Are labour markets loosening fast enough?

Are labour markets loosening fast enough?
  • Corporate Earning News
  • Global market indices
  • Currencies
  • Cryptocurrencies
  • Fixed Income
  • Commodity sector news 
  • Key data to move markets this week
  • Global macroupdates

Corporate Earnings News

The Technology sector is increasingly focused on AI and this has resulted in Nvidia being the best-performing stock on the S&P 500 this year according to Bloomberg news. It has surged in value on expectations the company will be a key beneficiary of the growing interest in OpenAI’s ChatGPT and in other artificial intelligence applications. It is due to report its Q1 earnings next Wednesday. According to The Motley Fool, consensus estimates point toward a turnaround in the company's fortunes in the current quarter. Its Q2 fiscal 2024 (ending July 31, 2023) revenue is expected to increase 6.5% year over year to $7.1 billion, while earnings are expected to more than double over the prior-year period.

Corporate earning calendar 18 - 25 May 2023

Thursday: Walmart, Applied Materials, Ross Stores, Alibaba Group
Friday: 
Deere & Co.
Monday: 
Zoom Video Communications, Nordson
Tuesday: 
Intuit, Palo Alto Networks, Lowe's Companies, Autozone, Agilent Technologies, Dick's Sporting Goods
Wednesday: 
XPeng, Nvidia, Snowflake, Analog Devices, Splunk 
Thursday: 
Medtronic, Costco, Autodesk, Dollar Tree

US Stock Indices 

Nasdaq 100 +2.57% MTD and +24.19% YTD 
Dow Jones Industrial Average
 -3.18% MTD and-0.41% YTD
NYSE
-1.49% MTD and+0.85% YTD 
S&P 500
 -1.43% MTD and+7.04% YTD 

Mega caps continued to largely benefit this week from the continuing positive noise over artificial-intelligence and expectations that the Fed is now on pause. Alphabet, Amazon, Microsoft, Nvidia, and Meta Platforms are all up while Apple is down.

Tesla shares were up this week after its annual shareholder meeting on Tuesday. CEO Elon Musk down played speculation he may step down by discussing two new mass-market models the company is developing, and reaffirmed that deliveries of its long-delayed Cybertruck pickup would start this year.

Facebook owner Meta Platforms is set to be given a record European Union privacy fine according to Bloomberg news. Ireland’s data protection commission will fine Meta Platforms for not protecting users’ data from US security services after it’s shipped to servers in the US, according to people familiar with the case, who spoke on condition of anonymity. The regulator will also order the social network to stop all data transfers to the US that rely on allegedly unsafe contractual clauses.

Microsoft is to expand its interests in India with a $12.7 billion investment by 2030 according to a statement released on Thursday. This comes on top of its $6.5 billion investment in e-commerce in India. It will be used to build its cloud infrastructure in India and will support over 100,000 full-time jobs annually.

Energy stocks had a mixed week as questions continue about oil demand with Energy Fuels, Shell, ConocoPhillips, Marathon Petroleum, Halliburton, Phillips 66, Marathon Oil, and Occidental Petroleum all up, while Chevron and Apa Corp (US) are down.

Materials and Mining stocks were mixed again this week. Copper prices hit 5-1/2 month lows due to deteriorating demand prospects in China, rising inventories, and a higher dollar. Albemarle Corporation, Freeport-McMoran, Yara International, Celanese Corporation, and Nucor Corporation are up, while Mosaic, CF Industries Holdings, Newmont Mining, Sibanye Stillwater and Packaging Corporation of America are down.

European Stock Indices 

Stoxx 600-0.57% MTD and +9.20% YTD 
DAX
 +0.18% MTD and +14.56% YTD 
CAC 40
 -1.23% MTD and+14.30% YTD 
IBEX 35
-0.32% MTD and +11.94% YTD 
FTSE MIB 
+0.44% MTD and+14.72% YTD
FTSE 100
 -1.87% MTD and+3.64% YTD 

Other Global Stock Indices 

MSCI World Index -1.03% MTD and+7.98% YTD
Hang Seng 
-1.68% MTD and-1.12% YTD

Currencies

The USD rose to a seven-week high this week on optimism about a deal being achieved to extend the US debt ceiling and avert default. Hawkish comments by several Fed officials are also helping to convince markets that rates will stay higher for longer. The GBP is +3.26% YTD against the USD, while the EUR hit a six-week low against the USD and is +1.27% YTD against the USD. 

Cryptocurrencies

Bitcoin -6.87% MTD and +64.98% YTD
Ethereum
 -3.70% MTD and+52.47% YTD

Bitcoin and Ethereum, the world's top two cryptocurrencies by market value, previously moved in tandem. However, according to crypto data provider Kaiko, this no longer appears to be the case. Coindesk.com reported that analysts from cryptocurrency exchange Bitfinex said in an email that "Post the transition to a proof-of-stake governance mechanism, it is possible that Ether is seen as a different asset class in the same sphere and this might change but for the time being, Bitcoin is more governed by macroeconomic factors and institutional investment while Ethereum although affected, might just be less correlated to the macroeconomic conditions for the better or worse.”

Fixed Income

US 10-year yield to 3.58%.
German 10-year yield to 2.34%.

UK 10-year yield to 3.84%.

US debt ceiling concerns continued to hit bond markets this week with US treasury yields rising on Wednesday as further negotiations are set for the end of this week. Although House speaker Kevin McCarthey did criticise President Biden for attending the G7 meeting in Japan this weekend, he did say that he doesn’t think the US will default. However, global markets remain nervous as the US federal government may potentially run out of money to pay its bills by 1 June. European bond yields have also dropped on new issuance from European governments with France and Germany holding bond auctions on Wednesday.

Commodities

Gold futures to $1,986.40 an ounce.
Silver
futures to $23.94 per ounce.
West Texas Intermediate
crude to $72.83 a barrel.
Brent crude
to $76.96 a barrel.

On Wednesday the Energy Information Administration (EIA) said US crude oil stockpiles jumped unexpectedly last week due to another release from the Strategic Petroleum Reserve. On Tuesday the International Energy Agency (IEA) warned that markets were ignoring looming supply tightness and accelerating demand outlook. “Record demand in China, India and the Middle East at the start of the year more than offset lacklustre industrial activity and oil use in the OECD,” the IEA said. Oil was down this week on USD strengthening as the rising likelihood of a debt deal and the continuing strength of the US economy have caused investors to think that the Fed may raise rates again in June.

Gold was down this week as the USD strengthened on a growing acknowledgment that the Fed is very likely to keep rates higher for longer and that cuts this year are increasingly unlikely as Chicago Fed President Austan Goolsbee said on Tuesday that it was premature to discuss rate cuts, and Atlanta Fed President Raphael Bostic said the Fed would need to be "super strong" in fighting inflation. However, many investors continue to believe that Fed rates have peaked and that concerns over a possible default will be supportive to gold. 

Note: As of 5 pm EDT 17 May 2023

Key data to move markets this week

EUROPE 
Thursday
: Speeches by ECB President Christine Lagarde and ECB Vice-President Luis De Guindos. 
Friday
: German PPI, ECB Economic Bulletin, and a speech by ECB Executive Board member Isabel Schnabel.
Monday:
Eurozone Consumer Confidence.
Tuesday:
German preliminary HCOB Composite, Manufacturing and Services PMIs, Eurozone preliminary HCOB Composite, Manufacturing and Services PMIs. 
Wednesday:
German IFO Business Climate, Current Assessment and Expectations.
Thursday:
German GfK Consumer Confidence and German GDP. 

UK
Thursday:
BoE Monetary Policy Report Hearings and GfK Consumer Confidence.
Tuesday:
S&P Global/CIPS Preliminary Composite, Manufacturing and Services PMIs.
Wednesday:
CPI, PPI, and RPI.
Thursday:
A speech by Bank of England Monetary Policy Committee member Jonathan Haskel.

US
Thursday:
Initial jobless claims, Continuing jobless claims, Philadelphia Fed Manufacturing Survey, and a speech by Fed Board of Governors member Philip Jefferson. 
Friday:
Speeches by Fed Bank of New York President John Williams, by Fed Board of Governors member Michelle Bowman and by Fed Chair Jerome Powell.
Tuesday
: S&P Global Composite, Manufacturing and Services PMIs and New Home Sales. 
Wednesday:
FOMC minutes. 
Thursday:
GDP, Chicago Fed National Activity Index, Initial and Continuing Jobless Claims, Core Personal Consumption Expenditures, Personal Consumption Expenditures Prices, and Pending Home Sales. 

Global Macro Updates

Can negotiators find a resolution? Debt ceiling negotiations appeared to be moving forward as President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy said that the US will avoid a catastrophic default. However, as noted by The Hill, a group of Democratic senators, led by Senator Tina Smith, are circulating a letter urging President Biden to invoke his constitutional authority under the 14th Amendment to raise the nation’s debt limit without having to pass legislation through Congress. These senators say the spending reforms that Speaker Kevin McCarthy (R-Calif.) has demanded in exchange for raising the debt limit are unacceptable. 

The UK’s spiral. In a speech on Wednesday to the British Chamber of Commerce, BoE Governor Andrew Bailey admitted that the UK has been suffering from secondary effects, i.e., the spread of price rises from energy and food into wage negotiations and price setting by companies, which are unlikely to go away quickly. He also noted some cooling in the labour market, with the jobless rate edging up to 3.9% in the three months to March from 3.8%. Vacancies fell for the 10th time in a row in the three months to April, hitting their lowest since mid-2021. On Monday BoE Chief Economist Huw Pill had warned that second-round inflationary effects could see inflation bottom out at 4% or 5%, rather than return to its 2% target.

Europe’s labour problem. Eurozone inflation accelerated to 7.0% in April from 6.9% a month earlier, as rising services and energy costs offset a slowdown in food price growth. Although core inflation slowed to 7.3% from 7.5%, there are signs of mounting wage pressures as services inflation, driven largely by rising labour costs, rose to 5.2% from 5.1%. Real wages are still down, but historically low unemployment at 6% and growing labour scarcity as companies hoard labour, is driving up nominal wages. The ECB has previously said that nominal wage growth of 3% would be consistent with its inflation target. The tight labour market, although strengthening disposable incomes and sentiment, is also contributing to inflation, making it harder for the ECB to alter its current rate trajectory. In short, Europe is experiencing similar second round effects to the UK. 

A new alliance? According to the Financial Times, seven of the world’s top chip makers have met in Tokyo with Japanese prime minister Fumio Kishida ahead of the G7 meeting to discuss investment plans in Japan. The chipmakers include Taiwan Semiconductor Manufacturing, South Korea’s Samsung Electronics and, from the US, Intel Corporation and Micron Technology. Semiconductors and guaranteeing the supply chain for a variety of products has become a key concern for the US in particular due to rising tensions between the US and China over Taiwan, where the majority of the world’s semiconductors are produced. 

Crypto’s gamble in the UK. The UK’s Treasury Select Committee has said that digital currencies such as Bitcoin and Ether have "no intrinsic value and no useful social purpose," and saying that they resemble gambling more than financial service. In a report issued earlier this week, the committee said that cryptocurrencies “pose significant risks to consumers, given their price volatility and the risk of losses. Given retail trading in unbacked crypto more closely resembles gambling than a financial service, the MPs call on the Government to regulate it as such.” The report also stated that the Committee is also concerned that regulating consumer crypto trading as a financial service – as proposed by the Government – will create a ‘halo’ effect, leading consumers to believe this activity is safe and protected, when it is not. Members of Parliament (MPs) have recommended applying safeguarding rules that oversee the likes of lotteries, betting firms, and casinos to crypto firms. However, according to Coindesk.com, the UK Treasury is adamant that it will press ahead with its plans to regulate crypto using existing financial legislation as it believes crypto’s risks are similar. Around 10% of UK adults hold or have held crypto assets, according to HM Revenue & Customs.

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