The Week in the markets - MORAM Capital

The Week in the Markets – MORAM Capital

The US CPI came out below expectations, sending American stock markets to new all-time highs. In fact, the Dow Jones closed the week crossing the historic barrier of 40,000 points.

By sector, the best performer of the week was technology, led by the recovery in semiconductors, and Real Estate, following macroeconomic data this week which made the market anticipate a rate cut in September. Utilities continued their steady pace and remain the best sector over the past month (and year to date).

It was also a very good week for commodities, highlighted by the tremendous recovery of Henry Hub in recent weeks (one of our main theses and therefore some of our positions in natural gas). Additionally, gold and silver ended the week with strong gains, especially the latter. Bitcoin continued its recovery in a week where ETF inflows once again strongly supported this movement.

By country, the recovery of Chinese companies stood out, making them the best-performing country of the week. Along with India’s strong performance, this propelled the Emerging Markets index to nearly a 10% annual advance. This has been one of the main trends in recent weeks.

Lastly, it’s worth noting the contrarian movement of Japanese bonds compared to the rest of the world and the poor performance of mid caps compared to other capitalization groups.

 

Highlight of the week

US CPI

The key factor boosting sentiment was the release of the April Consumer Price Index on Wednesday, which slightly undershot expectations, unlike the hotter-than-expected figures from the previous three months. Overall prices increased by 0.31% in April vs 0.37% expected. Core prices (excluding food and energy) rose by 0.3%, in line with forecast. Inflation was mainly driven by services, particularly transportation services, which saw a monthly increase of 0.9% and an annual rise of 11.2%.

Retail sales in April were flat, missing the expected 0.4% gain, and revised March sales down from +0.7% to +0.6%. The data indicated a pullback in discretionary spending, with a 1.2% decline in sales at non-store retailers (mainly online) and a moderation in sales at restaurants and bars.

Other important news of the week

  • Bad week for European indices, coinciding with statements from several ECB members dampening expectations of rate cuts this year (we still believe there will be cuts, as early as June).

  • Eurozone industrial production rose by 0.6% in March for the second consecutive month, largely due to a significant and historically volatile increase in Ireland’s output.

  • Japan is experiencing economic weakness and a stable yen, influenced by anticipated U.S. interest rate cuts. In contrast, the Bank of Japan’s tentative hawkish stance has modestly increased Japanese government bond yields.Also, it reduced the amount of JGBs it offered to buy in a regular purchase operation.

  • The People’s Bank of China implemented measures to boost housing demand, including lowering the minimum down payment ratios, scrapping the nationwide floor for mortgage rates, and providing RMB 300 billion in low-cost funds for unsold homes, amid ongoing housing market struggles and economic deflationary pressures (historic rescue package to stabilize the property sector)

  • The recovery of Bitcoin over the past two weeks has been supported by net inflows of $1.3 billion into ETFs, which offset the entirety of the negative flows in April, putting them back around the high-water mark of +$12.3 billion net since launch.

Bitcoin ETF Inflows
  • Regarding the recover in natural gas prices, this week’s EIA storage data revealed a 70 bcf/d increase in natural gas inventories, which is lower than the expected 77 bcf/d and below the 5-year average of 90 bcf/d. Although total US storage remains ample at nearly 31% above the 5-year average, the gap is closing, down from just over 33% last week. Also the return of all three trains at the Freeport LNG export facility has further supported the prices.

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