Longer Rate-Pause Expectations Extends Market Rally to 6th Day

Barry Adams
15 Jun, 2023
New York City

Major averages accelerated gains for the sixth session in a row as tech stocks led gainers. 

The S&P 500 index advanced for the sixth day in a row and closed at a new 13-month high after tech and growth stocks led gainers. 

Investors bid up stocks on the hopes that the Federal Reserve is nearing its tightening cycle and a resilient economy and job market are likely to provide a sustained boost to corporate earnings this quarter and in 2023. 

The Federal Reserve held the federal funds rate as expected but sent clear signals that its inflation fight is not done yet and policymakers are prepared to lift rates to cool inflation to 2%. 

In a balancing act, the central bank is attempting to cool inflation while avoiding the economy from slipping into a recession and avoiding widespread unemployment. 

The tough act of keeping the economic expansion at a steady pace and enlarging job market without fueling too strong price pressures, got easier after crude oil prices dropped 40% in the year so far and supply chain issues largely under control. 

The Federal Reserve is not in a position to influence supply chain issues or commodities prices but has a significant impact on the aggregate demand. 

Microsoft hit a new record high after optimism surrounding AI driven demand lifted several stocks for the second week in a row. 

Investors also digested the latest jobless claims and retail sales data.

 

Jobless Claims Held at Elevated Levels 

Initial jobless claims for the week ending on June 10 were 262,000, matching the previous week's level, the U.S. Department of Labor reported Thursday. 

Continuing claims for four weeks increased 20,000 from the previous week to 1,775 million.

 

Retail Sales Unexpectedly Rose In May 

U.S. retail sales rose 0.3% in May following a 0.4% rise in April, the U.S. Census Bureau reported Thursday. 

Retail and food services sales for May, adjusted for seasonal variation and  holiday and trading-day differences, but not for price changes, were $686.6 billion, up 0.3% from the previous month, and up 1.6% from a year ago. 

Retail trade sales were up 0.3% from April 2023, and up 0.7 percent (±0.5 percent) above last year. 

Nonstore retailers were up 6.5% while food services and drinking places were up 8.0% from a year ago. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 1.2% to 4,426.01 and the Nasdaq Composite increased 1.2% to 13,782.82. 

The yield on 2-year Treasury notes decreased to 4.65%, 10-year Treasury notes edged down to 3.73% and 30-year Treasury bonds eased to 3.83%. 

Crude oil increased $2.38 to $70.59 a barrel and natural gas prices increased 22 cents to $2.56 a thermal unit. 

 

U.S. Stock Movers

Cava Group soared more than 110% and traded as high as $45 after the restaurant company completed its initial public offering. 

Cava sold 14.4 million shares at $22 each and raised $318 million. 

Toyota Motor Corp increased 1.9% to $168.72 and the stock extended its weekly gain after shareholders reelected company chairman Akio Toyoda yesterday. 

Kroger Co declined 2.8% to $45.88 after the company reiterated its same store sales excluding gasoline sales for the year. 

Lennar Corp advanced 3.5% to $118.78 after the home builder reported better-than-expected fiscal second quarter results and the company lifted its unit sales outlook for the year.  

 

 

European Markets Lacked Direction, ECB Signaled More Rate Hikes 

European markets remained under pressure and the central bank lifted rates higher.

Market averages in London, Paris and Frankfurt traded down after the rate decision was announced and more rate hike worries dragged the indexes lower. 

“We are not thinking about pausing," said ECB president Christine Lagarde at a press conference after the rate decision. 

The central bank also revised higher its estimate of the headline inflation and core inflation for 2023 and lowered its economic growth outlook. 

Investors largely ignore the improvement in international goods trade deficit data in April after imports fell at a faster pace than expected. 

Tech stocks led decliners in trading across the region followed by declines in construction and telecom stocks. 

In other news, China lowered its medium term lending facility rate by 10 basis points to revive the faltering economic growth. 

The People's Bank of China lowered its one-year medium term rate following the decision to lower short term 7-day reverse repo rate by 10 basis points to 1.9%  on Tuesday.  

The central bank is expected to lower its loan prime rate by a similar amount on June 20. 

 

ECB Lifted Reference Rates 0.25% 

The European Central Bank decided to lift its lending rate for the eighth time in a row and revised its annual inflation outlook and lowered its annual economic growth estimate for 2023. 

The Governing Council decided to lift the three key ECB interest rates by 25 basis points. 

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.00%, 4.25% and 3.50% respectively, with effect from June 21. 

The central bank also estimated average annual inflation of 5.4% in 2023 before it cools to 3.0% in 2024  and 2.2% in 2025.

Core inflation, excluding food and energy, is estimated to average 5.1% in 2023 and 3.0% in 2024. 

Economic growth was revised slightly lower to 0.9% in 2023 and to 1.5% in 2024. 

 

Eurozone Trade Deficit Shrank In April 

The Euro Area international goods trade deficit in April shrank to €11.7 billion from €34.5 billion a year ago.  

Exports declined 3.6% to €216.0 billion and imports dropped 11.9% to €227.7 billion. 

In January to April 2023, euro area exports of goods to the rest of the world rose 5.4% from a year ago to €940.0 billion, and imports fell 2.9% to €957.2 billion. 

Exports to the U.S. increased 2.5%, to China advanced 2.5%, to Turkey soared 26% and the UK jumped 6% but shipments to Russia declined 32% and Japan dropped 12.5%. 

Imports from Russia plunged 73% and from China declined 10.5%. 

 

Europe Indexes & Yields 

The DAX index decreased 0.6% to 16,205.64,  the CAC-40 index declined 0.8% to 7,270.65 and the FTSE 100 index increased 0.07% to 7,608.02.

The yield on 10-year German Bunds inched higher to 2.50%, French bonds traded higher to 3.03%, the UK gilts edged up to 4.42% and Italian bonds increased to 4.18%.

The euro edged lower to $1.08, the British pound to $1.26 and the Swiss franc to 90.26 cents.

Brent crude increased $2.32 to $75.54 a barrel and the Dutch TTF natural gas increased €2.80 to €41.15 per MWh.

 

Europe Stock Movers

Informa PLC increased 2.5% to 722.0 pence after the publisher and event organizer lifted its annual outlook. 

Origin Enterprises Plc gained 1.7% to €3.51 after the agriculture services provider said revenue in the fiscal year 2023 increased to €1.9 billion.

Halma Plc declined 4.90% to 2,310.0 pence after the company posted lower net income attributable to stockholders. 

H&M Group increased 3.3% to kr150.50 after the Swedish apparel retailer said net sales increased 6% in the three months to May. 

Legal & General Group Plc declined 2.4% to 231.97 pence after the company appointed an outsider as its next chief executive.

Siemens AG added 0.3% to €164.82 after the German industrial conglomerate said it plans to invest €2 billion and build a new manufacturing plant in Singapore and expand its production facility in Chengdu, China. 

Hugo Boss AG declined 2% to €68.70 after the German apparel designer and retailer said it is ahead on its target to reach €4 billion in sales by two years.