Sales of new single-family houses in the US unexpectedly jumped 4.1% month-on-month to a seasonally adjusted annualised rate of 683,000 in April, the highest level since March last year, and compared to forecasts of 665,000. However, data for March was revised sharply lower to 656,000 from initial estimates of 683,000. In April, sales increased 17.8% to 443,000 in the South and 11.8% to 76,000 in the Midwest, but sank 58.6% to 24,000 in the Northeast and 9.1% to 140,000 in the West.
The number of Americans filing for unemployment benefits rose to 229,000 in the week ending 20 May, slightly up from an over two-month low of 225,000 the week before but well below market expectations of 245,000. The latest data suggested that the labour market in the US remains relatively robust and constrained, which could potentially result in upward pressure on wages and present an opportunity for the US Federal Reserve (Fed) to consider additional interest rate hikes as part of its measures to address inflation.
The US economy grew by an annualised 1.3% quarter-on-quarter in the first quarter of 2023, slightly higher than 1.1% in the advance estimate and market forecasts. Consumer spending growth accelerated more than expected to 3.8%, higher than the 3.7% in the advance estimate, despite stubbornly high inflation. Upward revisions were also seen for non-residential fixed investment growth, 1.4% compared to the original estimate of 0.7%, and public spending up to 5.2% from 4.7%.
The consumer price inflation in the United Kingdom (UK) fell to 8.7% year-on-year in April, its lowest level since March 2022, due to a sharp slowdown in electricity and gas prices. The inflation rate, however, still exceeded market expectations of 8.2% and remained well above the Bank of England’s (BoE’s) target of 2%. Housing & utilities inflation dropped to 12.3% from 26.1% in March, with the cost for electricity, gas and other fuels increasing 24.3%, compared with 85.6% the month before.
MARKETS LOOK TOWARDS US DEBT CEILING NEGOTIATIONS
The Nasdaq opened 1.4% higher and the S&P 500 was up 0.6% on Thursday, as the tech sector got a boost from a 25% rally in Nvidia shares. Nvidia’s earnings and revenue beat expectations and the company also reported a stronger-than-expected revenue guidance driven by artificial intelligence (AI) chip demand. The Dow Jones fell over 100 points as the debt ceiling impasse continued to weigh on investors’ mood and with Fitch Ratings putting the US on credit watch for a possible downgrade. House Speaker, Kevin McCarthy, said that negotiators have made some progress and that he has instructed his team to work 24 hours to get the deal.
The UK’s FTSE 100 traded in the red at eight-week lows on Thursday, extending a 1.8% loss in the previous session dragged down by concerns that the BoE will remain hawkish following hotter-than-expected inflation data. Additionally, the approaching deadline for the U.S. debt default without a deal caused a glum mood in the markets. In corporate news, cinema chain Cineworld Group expects to exit bankruptcy in July with the support of lenders; sugar supplier Tate & Lyle experienced a surge in annual profits aided by higher prices; and defense technology company Qinetiq Group posted strong annual results and lifted its annual dividend. Water and sanitation company United Utilities Group bucked the trend and reported an annual pre-tax loss due to high costs.
European stock markets remained under pressure on Thursday, following a significant sell-off on Wednesday, which marked the worst decline in over one-and-a-half months. On the economic front, revised German gross domestic product (GDP) data revealed that Europe’s largest economy entered a recession in the first quarter, while consumer morale in the country showed improvement as June approached. European chip stocks, however, are expected to receive a boost from impressive financial results reported by semiconductor heavyweight Nvidia.
WEAKER THAN EXPECTED CHINESE GROWTH WEIGHS ON COMMODITY DEMAND
West Texas Intermediate Crude futures fell more than 4% to nearly $71/barrel, ending a three-day winning streak, after Russian Deputy Prime Minister Alexander Novak ruled out additional production cuts by the expanded Organisation of Petroleum Exporting Countries, OPEC+. Novak said that OPEC+ is unlikely to take additional steps in June because a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries. Earlier this week, Saudi Arabia’s energy minister, Abdulaziz bin Salman Al Saud, warned short sellers to “watch out” for potential consequences, raising speculations that OPEC+ could consider further output cuts at a meeting on 4 June. Meanwhile, a rise in the US dollar amid uncertainty over the debt ceiling also pressured prices down. Still, International Energy Agency data pointed to a recovery in US demand ahead of the driving-intensive Memorial Day weekend holiday.
Gold prices fell below $1,950/ounce on Thursday, hovering at levels not seen in over two months, pressured by a rise in Treasury yields and the US dollar. Traders are closely monitoring the ongoing debt ceiling impasse and the likelihood of prolonged higher interest rates, particularly in the US. The Federal Open Market Committee (FOMC) minutes revealed that some officials saw the need for more rate hikes while others anticipated that a deceleration in growth would eliminate the requirement for further tightening. Meanwhile, GDP growth for the US was revised higher in the first quarter and initial claims rose much less than expected. In Europe, both the BoE and the European Central Bank (ECB) are expected to continue to raise rates further as inflation remains elevated.
Copper futures extended losses to $3.60/pound, to trade at their lowest levels in six months due to supply outpacing demand and a gloomy demand outlook. Demand for the metal has been affected by lacklustre economic recovery, particularly in China. Also, unlike in previous slowdowns, the Chinese government has not implemented substantial infrastructure or property spending initiatives, depriving copper and other metals of a safety net. Moreover, copper inventories in the London Metal Exchange have nearly doubled since mid-April, indicating weakness in demand on a global scale.
DOLLAR INDEX AT HIGHEST LEVELS IN TWO MONTHS
The US Dollar Index continued its upward momentum, surpassing the 104 mark on Thursday and reaching its highest level in over two months, following House Speaker McCarthy’s statement about progress in debt ceiling negotiations after the US received a sovereign rating watch. Additionally, recent data indicates the resilience of the US economy to the Fed’s aggressive tightening measures, with first quarter GDP growth being revised higher, despite a 6.8% decline in corporate profits.
The euro extended its decline, nearing the $1.07 mark and reaching its lowest level since 20 March, as investors sought refuge in the dollar due to concerns over the lack of progress in US debt ceiling talks. Concurrently, investors analysed the recently released FOMC meeting minutes, which revealed policymakers’ uncertainty regarding the appropriate level of future policy tightening, while emphasising the significance of maintaining flexibility for forthcoming decisions. In Europe, it is still anticipated that the ECB will proceed with interest rate hikes throughout the year. Regarding economic data, revised figures for German GDP indicated that Europe’s largest economy entered a recession in the first quarter, attributed to declines in household consumption and public spending amid persistently high inflation.
The British pound fell below the $1.24 level, reaching its lowest point since 17 April, as investors shifted their focus to the US dollar following the release of the FOMC meeting minutes. Meanwhile, the latest inflation data indicated ongoing inflationary pressures in the UK economy, further supporting the case for another interest rate hike by the BoE. The UK’s annual inflation rate dropped to 8.7%, the lowest for over a year but above market expectations of 8.2%. In addition, the core inflation rate, which excludes food and energy prices, surged to 6.8%, marking its highest level in 31 years, while food inflation remained near a 45-year high of 19%.
The pound started the day trading at 1.2350/$ and 1.1495/€.
Written by Citadel Global Director, Bianca Botes
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