The stock market slipped this week, losing nearly 30% of the gains it recorded last week, with the S&P 500, the NASDAQ and the Dow Jones all recording roughly 0.5% and 0.7%. The overall dip by this three was somehow balanced by some shares of smaller companies operating within the U.S which outperformed, and pushing Russell 2000 up by 1.2%. From Wednesday to Friday, the Russell 2000 closed at a new record high on each trading session.
The trade war between China and the United States continue to affect the financial markets. Earlier this week, the Chinese government sent a delegation to Washington, making it the second time they are sending a delegation in 2 weeks after the first round of meeting failed to create any breakthrough. The market was optimistic that some progress would be made after President Trump announced last weekend that he is working to ensure that the sanctions put on Chinese Phone Company ZTE was lifted so that they can get back to business. The optimism however faded away mid-week after the President stated on Thursday that he isn’t sure if a deal can be agreed upon.
Over in Italy, the major stock index of the country plunged by 2.9% this week with its 10 years yield also surging by 35 basis points. This development happened after two anti-establishment parties, the 5 Star Movement and the League, almost formed a governing coalition which would most certainly have clashed with the EU. The U.S officials revealed that the United States, Canada, and Mexico are still battling to iron out NAFTA deals.
On Wall Street this week, the U.S treasury yields were very much the center of attention after it surged to multi-year highs on Tuesday. The yield on the benchmark 10-yr Treasury note went up by 3.11% which happens to be its highest level since July 2011. It, however, retreated back to 3.07% late on Friday. Despite that, it still represented a gain by 10 basis point for this week. This rise did enough to attract some buyers from the equity market, which in effect halted Wall Street’s May rally.
The rise in Treasury yields on Tuesday happened at the same time the Retail sales report for April was released. There were no surprises regarding the report which showed an m/m increase of 0.3%.
Retail companies dominated earning this week. Walmart (WMT), Home Depot (HD), Macy’s (M), Nordstrom (JWN), and J.C. Penney (JCP) all reported their quarterly results for the first quarter of the year this week and all five results beat earnings were above expectations. However, Walmart, Home Depot, Nordstrom, and J.C. Penney weren’t able to meet up on same-store sales which ultimately plunged their shares lower. Macy’s had an opposite result in that section which led to its shares soaring, with the company also raising its guidance for this fiscal year.
The shares of CBS plummeted sharply on Thursday after a judge decided against that the company couldn’t liquidate its controlling shareholder Shari Redstone. Redstone has been looking to merge the company with Viacom (VIAB), something that other CBS holders aren’t too fond of, with the Redstone family also controlling Viacom via its holding company, National Amusements.
When it comes to sector performances, seven sectors declined this week while four outperformed. The rate-sensitive utilities (-3.2%) and real estate (-3.2%) sectors ended the week as the top losers with the main catalyst for this been the increase in Treasury yields. The technology (-1.5%) and financials (-1.1%) sectors both struggled too while the energy (+1.5%) and materials (+1.6%) sectors led the market this week in terms of sector performances.
After the decline this week, the S&P 500 and the NASDAQ are up 1.5% and 6.5% so far this year while the Dow Jones remains flat.
Forex Market Review
The Japanese Yen seems to be struggling over the past few weeks and has followed up last week’s poor performances with a worse one, ending the week as the top loser amongst the major currencies.
Just like always, the Yen’s directional movement mirrors the bond yields and since the bond yields were on the uptrend, the Yen was stumped upon by traders.
Risk sentiment once again helped in determining the direction of the currency. This was evident on Monday and Tuesday when the bond yields went up but the Yen only weakened against its competitors.
GBP Weekly Review
The pound ended the week as the third best-performing currency, making it the second week in a row that the GBP has ended strongly. The direction of its price action wasn’t all too clear, which indicated that the currency both benefitted and was also vulnerable to the price action of opposing currencies.
The pound started the week slowly but later started to trade higher against most of its pairs with the exception of the US Dollars before it was hit by selling pressure right before the UK’s job report.
The demand for the pound revived after the job report which was rather mixed but has some positive pointers for wage growth, with the currency starting to trade higher against most currencies with the exception of the Swiss Franc and the Greenback.
The rally ran out of steam on Wednesday as it recorded some losses against its major competitors. There was no major catalyst for this price movement but some analysts attributed its weakness to the Greenback strength and Brexit-related jitters.
The pound recovered on Thursday after a report from the Telegraph alleged that the U.K is ready to stay in the customs union with the E.U once the Brexit issue is over. This report was countered by the one made by Reuters earlier which dismissed those claims and the pound had to take a step back.
The Reuters report happened to be true after it was explained by PM Theresa May that the U.K will be leaving the customs union after leaving the EU. After dipping, the pound experienced mixed performance before later recording losses on Friday.
USD Weekly Review
The Greenback had to make do with second place this week after the Swiss Franc performed excellently over the week.
Even though it was the second top performer of the week, its price action was rather messy especially towards the tail-end of the week.
The U.S Dollars started the week very poorly. There were no catalysts for this but analysts believe that the doubt by traders about the sustainability of the currency’s rally was the main reason why. It did recover some lost ground later on with the main catalyst being the rising U.S bond yields. Some analysts also claim that the easing trade war fears played a part in pushing the US Dollars higher.
The currency recorded gains on Tuesday as the bond yields continue rising. The rally did stop when the bond yield rise halted. This happened after San Francisco Fed President John Williams revealed that he’s not seeing signs that inflation is taking off.
The bond yields dipped even further, with the Greenback facing extra selling pressure after news circulated that North Korea was looking to walk away from denuclearization talks. This was North Korea’s response to U.S. National Security Advisor John Bolton’s comment about the country supposedly having the “Libya Model” in mind for North Korea, which means that they plan to remove Kim Jong-un from power and forced down a messy road.
The U.S bond yields picked up on Wednesday but the US Dollars didn’t follow suit with no apparent reason why. It, however, regained its mojo on Thursday with the rise in bond yields the main reason for that even though the bond yields dipped later that day. The US Dollars steadied for a while before having a mixed Friday.