Major U.S. Averages Advanced, Global Markets May Face Rate Hikes Next Week

Barry Adams
08 Jun, 2023
New York City

Benchmark indexes climbed a tall wall of worries and investors debated rate path and health of the U.S. economy. 

Treasury yields diverged and the yield spread between 2-year and 10-year notes widened but the yield on 30-year Treasury bonds hovered below 4.0%. 

The Federal Reserve is scheduled to announce its rate decision after the 2-day meeting on June 14 and investors are divided with some forecasting rates to increase by 25 basis points. 

Despite nine rate hikes over the last fourteen months, inflation has stayed above the Fed's target level of 2% and inflationary forces are weakening but price increases have spread to broader activities in the economy. 

Lagged effects of rate hikes have still not worked its way to the broader economy, but elevated rates are likely to stay higher for longer. 

The U.S. Federal Reserve, the Bank of Japan and the European Central Bank are scheduled to announce their rate decisions next week. 

As earnings season for the first quarter is winding down, investors are revising expectations downward for the current quarter. 

Stretched household budgets, because of elevated inflation, are likely to keep consumer spending in check for the rest of the year. 

In addition, higher rates and tighter credit conditions after the recent collapse of several regional banks is also negatively impacting lending to small and medium-sized businesses. 

 

Jobless Claims Advanced Third Week In a Row  

The initial claims of jobless benefits increased to 261,000 in the week ending on June 3, the U.S. Department of Labor reported Thursday. 

Weekly claims rose to the highest level since October 2021 and rose for the third week in a row. 

Initial claims in the previous week were slightly revised higher to 233,000 from the previous estimate of 232,000. 

Continuing claims declined 37,000 1.757 million from 1.794 million in the previous week. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.5% to 4,288.97 and the Nasdaq Composite increased 0.9% to 13,224.58. 

The yield on 2-year Treasury notes decreased to 4.45%, 10-year Treasury notes edged up to 3.79% and 30-year Treasury bonds rose 3.95%. 

Crude oil traded lower after reports suggested that the U.S. and Iran are nearing a deal to ease sanctions in exchange for Iran reducing its uranium enrichment. 

Crude oil increased $2.46 to $70.03 a barrel and natural gas prices increased 1 cent to $2.30 a thermal unit. 

 

U.S. Stock Movers

GameStop Corp declined 21.6% to $20.46 after the company ousted chief executive Matthew Furlong and said Ryan Cohen will take over as executive chairman. 

Signet Jewelers Limited dropped 9% to $63.01 after the specialty retailer lowered its revenue and earnings estimate for the full-year and forecasted weaker-than-expected second quarter revenue and operating income. 

Lucid Group increased 3.1% to $6.60 after the electric vehicle maker's head of China operations Zhu Jiang said the company is preparing to launch its operations and enter the Chinese market. 

HashiCorp Inc plunged 21.4% to $27.40 after the cloud computing company reported weaker than expected earnings. 

In addition, the company announced its plan to reduce its workforce by 8% citing macroeconomic headwinds. 

 

In Cautious Trading European Markets Lacked Direction 

European markets traded in a narrow range and investors remained cautious ahead of rate decisions next week. 

Bond yield in the region rose ahead of the European Central Bank's rate decision next week. The yields were also on the rise after the Bank of Canada and the Reserve Bank of Australia lifted rates by 25 basis points. 

The U.S. Federal Reserve is also likely to lift its key lending rate by 25 basis points. 

Tech stocks led decliners in the region and energy stocks led gainers in volatile trading in Paris, London and Frankfurt. 

Market sentiment was cautious after the eurozone economy unexpectedly shrank in the first quarter of 2023 following a downwardly revised final quarter of 2022, dragging the region into technical recession. 

 

Technical Recession in Euro Area 

The Euro Area economy unexpectedly shrank 0.1% in the first quarter, the statistical office of the European Union Eurostat reported Thursday. 

The GDP growth estimate for the final quarter of 2022 was revised to a decline of 0.1% from flat, indicating that the economy of the currency union entered a technical recession.  

On an annual basis, seasonally adjusted GDP increased 1.0% in the first quarter of 2023, slower than the 1.8% rise in the final quarter of 2022. 

Poland recorded the highest increase of 3.8% in GDP compared to the previous quarter, followed by  2.0% in Luxembourg and 1.6% in Portugal. 

Ireland's GDP shrank the most in the currency union with a fall of 4.6%, followed by 2.1% decline in Lithuania and 0.7% decrease in the Netherlands. 

GDP contracted 0.3% in Germany but expanded 0.5% in Spain, 0.2% in France and 0.6% in Italy. 

 

Europe Indexes & Yields 

The DAX index increased 0.2% to 15,991.76, the CAC-40 index increased 0.2% to 7,221.56, and the FTSE 100 index fell 0.3% to 7,599.74. 

The yield on 10-year German Bunds inched higher to 2.46%, French bonds traded higher to 3.01%, the UK gilts edged up to 4.29% and Italian bonds increased to 4.26%.

The euro edged lower to $1.072, the British pound to $1.246 and the Swiss franc to 90.95 cents.

Brent crude increased $0.95 to $75.98 a barrel and the Dutch TTF natural gas increased €0.74 to €27.07 per MWh.

 

Europe Stock Movers

FirstGroup Plc soared 15.5% to 137.50 pence after the transportation company announced a stock buyback plan of £115 million. 

The company also swung to a pre-tax profit in fiscal 2023 after revenue picked up. 

RWS Holdings Plc increased 14.3% to or 259.80 pence after the company launched a stock repurchase plan of up to £50 million. 

In the first-half, revenue increased and profit declined but the company confirmed that the full-year outlook is in line with market expectations. 

Wizz Air Holdings Plc increased 0.2% to 2,784.0 pence after the deep discount airline said loss shrank in the fiscal 2023 on higher revenue. 

The airline forecasted profitability in the fiscal year 2024. 

Crest Nicholson Holdings Plc dropped 8.2% to 229.04 pence after the company reported weaker-than-expected revenues in the first-half but swung to a profit from a loss in the corresponding period a year ago. 

Saint Gobain SA increased 1.2% to €56.73 after the French building materials company estimated fiscal 2023 operating margin between 9% and 11%. 

Mitie Group Plc added 0.5% to 96.90 pence after the outsourcing company reported higher revenue but flat after-tax earnings. 

 

Australia and Canada Lift Rates, India Holds 

The Reserve Bank of India held its repo rate at 6.5% and the Bank of Canada and the Reserve Bank of Australia lifted their reference rates by 25 basis points. 

 

Japan Q1 GDP Revised Higher 

Japan's economic growth in the first quarter was revised to 0.7% from the previous estimate of 0.4%, the Cabinet Office reported Thursday. 

On an annual basis, GDP growth was revised to 2.7% from 1.6% in the preliminary estimate. 

Capital spending was revised higher to 1.4% from 0.9% in the preliminary estimate, private demand rose 1.2% from 0.8% and domestic demand was revised higher to 1.0% from 0.7%.   

Upward revision in the Japan's GDP surprised economists and benchmark indexes in Tokyo trade at 33-year highs. 

The Japanese yen strengthened 0.1% to 139.97 against the U.S. dollar after the release of data.