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Weekly Wrap: Hawks Are Back - Week Ending April 19


*Market levels are at the time of writing, Friday midday

Weekly Wrap


Market Movers  

  • Sliding back. Equites felt the pressures of higher-for-longer interest rates and heightened geopolitical tensions. The S&P 500 and Nasdaq composite were roughly 5% below March peaks, with the S&P -2.6% and on track for its third weekly decline, and the Nasdaq -4.8% on the week. The Nikkei 225 index had its largest weekly dip since June 2022, down 6.2%. The VIX briefly rose above 20, a new year-to-date and six-month high, before settling at 18.5. Two-year US Treasury yields rose 10 basis points to 4.98% over the week, levels not seen since last fall.

  • Currency crunch. The dollar index was +4.7% year-to-date, with markets remaining vigilant on the possibility of intervention, as the Japanese yen and Indian rupee hit a 34-year low and an all-time low, respectively, versus the dollar. In a joint statement, the finance ministers of Japan, South Korea, and the US acknowledged “serious concerns” about recent currency weakness in Japan and South Korea, stating they will “continue to consult closely on foreign exchange market developments.”   

  • Unshakeable. Gold continued its 20% two-month rally, rising to $2,394. Continued central bank accumulation, retail demand, and tail risk from US election results may lead the commodity to see another +13.3% spike to $2,700 by year-end. 

Macro

  • Circling hawks. Hawkish Federal Reserve commentary kept interest rates elevated and had many analysts questioning the likelihood of rate cuts this year. Atlanta Fed President Raphael Bostic said cuts likely wouldn’t happen until year-end, while New York Fed President John Williams said a rate hike wasn’t his base case but one could be possible if the data warrants it. The market is now pricing in only 1.5 cuts by year-end, and a full cut is not priced in until November.  

  • Trickle down. The Fed’s shallower easing cycle may slow the pace of cuts by other central banks. Recent stickiness in the Euro area’s services inflation will likely slow the pace of European Central Bank cuts to quarterly starting in the fourth quarter. Central banks in Asia’s emerging markets will likely wait for the Fed to ease first.

  • Hovering. Brent crude fell to $87 and its outlook remains sensitive to tensions in the Middle East. Outside of further escalation, upside in Brent may remain limited given elevated OPEC+ spare production capacity, the US warning it may inject more supply from the Strategic Petroleum Reserve, and large inventory builds in Europe.  

 

Micro

  • You win some. Consumer staple names were +0.9%, a bright spot in an otherwise dampened market. A key consumer products manufacturer beat earnings per share expectations and suggested stronger profitability for the rest of the year due to price increases in core products. 

  • Ready, set, IPO. Equity capital markets activity continued this week even as stocks fell from April’s all-time highs. An e-commerce rewards company’s IPO performed strongly, opening nearly 33% higher than issuance price. IPO activity is expected to continue in the coming weeks as several companies have filed the initial paperwork to go public.
     

Checklist for next week 

  • Major economic events in the US include: Empire Manufacturing, Manufacturing PMI, GDP, Core PCE Price Index, PCE Deflator, U. of Mich. Expectations.

  • Major economic events around the world include: UK CPI, UK Retail Sales, Eurozone CPI, Eurozone Inflation Expectations, Japan CPI, Japan Rate Decision, China GDP, China Industrial Productions, Canada CPI, Australia CPI.

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