- Investor’s focus shifting from concerns about inflation to recession.
- All eyes will be on non-farm payrolls on coming Friday.
- Gold rises and Dollar Slip on account of FED rate hike expectation
In recent weeks, it seems investors and traders have been shifting their focus from concerns about inflation to recession. Since early May, US economic data hints that markets are seeing the Fed increasingly fall behind on tackling CPI. We have also seen the markets substantially pull back on Fed rate hike expectations. Cautious commentary from the central bank has been cooling chances of a 50-basis point rate hike in September.
Market sentiment roared higher this past week.The market narrative seems to have flipped to bullish after both the S&P 500 and Dow Jones finished their best weeks since November 2020 on Friday. The reasons for such optimism, however, seem unclear with analysts providing conflicting explanations for the rebound.This has been resulting in a broad decline in Treasury yields. The combination of this and a weaker US Dollar has also been benefiting gold prices.
Now, in the week ahead, all eyes will be on non-farm payrolls on coming Friday. Job creation is expected to slow, but the unemployment rate and wages are seen to remain strong. Analysts believe there will be positive results for this coming Friday’s monthly US Nonfarm Payrolls report, despite negative consensus. Increased consumer demand tends to grow the economy and boost the jobs market, all of which accelerates equity markets.
Plummeting existing and pending home sales indicates slowing economy. This provides a spur for the Fed to not tighten policy as aggressively as anticipated. Earlier this month, Existing Home Sales plunged 2.4% to a near two-year low. On the other hand, Pending Home Sales slumped 3.9% in April, this was the sixth straight monthly decline. Finally, New Home Sales plummeted 16.6% MoM from the revised March data and 26.9% YoY as published Tuesday. The US economy slowed to an annualized pace of -1.5%—worse than the estimated -1.3% anticipated—making it the worst quarter since COVID decimated the US economy in the second quarter of 2020.
Outside of the US Economy, the Bank of Canada is expected to increase the 50-basis point rate on coming Wednesday. Australia releases its first-quarter GDP figures. China will also be closely watched for its May manufacturing PMI data as weaker data could intensify concerns about a slowing economy.
These negative economic releases bolster the theme that bad economic news is good for markets, a concept we mention periodically.However, even if stocks go up in the coming week, we don’t expect the upward momentum to last. Remember, we’re still in a bear market overall and the trends remain lower.
