U.S. and International Equities
U.S. Markets Finish Lower
The U.S. major market indexes finished lower for the second straight week. Today’s CPI report in addition to higher energy prices and downward revised Q2 earnings guidance from retailers and technology names placed pressure on markets this week. Investors continue to worry about a potential recession as the Federal Reserve’s fight against inflation gets more difficult while a number of company CEOs have highlighted the challenging inflationary environment.
Developed international stocks (MSCI EAFE) finished the week lower, following the European Central Bank’s hawkish tone on monetary policy, in addition to concerns about an economic slowdown given geopolitical conditions in Eastern Europe. Emerging markets (MSCI EM) finished lower as COVID-19 conditions improved some in China earlier this week. This being said, on Friday, China initiated new COVID-19 lockdown measures in Shanghai. If Shanghai shuts down completely, as it did two months ago, supply chain improvements will most likely be derailed, hindering improvement in the inflation landscape.
Fixed Income Lost Ground
The Bloomberg Aggregate Bond Index finished lower for the second straight week as the 10-year U.S Treasury bond yield increased. The strong May Consumer Price Index (CPI) report gave bond investors some pause, as this report confirms that the Fed will maintain its hawkish sentiment. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, finished lower, reversing two consecutive weeks of gains as the asset class remains negative for the year.
Energy and Gold Higher
Crude oil and natural gas continued their advance higher this week. Both commodities appreciated in light of lower supply stockpiles worldwide. Gasoline inventories presently stand at an eight year low as one of the United States’ largest liquefied natural gas (LNG) producers this week was forced to shut down for three weeks. This, on top of sanctions and tariffs on oil continue to influence lower energy supplies. The major metal price for gold had a positive week in the wake of today’s inflation report.
Economic Weekly Roundup
Headline inflation in May rose over 8.5% from a year ago, a slight acceleration from April and the highest year-over-year increase since December 1981. The spike in consumer prices was fairly broad-based but especially noticeable in gas and groceries. Dairy prices rose almost 3% month-over-month, the largest monthly increase since July 2007. That being said, we do see some cooling in durable goods prices. The core CPI (excluding food and energy) fell to 6.0% from a year ago and down from over 6% last month, reaching a four-month low.
April Consumer Credit
April consumer credit increased by almost $40 billion and was approximately $9 billion less than March’s consumer credit increase. This was the third straight month of gains above $30 billion. The reading could potentially be seen as a positive as consumers are spending, however these gains are also showing that inflation is affecting the amount of borrowing.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in near its total two weeks ago and surpassed economists’ expectations. The readings remain historically low despite the recent uptick. Continuing claims, which remain near record lows, increased from the prior week and missed what economists estimated. The data continues to illustrate a very tight labor market and a culprit of the present inflationary climate.
The following economic data and potentially market-moving events are slated for the week ahead:
Tuesday: Producer Price Index (May), NFIB Small Business Index (May)
Wednesday: Federal Open Market Committee Meeting (June), Retail Sales (May), NAHB Housing Market Index (June), Business Inventories (April), Export/Import Prices (May)
Thursday: Weekly Initial and Continuing Unemployment Claims, Building Permits (May), Housing Starts (May)
Friday: Capacity Utilization (May), Industrial Production (May), Manufacturing Production (May), Leading Indicators (May)
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