Weekly market update : The rebound on Wall Street is overdue

05/20/2022 | 05:00pm
This was a tough week for Wall Street due to fears about the impact of inflation on global economic growth. Traders were trying to do some bargain buying on Friday, welcoming the new support measures from the Chinese People's Bank, which decided to lower its prime lending rate to five years more than expected.
Weekly variations*
31261.90  -2.90%
11835.62  -4.45%
Chart NASDAQ 100
FTSE 100
7389.98  -0.38%
Chart FTSE 100
1845.59$  +1.79%
Chart GOLD
110.47$  -0.77%
Chart WTI
1.06$  +1.59%
This week's gainers and losers

  • NIO (+16%): The share of the Chinese electric vehicle manufacturer benefits from its listing in Singapore and from BofA raising its recommendation from neutral to buy, with a price target raised from USD 25 to USD 26. 
  • Lucid Group's and  Rivian Automotive's went up about 22%as other electric vehicle companies saw increases in their stock.
  • Prudential (+6%) The UK insurer got a boost from its exposure to China, after the Chinese People's Bank decided to lower its prime lending rate to five years more than expected. 
  • Target (-30%): traditional US retailers took a hit this week, hampered by rising costs (labor, supplies, fuel). Target is among those that have suffered the most. Investors are all the more surprised since they thought the sector was more defensive. The situation is similar for its retail counterparts, regardless of the product. Discounter Dollar Tree, wholesaler Costco Wholesale, and specialist Best Buy are down, and rival Walmart is down 19.6% for the week. 
  • Cisco (-16%): The American group known for its networking equipment, has reduced its forecasts for the fiscal year 2022. The company is penalized by erratic supplies due to the war in Ukraine and lockdowns in China.
Chart Commodities
A sequence of stabilisation for oil, which oscillated this week between USD 105 and USD 115 for the two world references, Brent and WTI. WTI even rose above Brent for a few days. Despite the pause this week, however, risks remain on the upside given China's reopening and the EU's continued efforts to embargo Russian oil. 
Chart Commodities
Atmosphere: The hawks are out in numbers. Western central banks seem ready to do whatever it takes to curb inflation. The markets are afraid that this will lead to a recession. The latest statistics are still relatively strong, but some of the richest countries may find it hard to escape a sharp downturn. There is also a lot of uncertainty about the side effects of rate hikes, for example on the housing market or on the speculative corporate debt market.

Rates: Bond yields calmed down, despite offensive speeches from central bankers. Ninety-three percent of investors believe that the Fed will raise rates by half a point at its June 15 meeting, and then at the same pace on July 27. The U.S. 10-year is at 2.84% (2.92% last week), the German Bund at 0.95% (0.92%) and the French OAT at 1.47% (1.43%). Greek and Italian debt, on the other hand, remain fairly high, at 3.69% and 2.99% respectively.

Currencies: The euro has regained some ground against the dollar, at USD 1.0562. The European currency is trading at CHF 1.0286 and GBP 0.8463. The comments of some ECB members in favor of a more or less pronounced monetary tightening as early as July have weighed in the balance. Moreover, Christine Lagarde reportedly asked some members of the central bank's executive board, including its chief economist Philip Lane, to "talk less and listen more" to the comments of central bankers from each member state.

Cryptocurrencies: For its part, bitcoin is just about even on the week, trading around the $30,000 mark as of writing. Its the seventh consecutive week of historic declines. Without any real bullish catalysts, crypto investors' nerves may be tested for some time to come.

Calendar: May PMI activity indicators will be released next Tuesday, with the challenge of gauging whether the current turmoil is undermining business sentiment in the major economies. In the US, the week will be dominated by durable goods orders (Wednesday), a new estimate of Q1 GDP (Thursday) and PCE inflation (Friday). The minutes of the last Fed meeting will be released on Wednesday.
Historical Chart
The rebound on Wall Street is overdue
The fog persists on financial markets and nervousness is apparent. It is usually at such times, when pessimism is in full swing, that we see a bear market rally, i.e. a strong bullish rebound in a market that has become bearish, as is currently the case. In the meantime, the market is reacting downward to bad news against the backdrop of a recessionary or even stagflationary scenario. The future monetary tightening, as well as the reduction of the Fed's balance sheet seems to have been integrated into prices. Similarly, a ceiling seems to have been reached on inflation surprises. A peak could be reached and would give back confidence to investors.
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*The weekly movements of indexes and stocks displayed on the dashboard are related to the period ranging from the open on Monday to the sending time of this newsletter on Friday.
The weekly movements of commodities, precious metals and currencies displayed on the dashboard are related to a 7-day rolling period from Friday to Friday, until the sending time of this newsletter. These assets continue to quote on weekends.
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