Abrdn (ABDN), Wood Group (WG.) and UK retail sales
Stocks were down quite sharply on Friday morning after a damaging day on Wall Street saw the S&P 500 erase early gains to finish down three-quarters of a per cent. That decline was despite a monster 9 per cent gain for Nvidia. The 1.5 per cent decline for the Dow was its worst session of the year. This morning, London, Paris and Frankfurt all fell by around 0.6 per cent to head for a pretty snappy weekly loss though for the month we are still up. US futures were a bit more promising.
Commodities are taking a bit of a breather after a rollercoaster – copper fell again yesterday but has steadied at the 21-day EMA, gold has likewise found temporary support at $2,325, with silver bouncing off $30. Should you be investing in metals? Here is Bank of America: "Commodities protect against structurally higher inflation and diversify better than bonds. A portfolio with 40 per cent exposure to commodities outperformed a traditional 60/40 mix with less downside risk."
Chances of rate cuts are falling across the board – June all but fully priced out now for the Bank of England – UK services CPI at 5.9 per cent, Federal Reserve minutes talking about a willingness to hike more, the calling of an election and a strong US PMI at a 25-month high has lifted yields. Even August is less than evens. The European Central Bank is a lot more confident it will cut next month, but after that, it’s a very uncertain outlook. The Fed is now looking like it could not cut at all this year. Data dependency is just being too late to adjust policy. TS Lombard: “What the May FOMC minutes and Waller’s speech make clear is that the Fed’s only plan is letting data tell them which way to go. When the Fed does finally move, it will be too late. The Fed will only say ‘oops’ when things inevitably turn out wrong.”
Ah, the weather. Yes, it’s been terrible. No, you cannot really blame it for crappy retail sales. Also, may I point out that while the value of retail sales has gone up this is entirely due to inflation – volumes have been declining since 2021 and are below pre-Covid levels. Sterling dipped a bit on the news to trade back below $1.27. The BoE has downed tools until after the election so zero chance of a cut in June.
Next week – lots more inflation data due up – PCE from the US plus Germany, EZ, Japan and Australia. We also get the second reading for GDP and quarterly PCE inflation in the US. The initial reading showed growth slowed more than expected, but inflation was hotter than forecast. GDP expanded 1.6 per cent in the first quarter, well below the 2.4 per cent anticipated while core PCE inflation accelerated to 3.7 per cent from 2.0 per cent. This is an important report ahead of the June meeting of the Fed, but it seems markets have all but taken a rate cut next month off the table.
Oil traders will be keeping a close watch on any statements and comments from the various members of the OPEC+ cartel ahead of the meeting on Saturday, 1 June. Earlier this month, OPEC stuck to its forecast for strong growth in global oil demand in 2024. The question is how long Saudi Arabia will remain willing to carry the burden of voluntary cuts as production elsewhere grows. The Saudis have cut production by 2mn barrels a day, ceding market share to non-OPEC countries like the US, where production has hit a record high. Does the Kingdom change tack? I think not yet is the answer – they will move when they are confident that increasing production will not crater prices. Meanwhile, Russia has been overproducing and says it will make up for it.
The Trader is written by Neil Wilson, chief market analyst at Finalto
