Global equities hit fresh record highs amid robust economic activity data
US stocks reached new record highs this week as strong gains on Thursday erased early-week losses. The rally was triggered by a much better than expected ADP employment report, with the market shrugging off a disappointing payrolls print on Friday. Overall, the S&P 500 Index rose 1.0% over the week.
The best-performing sector was telecommunications, while energy stocks underperformed, weighed by lower oil prices.
European stocks ended the week higher, supported by strong gains in US markets. Upbeat economic releases provided some additional support. The EURO STOXX 50 Index rose 0.4% on the week, with healthcare stocks in the lead.
Meanwhile, financial stocks dipped as dovish comments by ECB President Mario Draghi held down long-term interest rate expectations. At the national level, Italian bourses underperformed as speculation about early elections raised political instability risks in the country.
Asian stock markets fluctuated between gains and losses in the early part of the week, but rallied strongly as the week progressed, as positive global economic data releases helped to support investor risk appetite. Japanese equities outperformed, with the Nikkei 225 Index gaining 2.5%, as the yen depreciated slightly (during equity trading hours) and on further evidence of tight labour market conditions. Most other major national stock markets closed the week up 0.5% to 1.1%. The major exception was the Shanghai Stock Exchange Composite Index, which ended almost flat (-0.1%) on mixed activity data and a slightly stronger yuan.
US Treasuries rallied (yields fell) amid soft labour market data; Italian yields rose on election speculation
US Treasuries gained (yields fell) this week as investors digested the latest US economic data releases and their implications for monetary policy. A softer than expected nonfarm payrolls print for May, in addition to a modest deceleration in core PCE inflation, reduces the likelihood of a more aggressive Fed tightening. Overall, US Treasury 10-year yields fell 9 bps to 2.16%.
Italian government bonds sold off sharply (yields rose) on speculation that a general election could be called as early as September this year; 10-year Italian yields closed the week up 16 bps to 2.25%. Elsewhere, German 10-year yields fell 6 bps to 0.27% and French 10-year yields slipped by 4 bps to 0.71%, dragged lower by the decline in US Treasury yields following a soft US labour market report. Meanwhile, in the UK, 10-year gilt yields rose 3 bps to 1.04% as investors looked ahead to the general election.
US dollar hit by softer than expected payrolls print
The euro and sterling both rose this week against the US dollar. The euro benefitted in particular from the drop in the dollar on Friday, after a disappointing payrolls report. In contrast, volatility in sterling was mainly driven by UK general election poll results, which showed stable levels of support for the governing Conservative party. The euro ended the week 0.9% higher against the US dollar, while sterling achieved a more modest gain of 0.7%.
Asian currencies were little changed over the week against the US dollar, with most trading within a +/- 0.5% range. The Philippine peso and Chinese yuan outperformed, with the former boosted by a tax reform bill passing the House of Representatives and the latter finding support after the People’s Bank of China revamped its yuan fixing mechanism.
Oil prices dipped on renewed supply glut concerns
Crude oil prices fell again this week on renewed supply concerns amid signs of resurgent crude output in Libya and concerns that extended production cuts by leading exporting countries may not be enough to rebalance the market. News that US President Donald Trump would be pulling the US out of the Paris climate deal also raised speculation that the country’s crude production could expand further.
Overall, WTI for July delivery closed down (-4.1% at USD47.7 per barrel) while equivalent contracts for Brent also finished lower (-4.2% to USD50.0 per barrel).
Meanwhile, gold prices rose (+1.0% to USD1,279), with most gains coming on Friday after the disappointing May nonfarm payrolls print weighed on the US dollar and lowered expectations of aggressive Fed rate hikes going forward (supporting the non-yield-generating asset).