Mid-Week Market Minute 06.08.22

Market Updates

Stocks edged higher in early trading this week despite increasing concerns surrounding a slowdown in global economic growth. The easing of COVID-19 restrictions in Beijing, along with relaxed regulation on U.S.-listed technology firms, helped bolster sentiment in China with the Shanghai Index about 2% higher for the week. Energy shares continued their impressive rally, with the sector tacking on more than 5% this week as oil prices climbed to around $122 per barrel for West Texas Intermediate Crude.

On the data front, the U.S. trade deficit narrowed the most on record (in dollar terms) in April to $87.1 billion from the prior month’s $107.7 billion shortfall as COVID-19 lockdowns in China pressured imports. An update on consumer credit showed borrowing surged by a bigger-than-expected $38.1 billion in April. For the rest of the week, markets will focus on the consumer price (CPI) report that will be released on Friday. The data is expected to show inflation to be gradually slowing on a year-over-year basis. Headline CPI inflation now exceeds 8% in both the U.S. and Euro area, increasing pressure on central banks to aggressively raise rates. In housing, mortgage rates are back on the upswing, after a brief decline in May, and the housing market still is suffering from a lack of listings. As a result, mortgage demand continues to drop. Total mortgage application volume fell 6.5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand hit the lowest level in 22 years.

In central bank news, the European Central Bank (ECB) is set to begin reducing their balance sheet of the trillions of euros accumulated over the past several years. Against expectations for a smaller increase, the Reserve Bank of Australia increased its benchmark rate by a larger-than-expected 0.50%. India’s Reserve Bank followed suit, hiking their benchmark interest rate by 0.50% as well. Meanwhile, Federal Reserve officials are in their quiet period ahead of next week’s June 14-15 meeting where they are widely expected to raise rates by 0.50% from the current target range of 0.75%-1.00%. Interest rates marched steadily higher, with the yield on the 10-year Treasury note just north of 3% as of mid-week.

Source: GSAM, CNBC, JPMorgan