Welcome to the weekly “Wall Street Cheat Sheet,” where we provide you with a comprehensive overview of the recent happenings and trends in the stock market. In this edition, we will cover the key developments from the past week, including market performance, influential factors, and notable company updates.

Market Performance

Last week, the stock market experienced some fluctuations and mixed performances. Dow Jones futures indicated a potential pullback in the strong market rally. Concerns about the Chinese economy and doubts surrounding the effectiveness of China’s banks’ interest rate cut weighed on global equities and U.S. stock futures.

Europe’s main equity index dropped 1%, while Chinese tech companies faced downward pressure. Despite these challenges, the stock market rally gained momentum, driven by mega-cap technology stocks, indicating a resilient market outlook.

Influential Factors

Chinese Economy: Concerns about the Chinese economy influenced the market sentiment as doubts emerged regarding the effectiveness of China’s banks’ interest rate cut in supporting economic recovery.

Federal Reserve’s Decision: The Federal Reserve announced a pause in rate hikes, considering the downward trend in inflation and signs of economic softening. This decision was seen as appropriate and supported by the expectation of a less aggressive Fed, fueling the stock market rally.

Economic Reports

The US Bureau of Labor Statistics reported that the consumer price index (CPI) increased by 0.1% in May, following previous increases of 0.4% in April, 0.1% in March, and 0.4% in February. The all-items index had the smallest 12-month increase since March 2021, at 4.0% before seasonal adjustment, compared to 4.9% in April, 5.0% in March, and 6.0% in February. The increase in the all-items index was primarily driven by a 0.6% increase in the shelter index and a 4.4% increase in the used cars and trucks index. The food index increased by 0.2% in May, while the energy index dropped by 3.6%, with decreases in gasoline, fuel oil, electricity, and natural gas indexes. Core CPI inflation, which excludes food and energy, increased by 0.4% in May, matching the previous two months. The annual rate of core CPI inflation now stands at 5.3%, compared to 5.5% in April, 5.6% in March, and 5.5% in February. Significant increases over the last year include the shelter index (8.0%), motor vehicle insurance (17.1%), recreation (4.5%), household furnishings and operations (4.2%), and new vehicles (4.7).

According to the US Energy Information Administration, US commercial crude oil inventories increased by 7.9 million barrels to 447.1 million barrels for the week ending June 9th. Gasoline inventories increased by 2.1 million barrels, while distillate inventories increased by 2.1 million barrels. Total commercial petroleum inventories increased by 12.1 million barrels. Crude oil refinery inputs averaged 16.6 million barrels per day, with refineries operating at 93.7% of their operable capacity. Crude oil imports came in at 6.4 million barrels per day, and total motor gasoline imports averaged 1,054 thousand barrels per day, while distillate fuel imports averaged 136 thousand barrels per day.

The Federal Open Market Committee (FOMC) announced that it would keep the benchmark federal funds rate unchanged, maintaining it in the range of 5.0% to 5.25%. This marked the first pause after ten rate increases since March 2022. The FOMC’s statement mentioned the need to assess additional information and its implications for monetary policy. The dot-plot projections indicated the expectation of two more 25-basis point rate hikes in 2023, with the median fed funds rate projected to be 5.6% in 2023. The FOMC’s latest projections forecasted annual GDP growth of 1.0% in 2023, inflation rates of 3.2% (headline) and 3.9% (core) in 2023, and gradual rate increases in the following years.

Company Updates

Steris Acquisition: Steris agreed to acquire Becton, Dickinson, and Co.’s surgical instrumentation platform for $540 million, which is expected to contribute to Steris’ earnings.

Fidelis Insurance Holdings IPO: Fidelis Insurance Holdings announced the estimated price range for its initial public offering (IPO) on the NYSE, aiming to raise around $298 million.

Mullen Automotive’s Persona Technology: Mullen Automotive’s stock rose after announcing the integration of its AI-powered technology into its vehicles. The company plans to showcase this technology during a U.S. tour and at the Consumer Electronics Show in 2024.

Conclusion

Last week, the stock market faced challenges due to concerns about the Chinese economy and uncertainties surrounding interest rate policies. However, the market showed resilience, driven by the positive impact of the Federal Reserve’s decision to pause rate hikes and the strength of mega-cap technology stocks. It is essential for investors to closely monitor market trends and company-specific developments to make informed investment decisions.

CALENDAR & MOVERS

• Tuesday: Building Permits (May)
• Friday: Services PMI (June)
• Fed Talk

Fed Talk

Throughout this week, we’ll be keenly watching the speeches from various Federal Reserve officials, most notably the testimony of Fed Chair Jerome Powell before Congress on Wednesday and Thursday. Powell’s biannual address should offer deeper insight into the state of monetary policy, especially in the wake of the recent Federal Open Market Committee (“FOMC”) meeting where the decision was made to hold steady on interest rates, despite ten successive increases aimed at curbing inflation. Although inflation has markedly dipped from its high point last summer, the Fed’s most recent dot plot reveals that should inflation persist, officials may hike the benchmark fed funds rate twice this year, potentially hitting 5.6%. Powell’s testimony will serve as an informative gauge of the Fed’s position and potential rate action in response to inflation trends.

Housing Reports

Investors are advised to keep an eye on the latest shifts in the housing market this week. Despite slowing from its frantic pace during the pandemic, the market remains resilient with notably low supply levels. Recent inflation data have confirmed housing’s vital role in preventing significant drops in core inflation. The National Association of Home Builders’ (NAHB) newly released Housing Market Index is noteworthy, as it discloses a positive swing in homebuilders’ confidence after almost a year of pessimism. In addition, today’s report on May’s housing starts and building permits from the U.S. Census Bureau will offer insights into the state of home construction and supply availability.

Bank of England Decision

Expectations are high for another interest rate increase from the Bank of England (“BOE”) this week, driven by sustained inflation and rising wages in the U.K. While the general market prediction leans towards a 25 basis point rate hike, there’s also speculation about a possible 50 basis point increase. Interestingly, unlike the Federal Reserve, the BOE may carry on with rate increases into Q4, despite Gilt yields already hitting a 15-year peak. This implies a more assertive stance from the BOE to tackle inflationary pressures and steady the economy.

BONDS

In the face of potential hazards, the central banks met the predicted expectations for the week, with the U.S. Federal Reserve maintaining the status quo and the European Central Bank raising the rates by a quarter point. Investors chose an optimistic view, leading the market indices, spearheaded by Nasdaq, to record new yearly highs. However, the situation is complex. Both the Fed and the ECB signaled to the finance world about the persistence of “core” inflation, potentially leading to higher final rates than originally projected by the institutions and a sustained period of elevated rates.

In addition, some members of the Fed committee are inclined to think that real rates (Fed Funds – CPI) should be near 100 basis points for a substantial impact on inflation. Although the equity indices seem unaffected, the yield on the 2-year U.S. Treasury has indeed considered this. It is progressing towards its March peaks at 5.08, while the 2/10 U.S. cash spread sinks further into negative terrain. In essence, while market indices ignore the signs, interest rates remain wary of a potential recession on the horizon.

COMMODITIES

Oil & Energy

The International Energy Agency (IEA) shared this week’s latest monthly report. The report suggests a marginal increase in oil demand this year (up by 0.2 million barrels per day) before a projected decline in 2024 due to a 0.9 mb/d decrease in demand. The report also predicts an increase in supply, primarily from non-OPEC nations, as expected. OPEC also updated its forecasts this week, largely maintaining its previous predictions while highlighting usual threats to the supply-demand equilibrium, such as geopolitical tensions and global economic deceleration. In terms of prices, Brent crude is trading around $75 per barrel, and WTI, the U.S. equivalent, is at $71. Europe’s natural gas prices have seen a spike, with TTF Rotterdam hitting 40 EUR/MWh this week (currently around 35 EUR), due to supply constraints arising from leakage issues and maintenance in Norwegian pipelines.

Precious Metals & Gold

The base metals market experienced a significant surge this week, excluding aluminum, which stayed around $2,200 at the London Metal Exchange. Despite conflicting economic data from China, metals enjoyed a resurgence in risk appetite after the Federal Reserve’s decision to hold interest rates steady. A sharp dip in the US dollar also aided in boosting prices. In this scenario, copper touched $8,500 per tonne, while nickel hit $22,700, and zinc rose to $2,460. Gold remained stable at around $1,960 in the precious metals market.

CRYPTOCURRENCY

Bitcoin declined for the third week in a row, currently standing around $25,500, a 1.5% drop since Monday. Ether had a harder hit, plunging nearly 5% over the same period, now hovering around $1,650. As regulatory challenges persist in the United States, with the SEC demonstrating little progress, Bitcoin and its peers will likely face difficulties in regaining short-term bullish momentum.