IThe weekend was a disappointment for European stock markets, with the aftermath of Wednesday’s Fed decision still reverberating, wiping out any prospect of gains in a week that saw new records for the DAX and Stoxx600 .
In what can only be described as choppy trading conditions, sentiment received a further blow this afternoon following comments from St. Louis Fed Chairman James Bullard, who said he was leaned towards a hike in U.S. rates in 2022, much earlier than Wednesday. “Points” of two by the end of 2023.
While Bullard may not be a voting member this year, he will be a voting member next year and as such his vote will count, further blurring the markets timeline as to when the Fed will act in response. to inflation problems.
This gave the US dollar a further boost and cut the ground for industrial metals, although oil prices have remained fairly resilient so far.
As a result, stock markets fell sharply as all sectors were crushed, with the FTSE100 slipping back to lows this month, and the DAX following suit, as market confidence that the U.S. central bank would examine concerns about slightly higher average inflation, take a little hit.
Tesco is among the biggest setbacks despite better than expected first quarter sales, and compared to some pretty tough comparisons, despite UK sales reaching over £ 10bn. This seems like a rather odd reaction given the challenges, as well as the rising costs that the industry has been facing over the past 15 months. Investors may be disappointed that the outlook has remained unchanged despite such a strong performance in the first quarter, or that their expectations are unrealistic. Keep in mind that last year’s benchmarks were tough given that supermarket shelves were nearly bare the day after the first lockdown, yet like-for-like sales were consistently higher.
Royal Dutch Shell and BP underperform despite oil prices resisting the strengthening of the US dollar, both near the low of the FTSE100, while banks fell with rising short-term rates and falling long-term rates, flattening the bond curve, with Barclays being the least efficient.
AstraZeneca the actions are outperforming after the EU lost its lawsuit over vaccination delays, as the EU court failed to force the company to speed up its vaccine delivery schedule. The court asked him to deliver 10 million more doses than he had already delivered, by September, a total of 80 million.
US markets also opened sharply lower following Bullard’s comments, although the expiration of various index futures and options is unlikely to help.
The Dow Jones is expected to post its worst week since January, and even the Nasdaq, which closed higher yesterday, also fell as the weekend approached.
American banks are under pressure due to tightening bond spreads with American Express, JPMorgan Chase, Morgan Stanley and Citigroup all falling, as US short-term rates start to pull away and rise sharply, with the 2-year US hitting a post-pandemic peak of 0.266%, and surpassing the 0.2% level that has peaked it over the past 12 months or so.
The US dollar continued to advance today, hitting two-month highs against a basket of currencies, and its best weekly performance this year. The Fed’s hawkish tilt continued to trickle down to markets, which may be exacerbated by some positional adjustments at the end of the week.
The pound came under pressure today after retail sales in May fell surprisingly 1.4%, despite further easing of restrictions as indoor dining resumed as well as theaters reopened, missing expectations of a 1.5% increase. This was all the more surprising given the outperformance of BRC’s retail sales last week. The decline should also be seen against the backdrop of the very strong previous two months of 5.4% and 9.2%, when the weather at the start of May was also quite difficult, which may well have had an impact on sentiment as well. consumers.
While oil prices continue to look well supported to hit new two-year highs, other commodities have not had such a good week. Metal prices fell sharply following the shift in the timing of the US Federal Reserve’s rate expectations, which helped the US dollar rebound sharply, with gold, silver, platinum and palladium all having lowered.
We also saw sharp declines in commodity prices more broadly, not only metals but also agricultural commodities, with corn, wheat and soybeans seeing further declines from their May highs.