The big indices – the Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 – all had an okay week. The Dow Jones went up just a bit, less than 0.1%, the Nasdaq Composite climbed 0.4%, and the S&P 500 rose by 0.2%. The S&P 500 and Nasdaq Composite were on a hot streak, with Tesla’s stock doing exceptionally well because of some news about a collab with General Motors on electric vehicles. Chipmakers also had a good run, contributing to the market’s gains.

But it wasn’t all sunshine and rainbows. Some whispers about a potential bubble in tech stocks had some folks advising caution. This caution played out when the S&P 500 and Nasdaq took a dip as investors decided to cash in on the recent success of mega-cap stocks, especially with some significant economic and policy events coming up.

One big thing that happened during the week was the signing of the Fiscal Responsibility Bill, which raised the debt ceiling and put a two-year cap on government spending, helping to dodge a potential default. This, along with some chatter about the Federal Reserve may be hitting the pause button on rate hikes, led to the S&P 500 gaining less than 1% for the month.

Looking ahead, all eyes are on the Federal Reserve’s FOMC meeting in June. The odds are 76% in favor of the benchmark lending rate staying put, but there’s some talk about a potential 25 basis-point increase. With inflation data due next week and the Federal Reserve’s decision on interest rates, investors are on the edge of their seats.

In the cryptocurrency world, the SEC threw a curveball at Coinbase, a crypto exchange, accusing it of operating as an unregistered broker and exchange. This caused Coinbase’s stock price to take a 12.1% hit. But it wasn’t all bad news – Coinbase’s shares managed to bounce back after hitting a seven-month low, and Cathie Wood’s Ark Invest decided to buy shares of Coinbase.

And let’s not forget about Apple. Their stock went up by 1.6% as everyone was getting excited about their WWDC 2023 event, where they’re expected to announce new products and services.

Consumers Putting Inflation On Plastic

As the purchasing power of Americans declines, they are increasingly resorting to credit cards, leading to a mounting pile of debt. The Federal Reserve Bank of New York reports that consumer debt on credit cards has hit a record high of $988 billion, a 17% increase from the previous year, translating to about $5,700 per individual.

The continuously escalating debt, which paused during the pandemic, is now triggering fresh concerns as it approaches the significant $1 trillion mark.

The surge can be attributed to a few factors: With high inflation rates, more consumers are charging essential expenses to their cards. Others find it challenging to adjust their lifestyle to the rising costs.

Interest rates further complicate the situation. The average annual percentage rate (APR) has surpassed 20%, making this a particularly expensive form of debt for consumers. This APR is also the highest recorded since the Federal Reserve began monitoring credit card APRs in 1994. As a result, the total U.S. household debt reached an alarming $17 trillion in the first quarter.

CALENDAR & MOVERS

• Tuesday: CPI (MoM) (May)
• Wednesday: Fed Interest Rate Decision

Inflation Report

As we approach Tuesday, all eyes are on the U.S. inflation data for May, coinciding with the Federal Reserve’s monetary policy deliberations. Forecasts indicate a potential 0.3% month-on-month increase in headline consumer prices following April’s 0.4% growth. Additionally, Wednesday will see the release of producer price inflation and retail sales data, providing the Fed with critical information to influence its policy decisions. The market will be keenly observing the inflation report to assess the effectiveness of the Fed’s rate changes in controlling inflation without stifling economic growth.

Fed Meeting & Rate Increases

The Federal Reserve is expected to maintain the status quo on interest rates after its bi-weekly policy meeting. Nonetheless, the decision could go down to the wire, given the keen interest in May’s inflation data due for release on Tuesday.

Investors will also closely monitor the Fed’s “dot plot,” which presents its future interest rate adjustments predictions. While some officials from the Fed indicate that a halt in rate increases does not necessarily mean they have reached their zenith, market forecasts suggest a 25 basis point rise in July, followed by a similar reduction by December.

Global Bank Decisions

Unlike the Federal Reserve, the European Central Bank (ECB) is anticipated to raise interest rates by a quarter-point at their meeting, which follows the Fed’s decision. Another quarter-point rate hike is expected in July. ECB President Christine Lagarde has previously said that it’s too early to claim a peak in core inflation, reinforcing the need for future rate increases. Conversely, the Bank of Japan is likely to retain its monetary policy at the meeting on Friday, with newly appointed Governor Kazuo Ueda indicating a commitment to an ultra-easy policy until sustainable wage and inflation gains are achieved.

China Economic Report

China is poised to unveil key economic data on Thursday, featuring new home prices, unemployment, industrial production, and retail sales figures for May. This release is significant as recent data suggest a slowdown in China’s post-pandemic economic recovery.

Even though China’s May exports data fell short of expectations last week, the market remained mostly stable. Investors interpreted the disappointing figures as additional justification for implementing stimulus measures. Investors will scrutinize the forthcoming data to gain insights into the Chinese economy’s status.

BONDS

This week saw an unanticipated turn of events on the interest rate landscape. The central banks of Australia and Canada took measures against persistently high inflation, hiking their key rates by 25 basis points to 4.10% and 4.75%, respectively.

Although this could lead to speculation that the Federal Reserve and the European Central Bank might follow suit next week, most prefer to err on the side of caution. In fact, according to the CME’s Fedwatch tool, 72% of investors are banking on no change. Consequently, traders are maintaining a cautious stance, reflected by the unchanging yield on the US 10-year, which sustains above 3.60%. Similarly, the German 10-year yield appears stagnant, hovering between 2.55% and 2.18%.

COMMODITIES

Oil & Energy

Actions didn’t meet expectations. Saudi Arabia’s decision to go solo in supporting oil prices and disrupting sell positions didn’t yield the anticipated results. The Kingdom committed to a unilateral reduction of 1 million barrels a day from July 1, extendable if needed, but this step hasn’t incited any buying pressure on oil prices.

As evidence, both European Brent and US WTI are on track to end the week on a lower note, down 2.60% to $75.80 and 3.10% to $71, respectively. Investors seem more engrossed in recession fears, overshadowing a tightening oil market. On a brighter note, China’s latest data show a 17% month-on-month increase in oil imports.

Precious Metals & Gold

The industrial metals sector saw a quiet week, with prices fairly steady at around USD 8,300 for copper, $2,100 for aluminum, and $2,350 for zinc. Gold saw a modest rise to $1960, with China continuing to boost gold in its foreign exchange reserves, adding 0.5 million ounces in May.

CRYPTOCURRENCY

Despite facing serious allegations from the SEC, crypto giants Binance and Coinbase saw Bitcoin drop only marginally by just over 1% this week, floating around $26,700 at the time of writing. Ether suffered a slightly more significant fall, losing over 2% of its value, finishing near $1,850. Regulatory ambiguity continues in the US as regulators grapple with cryptocurrency guidelines, which have become increasingly stringent since last year’s FTX debacle. The recent legal actions against the two major crypto players add to the uncertainty and unease among crypto investors.