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The US stock exchange reopens today after the long weekend off: yesterday Wall Street was closed on the occasion of the national holiday of Memorial Day in the United States. Sentiment is negative, conditioned by the data relating to inflation in the euro area, which recorded a further flare-up in May.
The inflation obsession is back on the markets: the Dow Jones falls by more than -400 points (-1.24%), the S&P 500 loses 1.07% and the Nasdaq is down by 1.02%.
The US stock exchange reopens today after the long weekend off: yesterday Wall Street was closed on the occasion of the national holiday of Memorial Day in the United States.
So Mike Wilson of Morgan Stanley comments on the challenges facing the world economy: “It will be difficult to overturn the context of ‘Fire and Ice’. The view of the consensus is now that of higher inflation and slower growth. . And that may not have been fully discounted by the markets. The more stock prices go up, the more hawkish the Fed will become. ”
On the macroeconomic front, the composite index of house prices of the 20 main metropolitan areas of the United States, drawn up by S&P Case Shiller, for the month of March, was widespread. The figure jumped 21.2% year-on-year. On a monthly basis, the trend was an increase of 3.1%.
The Mortgage News Daily found that the fixed rate on 30-year mortgages, on average, rose from 3.29% at the beginning of January to 4.67% at the end of March.
The Dow Jones and the S&P 500 restart after closing last Friday the best week since November 2020.
The Dow Jones gained 6.2% on a weekly basis, breaking a negative streak that had lasted for eight weeks. The S&P 500 was up 6.5% and the Nasdaq gained 6.8%.
Investor sentiment was supported both by the solid quarterly reports of some US retailers and by the publication of the parameter that monitors the Fed’s preferred inflation, namely the core component of the PCE, for the month of April:
the index rose 4.9% on an annual basis, in line with forecasts and slowing compared to + 5.2% in March. On a monthly basis, the increase was 0.3%, again in line with estimates and after + 0.9% the previous month. Headline inflation rose 6.3% yoy, down from + 6.6% last month. On a monthly basis, the figure reported growth of 0.2%, lower than the + 0.9% in March.
The inflation numbers, contained in the April report on the trend in consumer spending and personal incomes, led investors to hope that the continuing flare-up in prices in the United States has tested the peak, and therefore Jerome Powell’s Fed may be less aggressive in raising rates.
Inflation, on the other hand, is very frightening in the euro area at the moment: the consumer price index was released today, which jumped in May to a new record rate, on an annual basis, of + 8.1%. The jump was much higher than the growth expected by the consensus, equal to + 7.7%, and followed the + 7.4% of the previous month. The core component rose 3.8%, over the estimated + 3.5% and + 3.5% in April.
The risk is that Christine Lagarde’s ECB will raise rates even more aggressively than is expected by the markets. For now, money markets are pricing ECB rate hikes of 110 basis points by the end of the year, with a 30% probability of an additional 25 basis point squeeze, on top of that priced at 100% in the month. of July.
US oil prices rose solidly, after today’s big news, that is the agreement reached during the night between the EU leaders of the European Council in favor of the embargo on Russian oil. According to reports from the President of the European Council, Charles Michel, the embargo immediately affects “more than 2/3 of oil imports from Russia, cutting off a huge source of funding for its war machine”.
On Twitter, Michel wrote that “sanctions will immediately affect 75% of Russian oil imports. And, by the end of the year, 90% of Russian oil imported from Russia will be banned.”
The remaining “10%, which concerns the southern section of the Druzhba pipeline, is exempt from sanctions”, said the same number one from the European Commission, Ursula von der Leyen. Not only that: Budapest, Prague and Bratislava have obtained in writing that, in the event that the Kremlin decides to close the Druzhba pipeline, their respective countries will receive aid from the EU. The compromise with Viktor Orban’s Hungary was so necessary: and so it was decided that Russian oil arriving in Hungary, the Czech Republic and Slovakia will be exempt from the embargo.
Meanwhile, WTI prices jumped up by around 3.2% to $ 118.72, and Brent’s advanced 1.82% to $ 123.89.
Among the stocks protagonists of the session on Wall Street Unilever, which jumps by almost + 7%, after the giant of consumer products has appointed activist investor Nelson Peltz as adviser. His company Trian Fund Management holds a 1.5% stake in Unilever.
Buy also on the NIO stock, following the note from Morgan Stanley, which added the Chinese electric car (EV) maker’s stock to its list of tactical ideas.
Analysts of the US banking giant motivated the choice by stating that they believe that the shares of the group will rise with the easing of the Covid restrictions imposed in the Shanghai area. Furthermore, NIO is expected to benefit from the arrival of new subsidies for electric car buyers.
On the US fixed income market, 10-year Treasury rates are up 2.84%.