Week 22 in Brief
U.S. stocks fell sharply on Friday, leaving major indexes with weekly losses, after better-than-expected May payrolls data reinforced expectations for a series of interest-rate rises by the Federal Reserve in coming months. The technology sector led the way south as Treasury yields rose and a report that Tesla Inc. may be considering job cuts amid CEO Elon Musk’s misgivings about the economic outlook.
How did the major indices perform?
- The Dow Jones Industrial Average DJIA fell 348.58 points, or 1%, to end at 32,899.70. This dragged the blue-chip gauge to a 0.9% weekly fall.
- The S&P 500 Index dropped 68.28 points, or 1.6%, to close at 4,108.54, leaving it with a 1.2% weekly loss.
- The Nasdaq Composite COMP shed 304.16 points, or 2.5%, finishing at 12,012.73. The tech-heavy index, which fell into a bear market earlier this year, suffered a 1% weekly decline.
What drove the US market?
- May nonfarm payrolls rose a bigger-than-expected 390,000 data, versus expectations for a gain of 328,000, from an upwardly revised gain of 436,000 in April. The unemployment rate was constant in May at 3.6% while the average hourly earnings rose by 0.3% to $31.95 in May.
- A report by Musk was on the focus for markets this Friday. According to Reuters, Musk sent an email to executives instructing them to cease all global hiring and to reduce the employee headcount by 10%. He also reportedly said he had a “super bad feeling” about the economy.
- Weakness in Tesla shares, which fell 9.2%, weighed on the Nasdaq.
Which US stocks were in focus Friday?
- Coinbase Global Inc. COIN shares fell 9.7% after the crypto exchange announced an indefinite hiring freeze, a day after the billionaire Winklevoss twins announced cuts at their own crypto firm, Gemini.
- CrowdStrike Holdings Inc. CRWD shares lost 6.8% even after the security-software company reported earnings, sales and a forecast that beat expectations and boosted annual guidance.
- Shares of Lululemon Athletica Inc. LULU were dragged down 0.6%, despite the company reporting sales that were better than what was expected on Wallstreet, with direct-to-consumer sales getting to be a moderately bigger chunk of the retailer’s revenue.
- American Airlines Group Inc. AAL stock fell 7.1%, after the airline raised its revenue growth, but cut capacity guidance and raised its fuel-cost estimate.
How did the European markets perform?
- Earlier gains on European shares were wiped out on Friday after the shares fell. This is after U.S. jobs data supported the case for the Federal Reserve’s aggressive policy tightening and investors raised their bets on ECB rate hikes following strong inflation numbers this week.
- The pan-European STOXX 600 index (.STOXX) fell 0.3% with volumes expected to be subdued due to holidays in Britain and China. It ended the tumultuous week 0.9% lower.
- European equity markets started the week on a stable footing after China eased some COVID-19 restrictions and revealed more stimulus, but the optimism was swiftly undone by data that pointed to economies tipping into recession.
- There was also more fear that inflation may rise further after the European Union partially banned Russian oil imports, in retaliation for its invasion of Ukraine.
- Among other stocks, Italy’s Leonardo (LDOF.MI) rallied 2.0% after Germany’s Rheinmetall (RHMG.DE) made an offer for a minority stake in its OTO Melara cannon maker unit, according to a document and two sources close to the matter.
- Rheinmetall has set a value of 190-210 million euros ($203.91- $225.37 million) as an indicative price for the 49% stake in OTO Melara.
How did Asian markets perform?
Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 1.27% and the Shanghai Composite rose 0.42%. The Hang Seng lost 1.00%.
Bonds and Commodities
- The yield on the 10-year Treasury note rose to 2.9570%.
- Crude oil prices advanced for the sixth consecutive week, with West Texas Intermediate (WTI) crude rising to $120 per barrel, as the European Union’s decision to ban up to 90% of Russian oil imports raised concerns of limited supply.
- Gold turned lower, slipping -0.94% to $1,853.90 per ounce.
- It’s another poor week for Yen following the rally in benchmark treasury yields in US and Europe. It should be noted again that BoJ has a 0.25% cap on 10-year JGB yield, and thus, gaps are widening.
- Canadian Dollar was the best performer following BoC’s hawkish rate hike and rhetoric, rally in oil prices. Aussie was the second strongest, as RBA would play catch up to other central banks. Dollar was not performing too badly, ended as the third, but it’s upside is somewhat capped by widening yield spread with Germany.
- Dollar index recovered after hitting 55 day EMA. But that’s mainly due to rally in USD/JPY.
- Next week will likely be a relatively quiet one in the financial markets. The highlight of the week will be the highly-anticipated May update to the consumer inflation rate in the U.S., which could indicate whether inflation may have peaked.
- On the corporate earnings front, first-quarter earnings are expected from Trip.com, The J.M. Smucker Company, Campbell Soup Company, Five Below, and DocuSign, among others.