The Week in Review: 11th-15th March
Overview
US equity markets failed to establish any real direction this week, as economic data prints cast further doubts among traders regarding both the speed of and start of the Fed’s rate-cutting cycle. European markets also struggled to build upward momentum. Once again, market reactions were positive to Tuesday’s US CPI print, while Thursday’s US PPI release seemed to trigger an equity sell-off. Despite a weakening of the Japanese Yen, Nikkei traders failed to capitalise on a change in sentiment, with the index trading down from Monday’s close. Momentum was exacerbated by a poor quarter-on-quarter GDP print. Despite Bitcoin recording all-time highs in consecutive sessions, breaching $73,000 for the first time, traders led a sell-off into the weekend, forcing prices down by 10%. Commodity market activity was strong as both supply and demand shocks pushed Crude Oil above the $80 per barrel level, meanwhile revisions to rate cut expectations drive Gold price off their all-time highs.
% Change - Monday 9pm to Friday 9pm (GMT)
USA
Despite a weak session across the tech sector on Monday, prices rallied into Tuesday following a positive after-hours earnings call from US cloud computing developer Oracle ($ORCL). The firm posted strong Q3 results, with combined revenues across cloud computing products rising 25% to $5.1bn. A restoration of investor confidence was positively received into Tuesday’s Year-on-Year CPI release.
CPI figures came in at 0.4%, 0.1 percentage points ahead of analyst expectations. This higher than expected inflation print effectively rules out any remaining hopes of Fed interest rate cuts into their next monetary policy meet, reinforcing the higher for longer narrative. In holding rates for another session, US bond and dollar demand remains high as investors exchange their domestic currencies into dollars to purchase higher yielding debt.
Despite a rebound in performance through Tuesday, tech shares were unable to escape challenges, specifically chipmakers, following the Wednesday announcement that Intel ($INTL) had lost a multi-billion dollar Pentagon contract, pushing its shares down 4.44%. This highlights the potential vulnerabilities of tech firms to changes in temporary government and corporate contracts, where demand and service requirements constantly change. Such vulnerabilities may expose weaknesses in tech focussed investment strategies.
Thursday saw the release of US PPI and retail sales data for February. The PPI increased some 0.6%, signalling that inflationary pressures within the US remain high. On the other hand, retail sales were 0.2 percentage points lower than expected at 0.6%, indicating that spending growth amongst US consumers remains slow. The image presented by this weeks economic data prints is once again murky, with data being somewhat contradictory regarding the prevailing economic climate in the US. The CPI, PPI, and retail sales figures will pose significant challenges for policymakers during the Fed’s next monetary policy meeting, as CPI and PPI indicate inflationary pressures remain hotter than expected, while consumer spending appears sluggish and the total unemployment print last week was higher than anticipated. The general consensus amongst analysts is that the Fed will commence the rate cutting cycle from June at the earliest, maintaining the arguably successful cautious approach to rate policy. The Fed as noted by Chairman Powell in his testimony last week still require additional indicators signalling inflation is under control before revising their rate strategy.
Europe
European market activity was strong throughout the week, as equities benefitted from US data prints and various regional catalysts. The German DAX (€GDAXI), French CAC (€FCHI), and Pan-European STOXX 600 (€SXXP) broke new all-time highs on Thursday, following the US CPI print. The DAX reached 18,039, while the CAC broke 8,218, before a small period of consolidation into Friday, as US equities sold-off.
As noted, the wider gauge of European market performance, the STOXX 600, broke new highs this week. At its intraday peak on Thursday prices reached 509.31, although the session finished at a loss. The trend in STOXX performance throughout the week has been positive, though the index has experienced substantial resistance around the 508-509 level. A generalised view of weekly performance suggests that Euro market activity remains healthy. Final YoY CPI for the Euro area releases Monday, but it shouldn’t dramatically affect markets if figures fall in line with expectations, as preliminary data is already priced in. Additionally, ECB President Lagarde is due to speak on Wednesday, which may provide traders with some direction on the current outlook of their monetary policy committee.
Rest of the World
The Shanghai Stock Exchange Composite Index (¥SSE) closed the week above Monday’s open. However, Friday’s negative new house price index figures suggest that the fundamental case for equity investment may be weak, particularly within China’s embattled property sector, which makes up over 1/5 of GDP. The 0.36% decline in new house prices signals persistent stresses within an already vulnerable property sector. Authorities have been working to stabilise this sector since developer Evergrande fell into distress during 2021.
Cryptocurrencies
The total market capitalisation of the cryptocurrency market approached its 2021 highs this week, hitting $2.76 trillion on Wednesday as prices continued to drive higher. However, there was a pullback through Thursday and Friday, pushing market cap down $160bn to $2.6 trillion.
'Crypto Stocks'
MicroStrategy ($MSTR) announced the purchase of a further 12,000 Bitcoin this week, at an average price of $68,447 ($821.3m). This increases the firms total holding to 205,000 Bitcoin, at an average price of $33,706 ($6.91bn). At the time of writing bitcoin prices were $67,800 meaning the current market value of the firms holdings are $13.87bn, held at an unrealised profit of some $6.98bn. As noted on Monday, MicroStrategy remain one of the only firms to actively invest residual cash in cryptocurrencies, holding bitcoin on their balance sheet. The firm therefore acts as a benchmark for growing institutional interest in the decentralised finance (DeFI) sector, highlighting the potential benefits alongside the risks associated with utilising cryptocurrencies as corporate investment assets.
Commodities
Gold experienced a sell-off this week, ending an eight day winning streak on Tuesday. Price action has been driven by hotter than anticipated US CPI and PPI prints, as Fed rate cut expectations are delayed, accounting for the presence of stronger inflationary pressures. As noted earlier in the week, higher interest rates increase the opportunity cost of holding Gold as an asset, as investors can place their capital in higher yield ‘risk-free’ alternatives, such as AAA government bonds and bills which will exhibit higher coupon rates. As of Friday, at 9pm GMT, Gold was priced at $2,159.70 per ounce. While the current interest rate environment isn’t accommodative of Gold focussed strategies, the picture should become clearer following updates on Fed monetary policy. These updates may come as early as Friday, when Fed Chair Powell makes an address following the open market committees Wednesday meet.
What to Watch Next Week
Monday March 18th
Eurozone Final CPI YoYTuesday March 19th
BOJ Monetary Policy Statement
Earnings:
Tencent ($TME)Wednesday March 20th
UK CPI YoY
ECB’s Lagarde Press Conference
US Fed Funds Rate Decision
US Crude Inventories
Earnings:
Micron ($MU)Thursday March 21st
BOE Interest Rate Decision
Japanese Core CPI
Earnings:
Accenture ($ACN)
Nike ($NKE)
Rentokil ($RTO)Friday March 22nd
UK Retail Sales (MoM)
Fed Chair Powell Speaks
Sources:
https://uk.finance.yahoo.com/world-indices/
https://uk.finance.yahoo.com/commodities
https://www.londonstockexchange.com/indices/ftse-100
https://www.binance.com/en-GB/price/bitcoin
https://www.binance.com/en-GB/price/ethereum
https://qontigo.com/index/sxxp/
Stock Market Activity Today & Latest Stock Market Trends | Nasdaq
https://www.forexfactory.com/calendar?week=mar10.2024
https://investor.oracle.com/investor-news/news-details/2024/Oracle-Announces-Fiscal-2024-Third-Quarter-Financial-Results/default.aspx
https://www.imf.org/en/News/Articles/2024/02/02/cf-chinas-real-estate-sector-managing-the-medium-term-slowdown
Definitions:
YoY - Year on Year, or, Year over Year
MoM - Month on Month, or, Month over Month
QoQ - Quarter on Quarter, or, Quarter over Quarter
ECB - European Central Bank
BOJ - Bank of Japan
Fed - Federal Reserve
BOE - Bank of England
CPI - Consumer Price Index
PPI - Purchasing Price Index
ETF - Exchange Traded Fund