Bullish Undertone Drives Market Averages Higher in U.S. and Europe

Barry Adams
29 Jun, 2023
New York City

Major averages traded higher driven by gains in tech and bank stocks and treasury yields inched up after first quarter GDP was revised higher. 

U.S. economic growth was revised sharply higher in the first quarter to 2.0% from 1.3% in the previous estimate, indicating a resilient economy despite multiple rate hikes in the last fifteen months. 

Bank stocks advanced after 23 largest banks passed the Federal Reserve's annual stress test and JP Morgan Chase and Wells Fargo are set to announce their revised plans for stock buybacks and dividends later in the day. 

In other economic news, initial claims of weekly jobless benefits for the week ending on June 24 declined 26,000 to 239,000. 

The decline in jobless claims indicated the ongoing tight market conditions, despite multiple rate hikes by the Federal Reserve. 

The four-week moving average of claims increased 1,500 to 257,500.  

Tech stocks continued to trend higher as markets approached the end of the second quarter and first half and despite the talks of looming recession market indexes are set to report double digit gains in the year so-far. 

The Nasdaq Composite index surged in the last eight weeks after chip stocks rode the wave of optimism surrounding artificial intelligence and the index is set to rise 4% in June and 31% in the first half, its best performance since its inception in 1971, surpassing its previous record gain of 25.2% gain in 2019.  

 

First Quarter U.S. GDP Revised Higher 

In the third estimate, real U.S. economic growth was revised sharply higher to 2.0% from 1.3% in the previous estimate, the U.S. Census Bureau reported Thursday.  

In the fourth quarter of 2022, real GDP increased 2.6%. 

Higher consumer and public spending and exports contributed to the upward revision. 

Consumer spending growth rose to 4.2% from 3.8% in the previous estimate and exports increased 7.8% and imports advanced at a slower pace of 2%, resulting in higher net contribution of 0.58 percentage points. 

Nonresidential fixed investment growth was 0.6%, smaller than previously estimated 1.4%

The price index for gross domestic purchases increased 3.8% in the first quarter, the same as the previous estimate. 

The personal consumption expenditures (PCE) price index increased 4.1%, revised down 0.1 percentage point. 

The PCE price index excluding food and energy prices increased 4.9%, a downward revision of 0.1 percentage point.

After the release of the GDP data, U.S. Treasury yields advanced. 

 

U.S. Indexes & Yields 

The S&P 500 index decreased 0.1% to 4,373.44 and the Nasdaq Composite fell 0.2% to 13,579.28.  

The S&P 500 index advanced 4.7% in June and jumped 6.5% in the second quarter, third quarterly gain in a row. 

The yield on 2-year Treasury notes increased to 4.86%, 10-year Treasury notes inched higher to 3.79% and 30-year Treasury bonds edged up to 3.87%. 

Crude oil decreased $0.14 to $69.70 a barrel and natural gas prices decreased 1 cent to $2.68 a thermal unit. 

 

U.S. Stock Movers

Micron Technology Inc decreased 1.8% to $65.94 after the company reported quarterly results. 

Bank stocks were on the upswing after 23 largest banks passed the annual stress test conducted by the Federal Reserve. 

JP Morgan Chase increased 1.9% to $141.20, Wells Fargo advanced 2.9% to $41.83 and Bank of America Corp jumped 2.4% to $28.75. 

Joby Aviation Inc soared 28% to $11.22 after the electric vehicle aviation company confirmed a $100 million investment from an existing investor SK Telecom. 

On Wednesday, Job's stock jumped more than 38% after the company received permission to test its electric vehicle landing and takeoff. 

Occidental Petroleum increased 1.6% to $58.37 after Berkshire Hathaway acquired 2.1 million more shares in the company between June 26 and 28, according to a regulatory filing. 

After the purchase, Berkshire Hathaway's stake in the company rose to 25%. 

Overstock.com Inc increased 13.5% to $29.15 after the company said it completed the purchase of the Bed Bath & Beyond brand out of bankruptcy. 

 

 

European Markets Cautious After Central Bankers Talk Rate Hikes 

European markets recovered in today's session after hawkish comments from central banks dented sentiment in the previous session.  

Investors reviewed a slew of economic data from Sweden, Spain, UK and Eurozone. 

The eurozone economic sentiment indicator declined to 95.3 in June from 96.4 in May, the European Commission reported. 

The sentiment indicator declined to the lowest level since November and fell for the second month in a row on persistent high inflation and rising interest rates. 

The sentiment index deteriorated the most in Germany, the Netherlands, Italy and Spain but recovered in France. 

Market indexes in Frankfurt, Paris and London gained in a tentative rebound after heads of central banks of European Union, US and UK reiterated their commitment to reducing inflation to 2%. 

Hawkish talks from central banks put investors on alert that the aggressive rate hike campaign is going to continue and interest rates will rise in the US, UK and Europe at next policy meetings over two months. 

Swedish krona faced fresh selloff after the central bank lifted rates at a slower pace. 

The krona dropped to 10.8 against the dollar and plunged to a record low 11.8 against the euro after weaker-than-expected rate increase and risk aversion kept the currency under pressure. 

Sentiment for the currency weakened on the fears that the central bank has little flexibility in lifting rates on the worries of a deepening rout in the property sector after higher rates plunged property prices by 20% from the peak in March 2022. 

UK home purchase approvals, which is an indicator of future mortgage borrowing, rose to 50,524 in May from 49,000 in April, the Bank of England said in a report today.  

Despite the slight rebound in approvals, the latest data showed weak housing market because of elevated home prices and higher 

 

Sweden Hiked Rates to 3.75% 

The central bank of Sweden lifted its policy rate by 25 basis points to 3.75%, a seventh rate increase in a row. 

Sveriges Riksbank raised rates to the level last seen in 2008 and left its inflation outlook to 8.9% in the current year but revised higher to 4.3% from the previous estimate of 4% in 2024. 

The central bank also lowered its estimate of economic contraction to 0.5% from the previous estimate of 0.7% and forecasted flat economic growth in 2024. 

The central bank estimated policy rate at 3.75% in the third quarter from the prior estimate of 3.6% and increase to 4.05% from 3.6% in the second quarter of 2024 and keep rates at that level till the second quarter of 2025 before declining to 3.65% from the previous estimate of 3.35% in the second quarter of 2026. 

Investors reviewed the latest inflation data from Spain and Germany. 

 

Spain's Overall Inflation Slowest In Two Years 

Spain's consumer price inflation declined to 1.9% in June, the National Statistical Institute reported Thursday. 

The preliminary estimate of inflation declined below the 2% target set by the European Central Bank for the first time before March 2021. 

On a monthly basis, consumer prices increased 0.6% in June after staying flat in May. 

Core inflation, which excludes fresh food and energy, eased slightly to 5.9% in June from 6.1% in May but persistent inflation in services and non-energy products kept prices rising at elevated pace.  

 

Europe Indexes & Yields 

The DAX index decreased 0.01% to 15,946.72, the CAC-40 index jumped 0.4% to 7,312.73 and the FTSE 100 index decreased 0.4% to 7,471.69.

The yield on 10-year German Bunds inched higher to 2.34%, French bonds traded lower to 2.87%, the UK gilts edged up to 4.33% and Italian bonds increased to 4.02%.

The euro edged higher to $1.09, the British pound to $1.263 and the U.S. dollar fetched 89.61 Swiss cents

Brent crude increased $0.23 to $74.26 a barrel and the Dutch TTF natural gas increased €1.06 to €35.10 per MWh.

 

Europe Stock Movers

H & M Hennes & Mauritz AB jumped 16% to SEK 182.60 after the Swedish apparel retailer reported stronger-than-expected results in the quarter ending in May. 

Renault SA jumped 6.3% to €38.73 after the French automaker lifted its annual operating margin outlook following the success of recently launched new vehicles. 

IWG Plc declined 4.9% to 133.20 pence after the office space provider offered a cautious outlook for the remainder of the year. 

Burberry Group Plc decreased 1.9% to 2,097.0 pence after the stock of the luxury apparel and accessories retailer traded ex-dividend. 

Serco Group Plc increased 11.3% to 158 pence after the security outsourcing services provider lifted its full-year outlook. 

3i Group Plc increased 1.5% to 1,910 pence after Action, the company invested in,  reported an increase in sales in the year so-far.