Morning Bid: One Investor’s Bounce Is Another’s Bearish Bounce

A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 13, 2022. REUTERS/Brendan McDermid/File photo

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A look at the next day in the markets of Julien Ponthus.

What a difference a week makes!

With the Dow Jones (.DJI) coming off its longest weekly losing streak in nearly a century and posting its best week since 2020 last Friday, the narrative in the stock markets has quickly shifted from fears of collapse to hopes of a rebound.

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But there are contrasting expectations in play: Some strategists believe the S&P 500 (.SPX) 9% rally from its May 20 lows could mask a bearish rally or, in other words, a money trap before another spiral. deep down.

Still, capital is returning to the stock market with $20bn flowing into equity funds last week, the largest inflow in 10 weeks, according to BofA citing the latest data from EPFR.

Investors puzzled with the direction of stock travel are similarly puzzled with the US dollar index falling 3% from a two-decade high in mid-May.

Beneath that whiff of optimism for stocks and dollar rivals are signs that cooling US inflation may prompt the Federal Reserve to slow the pace of interest rate hikes after the summer. read more

Money markets have been quick to cut bets on expected total US interest rate hikes this year from over 190 basis points recently to just over 180 basis points this morning.

Also in Britain, despite expectations of 10% inflation, signs of recession are forcing a change, with 120 basis points of rate hikes through June 2023 up from 165 in early May. read more

Of course, there are still big drivers of inflation and the war in Ukraine could push energy and grain prices even higher, as the COVID-19 outbreaks in China have the potential to create further disruptions to supply chains. global.

This morning’s data out of Europe suggests we may not yet be past peak inflation: German import prices rose 31.7% in April, the strongest rise since September 1974.

bofa

Key developments that should provide more direction to the markets on Monday:

– Swedish economy contracts as pandemic and war hit exports

– German import prices for April increased by 31.7% read more

– Eurozone business climate/sentiment/inflation expectations

– Preliminary German CPI/IPCA

– Decision of the Central Bank of Kenya

–Overall: Japan Q2, full-year growth to be weaker than previously estimated read more

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Information from Julien Ponthus; Edited by Saikat Chatterjee

Our standards: the Thomson Reuters Trust Principles.

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