North American News
Stocks close lower as debt ceiling talks stall
- …and that’s the week
The major US stock indices are ending the day lower. The excuse will be the debt ceiling talks stalling (for now), but if there was a lot of worry, the stock market would be down much more.
Technically, however, the S&P index could not close above the 4200 natural level (it is closing at 4191.99), nor could the price of the S&P close above its 100-week moving average at 4201.1. Close but no cigar.
The final numbers are showing:
- Dow industrial average -109.30 points or -0.33% at 33426.64.
- S&P index -6.07 points or -0.14% at 4191.99
- NASDAQ index -30.95 points or -0.24% at 12657.89
For the trading week, the major indices are closing higher:
- Dow industrial average eked out a 0.38% gain.
- S&P index close up 1.65%
- NASDAQ index was the beginner with a 3.04% rise
Big winners included AI stocks:
- Nvidia up 10.31%
- Alphabet +4.48%
- Microsoft +3.03%
Another AI stock, Adobe rose 3.05% today and was up 10.73% on the week. Adobe will announce its earnings on June 15. Nvidia will announce its earnings next Wednesday after the close.
US 2 year yield has the biggest gain since September 2022
- 30 basis points on the week
The US 2-year yield is up about 30 basis points on the week trading at 4.296%. The high-yield today reached 4.349% the highest level since March 15, 2023. The move to the upside this week is the largest gain since the week of September 19, 2022, when yields moved up nearly 34 basis points. Ironically, the yield settled at 4.212% that week just 8 basic points away from the current level of 4.296%.
The catalyst to the upside this week was a better tone in regional banks. That took some of the flight to safety flows out of the market and had traders pricing in more Fed cuts into 2024.
Fed Powell: Inflation is far above the objective
- Fed Chair Powell speaks at Thomas Laubach Research Conference
- Inflation is far above Feds objective
- Price stability is the foundation of a strong economy
- Responsibility central bank to maintain price stability
- Inflation poses significant hardships
- Fed is strongly committed to returning to 2% goal
- Banking system is strong and resilient
- Monetary policy and supervision tools are separate. Tools are complementary most of the time, but there is not an absolute separation monetary policy/supervisory tools.
- Policy rate may not have to rise as far as otherwise due to tightening bank credit conditions
- Possible there will be continued supply shocks but hard to predict
- Positive supply shocks during globalization probably did help keep inflation low but they are not likely to be repeated
- Central banks are still responsible for price stability regardless of supply shocks
Fed Powell summary: Inflation is still too high, but risk is more balanced
- Fed Powell speaks at Thomas Laubach Research Conference
Fed Chair Jerome Powell’s comments center around inflation, which is currently much higher than the Fed’s target. He reiterates the importance of price stability as the bedrock of a strong economy and the central bank’s responsibility to maintain it. Despite the significant challenges posed by inflation, the Fed remains steadfastly committed to achieving its 2% inflation goal.
He underscores the strength and resilience of the banking system and explains the separate yet often complementary roles of monetary policy and supervisory tools. Powell suggests that due to tightening bank credit conditions, policy rates might not need to rise as high as might otherwise be expected.
He notes that market pricing suggests a different rate path than the Fed, presumably anticipating a more rapid decrease in inflation. However, he maintains that current data support the view that reducing inflation will take time. He also highlights the inclusion of risk compensation in market prices.
Finally, Powell states that while the Fed has not yet determined whether rates are sufficiently restrictive, the objective is to reach a sufficiently restrictive policy stance. The Fed hasn’t decided on how much more tightening might be necessary, but Powell suggests that the balance between doing too much and too little is becoming more evenly balanced.
Feds Williams: No comments on monetary policy or economic outlook from NY Fed President
- Fed’s Williams speaking
- Feds Williams does not comment on economic/monetary policy outlook in a speech to Fed research conference
- New Fed relaunching its public estimate of r-Star rate variable
- New work shows even with pandemic natural interest rate remains low
- Pandemic impact on natural rate has proved modest
Feds Bowman: No monetary policy or economic comments
- Bowman joins Williams in NOT speaking on Fed policy or the economy
- Like Williams, Feds Bowman does not make comments on monetary policy or economic conditions in the US
On bank regulation, Bowman says:
- Targeted adjustments to banking regulation should be considered
- She is extremely concerned about casting aside tiering of bank regulation, shifting from tailoring is the wrong direction
- Tailoring bank regulation and supervision based on the size and risk profile of banks is critical
- Repeat call for Fed to engage an independent 3rd party to review bank failures
- Using bank failures as a pretext to push for unrelated changes to bank regulation should be avoided
Commodities
Gold rebounds toward its 100 hour moving average today
- The dip in yields and lower dollar help to spur a rebound in gold today
The price of gold this week has seen a decline of -1.4% or $-28.42 at current levels of $1982.58. Although lower, it was even lower this week. Today’s price is up $25 or 1.28%. A lower dollar and interest rates in the US have helped to spur a short-covering rebound.
Looking at the hourly chart, the price decline seen yesterday saw the pair move below swing lows going back to April 19 through April 28 between $1968.80 and $1975.70. The low price reached $1951.50 before rebounding to an intraday high today against the low of the swing area. It wasn’t until the Fed chair commented that the lower bank lending was likely to lead to a lower terminal rate, along with the breakdown of debt ceiling talks in Washington, that yields moved lower, the dollar moved lower and gold moved higher.
WTI Crude oil settles at $71.55
- Down $0.31 or -0.43%
The price of WTIcrude oil futures is settling at $71.55. That’s down $0.31 or -0.43%. The high price today reached $72.58. Looking at the hourly chart the high price today stalled within a swing area between $73.50 and $73.89. The last 6 trading hours saw the price move down 4 of the 6 hourly bars. That took the price back below the near converged 100 and 200-hour moving averages +/- $71.75. Stay below the moving averages and an upward-sloping trend line cuts across near $70.84 currently.
For the trading week, the price is up $3.54 or 2.2% (closed near $70 last week)
Bakers Hughes oil rig count falls 11 to 575
- The weekly Baker Hughes rig count
The weekly Baker Hughes rig count shows a decline of -11 on the week:
- Oil rigs -11 to 575 Largest week decline since September 2021.
- Nat. Gas rigs unchanged at 141
- Total rigs -11 at 720
EU News
German DAX closes at the highest level on record
- Previous high closing price was back on January 5 at 16271.75
The major European indices closed higher on the day and higher for the week.
For the trading day, the major indices in Europe all closed higher:
- German DAX rose 112 points or 0.69% at 16275.37
- Frances CAC 45.07 points or 0.61% at 7491.97
- UK’s FTSE 100 rose 14.59 points or 0.19% at 7756.88
- Spain’s Ibex rose 38.40 points or 0.42% at 9251.51
- Italy’s FTSE MIB rose 284.68 points or 1.05% at 27520.33
for the trading week:
- German DAX rose 2.27%
- Frances CAC rose 1.04%
- UK’s FTSE 100 rose 0.03%
- Spain’s Ibex rose 0.19%
- Italy’s FTSE MIB rose 0.70%
Germany April PPI +0.3% vs -0.5% m/m expected
- Latest data released by Destatis – 19 May 2023
- Prior -2.6%
- PPI +4.1% vs +4.0% y/y expected
- Prior +7.5%
ECB Schnabel: ECB can continue to do whatever needed to bring inflation back to 2% target
- ECB’s Schnabel speaking
- ECB can continue to do whatever is needed to bring inflation back to 2% target in a timely manner
- has a clear mandate of price stability
- financial stability is a precondition for price stability and vice versa
- ECB has the tools to provide liquidity to euro area financial system
- wage growth has picked up substantially
- as a result there are concerns about second-round facts on inflation
- it seems fiscal policy is to expansionary
- inflation expectations are stubbornly high
ECB reportedly to step up scrutiny of bank liquidity, may raise requirements
- Bloomberg reports, citing people with knowledge of the matter
This will see the central bank increase scrutiny on lenders’ liquidity reserves and also communicate stricter requirements to individual firms later this year. This comes in the aftermath of the banking crisis that struck in March and April.
ECB’s Lagarde: We are heading towards more delicate decisions going forward
- Remarks by ECB president, Christine Lagarde
- ECB will be courageous to take needed decisions to bring inflation back to 2%
Just some token remarks and not really giving much away for now. Another rate hike is well expected for June but we will see if there will be any more after for the ECB. A lot of that is going to come down to the data.
Other News
White House: Both sides need to recognize they won’t get everything they want in a deal
- White House responds
The White House is saying:
- If both sides negotiate in good faith and recognize they won’t get everything they want, a deal is still possible
- Democratic votes will be needed to pass any deal
Meanwhile from the GOP’s McConnell:
- Biden waited months for negotiating spending deal, it is past time for him to get serious
- Time is of essence
House Majority Leader McCarthy: yesterday I really felt we had a path to an agreement
- House Majority Leader McCarthy speaking
- We can’t be spending more money next year
- Yesterday I felt we were at the location where I could see the path
- Asked about debt ceiling talks pause says we’ve got to get movement from the White House and we don’t have any movement yet
- Says he has not spoken to Biden
BOJ’s Ueda: Appropriate to take time in determining when to modify easy policy
- Remarks by Ueda
- No change to BOJ stance of patiently maintaining easy policy
- Will not hesitate to take additional easing steps if needed
- Will maintain stimulus measures with yield curve control
- The cost of shifting policy prematurely is extremely high
- The downside of waiting to ensure inflation hits 2% sustainably is smaller than shifting policy prematurely
- Then likely to rebound thereafter through uncertainty regarding outlook is very high
- Current inflation rise is due to external, cost-push factors; not demand strengthening
- Tightening monetary policy in response to this would hurt the economy
- Inflation expectations must heighten for inflation to hit 2% sustainably
US imposes new sanctions against Russia
- US Secretary of State Blinken announces actions
The US issues new Russian related sanctions
- US State Department designated or identified as block the property almost 200 individuals, entities, vessels, aircraft
- US alert financial institutions on potential Russian export control in evasions
- sanctions target more than 30 companies that import, ship or manufacture electronic components, semiconductors and microelectronics to Russia
- sanctions aimed at restricting imports and Russia’s ability to extract future revenue from energy exports without increasing inflation
- US expand sanctions authorities to include architecture, engineering, construction, manufacturing and transportation sectors
- Secretary of State Blinkin says we are continuing to target entities and individuals engaged in deportation of Ukrainian children and the theft of Ukrainian grain
- Blinkin also says sanctions also reinforce commitment of US and partners to taking action against those circumventing sanctions and export controls
- He says sanctions target network the curing components for manufacture of Orlan drone used by Russian forces in Ukraine
Cryptocurrency News
Fed Chair Powell says interest rates may not rise too much; Bitcoin price whiplashes around $27,000
- Bitcoin price initially reacted positively to Federal Reserve chair Jerome Powell’s speech, rising to $27,140, before coming back down to $26,800.
- Powell stated that inflation is far above Fed’s objective, but the central bank remains committed to returning to the 2% target.
- Concerns surrounding the US government defaulting on its debt are high, but interest rates are expected to refrain from rising by 25 bps.
The Federal Reserve chair Jerome Powell during his speech at the “Perspectives on Monetary Policy” panel before the Thomas Laubach Research Conference on May 19, shared his opinion on what is expected from the Fed going forward.
Opening with inflation, Powell noted that the current inflation is far above the objective set by the Federal Reserve of 2%. He stated that inflation poses significant hardship, particularly to those at the margins of society, and the central bank remains “strongly committed” to returning to this goal from the present 4.93%.
Adding to the same, Powell said,
“Price stability is the foundation of a strong economy; responsibility of central bank to maintain it.”
Powell, during the speech, also noted that the interest rate may not need to rise as high. The Fed chair stated that tighter financial conditions mean “our policy rate may not need to rise as much as it would have otherwise to achieve our goals.”
Concerns surrounding the next meeting are high as the market is expecting the Federal Reserve to refrain from hiking interest rates.
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