Last week started with what turned out to (fortunately) be short-lived excitement around meme stocks that quickly gave way to a slew of inflation-related economic data, including an in-line CPI print and lower-than-expected retail sales in the US. I struggle to completely understand why investors cheer economic data suggesting that US consumer demand is weakening, especially since robust consumer demand has been the growth engine of the country’s “exceptional” economic growth since the pandemic (and before). Of course, the euphoria in risk market reflects investors' laser focus on inflation, and by extension anticipation of the Fed’s next monetary policy move. As such, any data suggesting that the Federal Reserve might capitulate more quickly than last expected is interpreted as good news, with the collateral effect of weaker corporate performance swept aside for consideration at a later time. In fact, the weaker the economic data is in Europe and the US the more stocks seem to rally because investors believe that interest rate cuts are drawing nearer. So what is likely to happen in the coming weeks? I suspect the ECB will accommodate a reduction its policy rates in June because ECB officials are signalling accordingly. The UK remains in a bit of a pickle, but I think the BoE is not far behind (the ECB). The Fed has latitude to defer and wait, and will do so unless a combination of better-than-expected inflation data and consistently weaker economic data persists, which seems unlikely in the near term.
Regardless of the rationale, this mindset delivered another banner week for equity investors in the US and Europe, with Japan and the emerging markets also registering gains. UK stocks, which have delivered the best gains of developed market indices over the last month, backed off slightly after reaching a record high. Chinese equities flatlined. On Friday, the DJIA closed at the coveted 40,000 level (+1.2% WoW) and the S&P 500 closed above 5,300 (+1.5%), both reaching these milestones for the first time. The NASDAQ Composite also soared to a record high close. US Treasuries rallied as yields came in, although bond investors gave back some of the gains on Friday. Corporate bonds, not dis-similar to equities, cheered lower yields, and also experienced slightly tighter credit spreads in both investment grade and high yield . The riskiest CCC-end of the high yield bond market rallied the hardest. Most currencies were stronger against the US Dollar because of slightly weaker-than-expected US economic data (especially retail sales), although the Yen still found a way to weaken against the greenback. Oil prices remain firm (around $80/bbl for WTI crude) as geopolitical tensions are “static” (for lack of a better word) for the time being. Gold also popped above $2,400/oz for the first time, somewhat surprising given the backdrop for safe havens and a more optimistic view that yields could begin to fall soon. The culprit in this instance is most likely related to stronger demand coming from (non-US) central banks looking to lessen their dependency on the US Dollar. For crypto fanatics, Bitcoin was on fire last week, increasing over 10% and – as is occasionally the case – putting returns on traditional asset classes to shame.
Details for various indices and asset classes tracked by EMC can be found below in the section “The Tables”.
WHAT MATTERED LAST WEEK
US economic data
In the US last week, PPI (here, hotter than expected) was released Tuesday, followed on Wednesday by CPI (here, in line with downward trend) and advanced monthly sales data for retail sales (here, flat in aggregate MoM) on Wednesday. It was retail and food services sales data on which investors were most fixated, given the relatively benign CPI reading for April. Digging deeper into the data (details can be found here), there were a number of categories where sales MoM declined: motor vehicle & parts (-0.8%); home furniture (-0.5%); sporting goods, hobbies, musical instruments & bookstores (-0.9%); and non-store retailers (-1.2%). However, demand remained robust for electronics & appliances (+1.5%); food & beverages (+0.8%); gasoline (petrol) stations (+3.1%); and clothing & clothing accessories (+1.6%). It looks as if March data was also revised downward, providing some evidence that the Federal Reserve’s desired “soft landing” might be in sight. Unofficially, Fed officials played down the data, at least as far as having any effect on future monetary policy moves. The CME FedWatch tool is now indicating two 25bps reductions in the Fed Funds rate this year, one in September and one in December.
UK employment and wage growth
ONS released its employment data for April for the UK (here), showing that unemployment ticked up to 4.3% even as wage inflation rose to 6%, slightly higher than expected. Tighter monetary policy is starting to effect the employment market in the UK, but wage inflation remains troubling, making the next BoE decision a difficult one.
Biden approves additional tariffs on Chinese exports
Whether incumbent President Biden or former president Trump win the White House in November, one thing is certain – both will maintain tight trade restrictions on Chinese imports into the US. The Biden Administration has just approved another round of higher tariffs on select Chinese goods because of the ongoing subsides the Chinese government provides to domestic manufacturers of products that the US believes is stunting its onshore production in these key strategic sectors. The higher tariffs will apply to certain key products exported by China, including steel & aluminium, semiconductors, EVs, batteries and solar cells. You can find the White House press release here.
MEME stonks return, “short & sweet”
It’s back to the future for meme stocks, as brief as it was. The week started with a cryptic post from none-other than Keith Gill, otherwise known as “Roaring Kitty” on Twitter/X (here) and “DFW” (aka “DeepFuckingValue”) on Reddit. He posted the tweet below on X last Monday after the close, his first in nearly three years, which started a feeding frenzy for meme stocks, including GameStop (GME) and AMC.
Readersbelieved that the post implied that Roaring Kitty is “back in the game”, since he is leaning forward. And it worked, at least initially, with GME – which closed at $17.46/share the week before – gapping to $64.83/share at Tuesday’s open. Indeed, the momentum crowd wanted to see the stock carry on with its ridiculous run, as in the past. However, GME instead began to fade relatively quickly, ending Friday at $27.67/share. That’s still a nice run WoW and provided smart investors with a window to unload the wildly over-valued shares, also opening the door to a stock sale by GME. However, Mr Gill did not rest on his laurels following his initial post on X, posting an additional 84 times throughout the remainder of last week, mostly videos that contained (I suppose) cryptic messages for his followers. There are way too many back stories to drift into these, but you can dig deeper should you wish to enjoy the entertainment value of this saga, certainly a pandemic highlight from 2021. Matt Levine covered this in an amusing way on his last “Money Stuff” podcast which you can access here.
THE COMING WEEKS
We have a series of important central bank meetings coming in June. However, the focus this coming week will clearly be on Nvidia (NVDA), which releases its 1Q25 earnings on Wednesday (May 22) after the close. Zacks is expecting $5.17/sh, while earningswhispers.com is expecting a massive beat of $5.80/share, with revenues of $24.17 bln for the quarter. Needless to say, the results for NVDA – the last of the Mag 7 companies to release earnings this cycle – will have a major bearing on market sentiment following their release.
MY TRADES LAST WEEK
The only trades I did last week were around an open short (covered) call / long put strategy I had on AAPL, with the expiry Friday. I repurchased the calls (at a loss), but also sold some AAPL shares into strength getting around $190/share in two separate transactions. I still like AAPL a lot, but it is very difficult not to lighten given the run since earnings, which were rather mediocre at best. If the shares return to the low 180s level, I will probably re-add this position. If not, I will enjoy the ride on the rest of my position. Let’s see.
THE TABLES
The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes.
Global equities
US equities
US Treasuries
Corporate bonds (credit)
Safe haven and other assets
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