Weekly Newsletter June 9th to June 13th
RECAPPING LAST WEEK
U.S. equity indices looked set to notch a third straight weekly gain, supported by cooler inflation prints and encouraging developments in U.S.-China trade talks. However, geopolitical risk reemerged as Israel’s military strike on Iran Thursday evening sent shockwaves through global markets, driving equity futures sharply lower while oil and gold prices soared. By midday Friday stocks had clawed back much of the losses, but retaliatory strikes from Iran later in the day left the S&P500 and Nasdaq Composite indices lower for the week by 0.4% and 0.6%, respectively. The Russell 2000 fell 1.5% while emerging market stocks managed modest gains. Crude oil surged to $77.62 per barrel before settling at $73.56, still up more than 13.5% on the week. Gold futures jumped 3.6% to $3,450. U.S. Treasury yields eased after the 10- and 30-year auctions were met with solid demand and inflationary pressures remained mild. U.S. CPI increased just 0.1% in May, putting the annual rate at 2.4% while producer prices rose 2.6% YoY. Weakness in energy prices contributed to last month’s softer readings but could reverse course due to Mideast tensions flaring. One-year inflation expectations showed a dramatic improvement, falling to 5.1% from 6.6% and helping this month’s consumer sentiment index jump by the most since January 2024. U.S. small-business confidence improved in May as trade tensions de-escalated. Turning to international economic news, the World Bank stopped short of forecasting a recession but lowered its global growth forecast by 0.4 percentage points to 2.3%, its weakest outlook outside of recessions since 2008. The bank expects global GDP growth in the coming years to expand at the slowest pace since the 1960s. China’s CPI fell for the fourth consecutive month in May while producer price deflation deepened. Exports to the U.S. plummeted 34.5% YoY, the sharpest drop since February 2020. China’s imports also fell as domestic demand remained sluggish. In the UK, economic growth contracted sharply in April after global tariffs and domestic tax increases set in. May’s employment figures revealed that British companies are holding back on hiring as job vacancies fell. Wage gains slowed to 5.2%, still above the UK’s inflation rate of 3.5%. Finally, investor sentiment in the Eurozone improved this month, boosted by optimism for Germany’s new government and fading shocks from U.S. trade policy.
THE WEEK AHEAD
A shortened week lies ahead as U.S. markets will be closed Thursday for the Juneteenth holiday. Central banks will garner the spotlight with interest rate decisions due from the U.S., UK, and Japan. The Federal Reserve is widely expected to keep rates steady on Wednesday despite pressure from the White House to ease monetary policy. Momentum may be building for rate cuts, however, based on recent hard economic data. Last week’s inflation readings continued to quell fears that tariffs would quickly cause prices to rise, although the Fed is likely to remind investors that shocks from trade disruptions and geopolitical conflicts present ongoing challenges to taming price increases. The latest monthly employment report, along with rising weekly jobless claims and continuing claims reaching the highest level since late 2021, are reflective of a slowing labor market. This week’s meeting will include an updated Summary of Economic Projections, which should provide insights into how the Fed views the risks of unresolved trade and budget issues as well as heightening conflicts in the Middle East. The domestic economic calendar includes May’s retail sales report, housing data, regional manufacturing survey, and industrial production figures. Overseas, the Bank of Japan is widely expected to keep rates level at tonight’s meeting despite rising inflation. Governor Ueda has been emphasizing uncertainty in recent statements, which could push out the bank’s next rate hike further than yen traders have been anticipating. For the Bank of England, weak economic data have raised the odds of further rate cuts this year. However, most experts expect no action this week and don’t foresee the next change until September. China’s monthly industrial production and retail sales releases round out the international calendar.
CHART OF THE WEEK
How quickly things change
It is said that the world runs on oil, and perhaps no other commodity is sensitive to so many different factors. The past five years have seen oil futures prices go from negative territory—due to a never-before-seen quirk in the expiration trading cycle—to over $130 in early 2022. Since that peak, oil prices have mostly trended lower with the recent nadir last month near $55. Last week, prices started to rise after trade negotiations between the U.S. and China resulted in a fragile truce while the European Union proposed sanctions on Russian oil, which could cause supply issues. Nothing moves oil prices like conflicts in the Middle East, however, and while Israel’s attacks on Iran focused on nuclear facilities and personnel, the threat to oil production is never far from mind. Crude oil prices shot up to over $77 per barrel, up 14% in Thursday’s overnight session before giving some of those gains back on Friday. Looking at the chart of the S&P GSCI Crude Oil index ($SPGSCL)—which tracks oil futures—the weekly gains were impressive, but price still hasn’t broken above down-sloping resistance. A close above $400 for the index could indicate a reversal of the longer-term downtrend and reinvigorate the $100 oil discussion.
Source: Charles Schwab Corporation
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