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WEEKLY ROUND UP Thru May 19th 2023; Debt Ceiling Risks Remains

Hey Folks, markets were on fire this past week and proved very resilient given the backdrop of negativity and downside risks that continue to drive the current market environment. Get my take on the current markets in this Week’s Round-Up.


US indexes recorded solid gains for the week, with the S&P 500 Index breaching the 4,200 level in intraday trading for the first time since last August. The index has remained notably range-bound over the past few months with the previous week marked the sixth consecutive one in which it failed to move by more than 1%—the longest such stretch since November 2019. The catalyst for the week’s gains appeared to be a notable shift in tone around debt ceiling negotiations with “Hard Nuts” McCarthy calling a deal “doable” however, stocks seemed to waver a bit on Friday after Republican negotiators announced that they had decided to “press pause” in discussions.

Retail sales rose 0.4% in April, below consensus expectations and at the slowest year-over-year pace (1.6%) since early in the pandemic. Given that the data are reported on a nominal basis and that the consumer price index rose 5.5% over the same period, inflation-adjusted spending fell sharply. Industrial production rose 0.5% in April, well above expectations for a flat reading, driven in part by increased auto manufacturing. Weekly jobless claims came in at 242,000, below expectations and below the previous week’s reading of 264,000, the highest level since late 2021. Continuing claims hit their lowest level in nine weeks.

The yield on the benchmark 10-year U.S. Treasury note rose sharply over the week, seemingly pushed higher by the jobs and manufacturing data. The markets are still pricing in a rate pause at the next Fed meeting in June.

Meanwhile, official data provided further signals that Europe might be sliding into an industrial recession. Eurozone industrial production sank 4.1% sequentially in March, after rising 1.5% in February. On a year-over-year basis, industrial output declined 1.4%, after increasing 2.0% in the preceding month. The European Commission raised its forecasts for eurozone economic growth this year and next and predicted inflation would remain stubbornly high. The latest projection calls for GDP to expand 1.1% this year and 1.6% in 2024, up from the previous forecast for growth of 0.9% and 1.5%, respectively. Wage increases are expected to drive inflation higher to 5.8% in 2023 and 2.8% in 2024, up from the previous estimates of 5.6% and 2.5%, respectively.

Japan’s GDP expanded at an annualized rate of 1.6% in the first quarter of the year, ahead of expectations. Economic expansion was attributable primarily to resurgent consumption—with consumers and businesses spending more than had been anticipated—as COVID restrictions were eased. BoJ Governor Kazuo Ueda reasserted that the central bank is committed to patiently maintaining its ultra-loose monetary policy stance and cited risks from a slowing global economy and uncertainty about whether wage growth will be sustained even though inflation came in over 3.4% YoY.

Chinese equities were mixed amid concerns that the country’s post-COVID recovery is losing steam. Official data showed industrial output, retail sales, and fixed asset investment grew at a weaker-than-expected pace in April from a year earlier. Unemployment fell to 5.2% in April from March’s 5.3%, but youth unemployment jumped to a record 20.4%, raising concerns that the post-pandemic recovery is not strong enough to attract new talent.

Enjoy this week’s round-up!

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