence reached its lowest level since July (104.0 to 101.3) amid pessimism on the outlook side, even as the current situation component of the survey continued.
The advanced US GDP for the first quarter missed expectations for 2.0% growth, with the actual figure coming in at 1.1%, also lower than the previous expansion of 2.6% in the fourth quarter.
Quarterly core personal consumption expenditures for the first quarter of 2023 came in above expectations at 4.9% qoq from 4.4% qoq previously, raising expectations of a Fed rate hike; US monthly core PCE price index came in line with expectation/previous reading at +0.3%m/m.
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Higher-yielding assets like stocks and commodities have started the week in full swing, as market traders prepare for what could be a lackluster earnings week.
The US debt ceiling also came into focus thanks to lower-than-expected incoming tax revenues, and the political shock from House Republicans kept investors wary of a potential government default.
Risk appetite soured further when First Republic Bank reported a massive deposit flight, as well as plans to scale back operations, reviving fears of a banking sector contagion and unleashing another bearish wave for US stocks on Tuesday, and possibly the rally in bitcoin that saw the crypto asset retest 30k. dollars on Wednesday.
Interestingly, the US dollar failed to deal with its safe-haven appeal this time around, allowing commodities such as crude oil and gold to rally from their previous declines. In addition, the oil was able to temporarily benefit from supply concerns stemming from Iraq and Sudan.
Treasury yields were also broadly lower at the time, as traders likely cut bets on a Fed rate hike on account of financial sector concerns. It didn’t help that the US printed yet another weak regional manufacturing survey (Dallas Fed Index) which had traders buzzing around the R word again.
Wednesday marked another day in the red for US stocks and bond yields when consumer confidence from the central bank turned weaker than expected, although stocks bucked the trend and rose slightly after hours when Alphabet and Microsoft printed upbeat earnings data.
This stock market rally continued the next day when shares of European banks (Deutsche Bank and Barclays) and US technology companies such as Meta and Amazon printed strong first quarter numbers. The S&P 500 rose 2% Thursday, the biggest one-day rise since January, while the NASDAQ 100 advanced 2.8%.
US Treasury yields also enjoyed a full recovery, despite the downbeat Q1 GDP reading. As it turns out, the 3.7% year-over-year increase in consumption and 4.9% year-over-year increase in core personal consumption expenditures likely prompted traders to reduce bets of a Fed rate cut.
Crude oil also managed to hold on after closing the gap from three weeks before OPEC announced a surprise production cut. On the other hand, gold suffered from another bearish wave but managed to maintain its head above the key support level of $1980.
Friday’s economic calendar was very busy as traders had to manage the latest Bank of Japan monetary policy statement, GDP readings from Europe and Canada, and more US inflation signals. In particular, the US monthly core personal consumption expenditures price index and the employment cost index.
US data was probably the most watched, and most came in relatively in line with expectations, but hinted that the fight against inflation is far from over for the Fed. In general, they were not the market movers that many traders had hoped they would be.
And with global GDP updates late, and therefore of little impact, there was nothing to dampen the risk-off momentum caused by the positive US earnings reports, which is likely why we saw one last push higher before Friday’s close. .