Wednesday saw a cascade of negative news causing widespread damage in the international markets, leading to considerable losses in European equities, a fall in copper prices, and eradicating China’s equity gains for the year. Investor pessimism stemmed from various sources, including US debt-ceiling talks at a standstill, fears of a potential default, China’s faltering economy, escalating geopolitical tensions, and inflation in the UK exceeding expectations.
Luxury stocks, which had shown good performance this year, were severely affected. LVMH and Kering SA, Gucci’s parent company, witnessed a drop of 2%. European real estate and car manufacturers also suffered due to apprehensions of rising UK interest rates. Nvidia Corp., a key player in artificial intelligence, saw nearly 1% of its value wiped off.
Janet Mui, RBC Brewin Dolphin’s market analysis chief, voiced a cautious outlook in light of the prevailing market conditions. She predicted a US recession, postponing its expected onset to 2024, but maintained that it was unavoidable. Contrary to market forecasts, Mui suggested that US interest rates would stay elevated, which could adversely affect the economy, corporate profits, and trigger further dips in equity markets.
Looking forward, US futures suggested a continuation of the previous day’s 1.1% slide, hinting at more downward strain on the S&P 500. Treasuries remained steady, but investors demanded a higher return for holding US debt, especially securities at the greatest default risk. Yields on securities due on June 6 soared to over 6% on Tuesday, while bills due on May 30 yielded approximately 2%.
In Europe, the revelation of inflation figures exceeding expectations quashed hopes for a pause in the Bank of England’s (BOE) interest rate increases. Consequently, money markets started factoring in a potential BOE rate ceiling as high as 5.5%, indicating a one-percentage-point hike by the year’s end. This resulted in the Stoxx 600 Index recording its most severe intraday fall since March 24, a decline of 1.7%. The yield on the UK’s 10-year government bond (gilt) rose to 4.21%, a rise of five basis points, due to selling pressure.
In the commodities market, metals, in particular, bore the brunt of the overall weakness. The threat of a new COVID-19 wave in China and the prohibition on buying products from Micron Technology Inc. further destabilized China’s economy and rattled investor confidence. Copper saw a decline in demand, evidenced by the doubling of stockpiles with the London Metal Exchange since mid-April. China’s benchmark stock index, the CSI 300, ended Wednesday down 1.4%, making it one of the poorest performing benchmarks in Asia this year.
During the market turbulence, the New Zealand dollar took a significant hit of up to 1.3% following the central bank’s surprising indication that no further policy tightening was required. The policymakers had already elevated interest rates to 5.5%, as predicted.
The coming week is filled with significant events including the disclosure of minutes from the Federal Reserve’s policy gathering on May 2-3, a talk by the Bank of England’s head, Andrew Bailey, data on jobless claims and GDP from the US, rate decision announcements in several nations, Tokyo’s consumer price index figures, and various US stats such as consumer income, wholesale stockpile, durable goods, and consumer sentiment metrics from the University of Michigan.
Market Activity Recap:
Equities:
Futures for S&P 500 witnessed a 0.4% decline
Nasdaq 100 futures saw a 0.4% dip
Dow Jones Industrial Average futures also experienced a 0.4% tumble
Stoxx Europe 600 took a hit of 1.7%
MSCI World index saw a 0.5% dip
Currencies:
The Bloomberg Dollar Spot Index saw a marginal rise of 0.1%
The Euro witnessed a slight drop of 0.1% against the US dollar, standing at $1.0754
The British pound decreased by 0.3% against the US dollar to $1.2373
The Japanese yen held steady at 138.49 per dollar
Digital Currencies:
Bitcoin experienced a decline of 1.8% settling at $26,721.11
Ether also fell by 2.1% to $1,815.78
Government Securities:
The yield on the 10-year Treasury fell by a single basis point to 3.68%
Germany’s 10-year yield saw a four basis points drop to 2.43%
In contrast, the UK’s 10-year yield rose by five basis points to 4.21%
Commodities:
West Texas Intermediate crude oil increased slightly by 0.4% to $74.07 per barrel
Gold futures remained largely the same
As global markets face escalating difficulties and unpredictable situations, market players are attentively monitoring these developments that might potentially reshape the economic scene in the upcoming days and weeks.
©traders-news.online
