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WKLY MARKET ROUND-UP Thru May 6th 2022; “Is Peak Inflation Near?”

Hey Folks, all eyes will now shift their focus to the coming CPI data hitting the markets this coming week with everyone asking the question, “Is Peak Inflation Near”? We will know soon enough but you can get my take in this week’s market round-up below.


The major indexes endured a fifth consecutive week of losses as interest rate and inflation worries continued to weigh on sentiment, especially toward growth stocks. On Wednesday afternoon, Fed policymakers announced a 50-basis-point (0.50 percentage point) increase in the federal funds target rate, the largest since 2000, to a range of 0.75% to 1.00%. Officials also announced that the Fed would begin allowing its holdings of Treasuries and agency mortgage-backed securities to decline in June at an initial combined monthly pace of USD 47.5 billion, stepping up over three months to USD 95 billion. Fed Chair Jerome “Power Ranger Boom Boom” Powell surprised many by stating that a hike of 75 bps was “not something we are actively considering. His comments were generally perceived as more dovish than anticipated and markets had an oversized move higher only to be met by an equally larger move lower the very next day.

The Commerce Department reported that nonfarm unit labor costs jumped 11.6% in the first quarter, well above elevated consensus forecasts of a rise of around 9.9%. The increase was largely due to a 7.5% drop in productivity, the biggest quarterly decrease in nearly 75 years. While many economists cautioned that the figure was complicated by the surprise 1.4% annualized decline in first-quarter gross domestic product—which itself was further complicated by a record trade deficit—it was still a greater drop than most had anticipated. Markets also appeared to react negatively to Friday’s closely watched nonfarm payroll report, even though it came in largely in line with expectations. Employers added 428,000 jobs in April, modestly above consensus expectations of around 390,000.

Amid a broad rise in Treasury rates, the 10-year U.S. Treasury note yield breached 3.00% for the first time since late 2018, climbing as high as 3.13% on Friday. The yield curve continued its recent steepening trend as long-term inflation expectations—and long-maturity Treasury yields—increased, and more investors eliminated bets that the yield curve would flatten.
Shares in Europe tumbled amid fears that central banks may have to step up their efforts to control inflation, potentially increasing the risk to economic growth. The BoE raised its key interest rate 25 basis points to 1.0%, the highest level since 2009, seeking to dampen inflation. However, the central bank delayed reducing its stockpile of bonds bought under its asset purchase program. German manufacturing orders fell a much-greater-than-expected 4.7% sequentially in March, driven by lower foreign orders, especially from outside the eurozone. Industrial production dropped 3.9%, the largest decline since the start of the coronavirus pandemic.

In Japan, the CPI rose 1.9% year on year in April compared with 0.8% in March. Regarded as a leading indicator of countrywide price trends, the reading suggested an increased likelihood of Japan’s CPI reaching the Bank of Japan’s (BoJ’s) 2% inflation target in coming months.

And over in China the Gov showed no sign of relaxing its zero-tolerance approach to the coronavirus, raising worries about the economic cost of widespread lockdowns. China’s service sector activity shrank in April at the second-steepest rate on record, according to the latest PMI data.

Enjoy This Week’s Round Up;

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