Live Markets: Europe: May was a 'sell', but not for everyone

Applied Energetics

31/05/2022 16:54

* Major U.S. indexes decline, but well off lows 
    * Real estate weakest major S&P sector; energy biggest
gainer
    * Euro STOXX 600 index ends down ~0.9%
    * Dollar, bitcoin, crude rally; gold dips
    * U.S. 10-Year Treasury yield jumps to ~2.85%

    May 31 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
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    EUROPE: MAY WAS A 'SELL', BUT NOT FOR EVERYONE (1145
EDT/1545 GMT) 
    There it is, no last-minute turn-around: the STOXX 600 ends
the day down 0.9% and exits the month of May with a 1.7% loss. 
    Of course, it would have been much worse without the 6%
rebound the index pulled off from the lows touched during the
first half of the month. 
    Nonetheless, the pan-European index now stands 9% lower than
it was at the beginning of 2022. 
    So far, March has been the only month of gains for the STOXX
600 but other national benchmark indexes have managed to secure
much better results. 
    Take the FTSE 100  .FTSE , London's blue chip index, heavily
loaded with miners, oil & gas stocks and banks, gained about
0.8% in May and is up 3% year-to-date. 
    The British benchmark also managed to end the day up 0.1%
when most of its European rivals finished deep in the red.
    "Once again stronger commodity prices, led principally by
oil, have been the foundation of the FTSE 100’s strength",
commented IG analyst Chris Beauchamp.    
    As you can see below, the only monthly loss suffered by the
footsie was in February, a performance which contrasts with the
broader European market: 
    
    
    It's fair to say that there isn't much optimism for what's
to come next with data showing a new 8.1% inflation record for
the euro zone and oil prices jumping to the news of an EU ban on
most Russian imports.
    "The ban, amid already high inflation and intense supply
chain pressure, will push the Eurozone into a recession",
Rabobank analysts who see the economy contracting by 0.1% in
2023, argued in note.
    
    (Julien Ponthus) 
    *****
        
    COOLING DAYS: CONSUMER CONFIDENCE, HOME PRICES, CHICAGO PMI
(1130 EDT/1530 GMT) 
Data released on the first day of the U.S. summer season showed
the economy was moving past its heatwave, a welcome development
for Fed watchers hoping for the proverbial "soft landing," and
inflation to cool down without the unpleasantness of recession. 
   
    The mood of the American consumer dimmed a tad this month,
but not as much as expected.
    The Conference Board's (CB) Consumer Confidence index
 USCONC=ECI  shed 2.2 points to deliver a reading of 106.4, a
brighter number than the 103.9 consensus.
    Diving into the report, inflation expectations eased and the
"jobs hard to find" element grew, both signs of a cooling
economy - and perhaps counterintuitively, good news in that it
implies waning demand and eventually inflation easing.
    The "present situation" index fell 3.3 points to 149.6,
while the "expectations" component eased down to 77.5, a 2.5
point drop.
    "The decline in the Present Situation Index was driven
solely by a perceived softening in labor market conditions,"
writes Lynn Franco, senior director of economic indicators at
CB. "That said, with the Expectations Index weakening further,
consumers also do not foresee the economy picking up steam in
the months ahead."
    The narrowing of the gap between those two elements is a
good omen for those fearing impending recession.
    As seen in the graphic below, when the gap between the two
grows, recession has historically been soon to follow:
    U.S. home price growth unexpectedly heated up to record
levels in March. 
    Year-on-year growth rate of the S&P Corelogic Case-Shiller
20-city composite  USSHPQ=ECI  climbed one percentage point to
an astounding 21.2% - the hottest reading in the index's 35-year
history - defying the slight decline to the even 20% analysts
predicted.
    Once again, the happy trio of tight supply, materials
scarcity and solid demand fueled the growth. But a spate of
housing indicators for more recent months suggests the house
party may be winding down.
    "The good news for buyers is that these are signs pointing
to a stabilizing market ahead," says Steve Reich, COO of finance
at America Mortgage. 
    Home sales, mortgage applications, building permits and 
homebuilder sentiment - they all show a sector groaning under
the weight of its own success, with home prices and climbing
mortgage rates causing the dream of ownership to drift beyond
the grasp of many potential buyers, dampening demand.
    "Mortgages are becoming more expensive as the Federal
Reserve has begun to ratchet up interest rates, suggesting that
the macroeconomic environment may not support extraordinary home
price growth for much longer," says Craig Lazarra, managing
director at S&P DJI. "Although one can safely predict that price
gains will begin to decelerate, the timing of the deceleration
is a more difficult call."
    Of the 20 cities in the composite, 19 posted increases in
their top decile. Tampa took Phoenix's crown, its home prices
surging 34.8% year-on-year, with Phoenix and Miami placing and
showing at 32.4% and 32.0%, respectively.
    It should be noted, however, that the Case-Shiller report is
more ancient history than most economic data. More recent
indicators (CPI, PPI, PCE, wage growth, import prices) all point
to March as the inflation peak.
    The graphic below shows the 20-city composite against the
Mortgage Bankers Association purchase applications index:
    Factory activity in the Midwest surprised to the upside in
May, by accelerating.
    MNI Indicators' Chicago purchasing managers' index (PMI) 
 USCPMI=ECI  gained 3.9 points to 60.3, defying economists' call
for a deceleration to 55.0.
    A PMI number over 50 indicates a monthly increase of
activity.
    The report is sunnier than the Philly Fed and Empire State
manufacturing data released earlier in the month and bodes well
for the Institution of Supply Management's nationwide PMI report
due on Wednesday, which is expected to show a modest slowdown of
activity expansion.
    "Other regional surveys for May are, on net, suggesting
modest slowing in manufacturing," says Rubeela Farooqi, chief
U.S. economist at High Frequency Economics. "Overall, even as
the survey data are signaling some moderation, manufacturing
output continues to expand in spite of supply network
dislocations and shortages."
    Wall Street was lower in early trading, with the S&P and the
Dow setting course for a near-flat May, with the tech-heavy
Nasdaq set for its second straight monthly decline.
    Cyclicals and economically sensitive transports  .DJT  were
among the biggest losers.
    (Stephen Culp)
    *****
    
    WALL STREET HIT BY FEARS OF INFLATION, MORE HAWKISH FED
(1000 EDT/1400 GMT) 
    Wall Street is falling about 1% early on Tuesday after data
showed inflation in the euro zone rose to a record high in May
and a Federal Reserve governor raised the possibility of a
harsher crackdown on rising prices than previously expected.
    Ten of 11 S&P 500  .SPX  sectors are in the red, with the
exception of a gain in energy  .SPNY , as oil prices rally after
the European Union agreed to a partial and phased ban on Russian
oil and China decided to lift some coronavirus restrictions.
    European Union leaders agreed on an embargo on Russian oil
imports that will start toward year's end. Contracts for West
Texas Intermediate and Brent are poised to end May with a sixth
straight month of gains as oil trades around $120 a barrel.
    Fed Governor Christopher Waller said on Monday the U.S.
central bank should be prepared to raise rates by a half
percentage point at every meeting from now on until inflation is
decisively curbed.  urn:newsml:reuters.com:*:nL1N2XM10B
    U.S. President Joe Biden will meet Federal Reserve Chair
Jerome Powell at 1:15 p.m. (1715 GMT) as inflation surges to
40-year highs and the president in a Wall Street Journal opinion
piece called tackling rising prices his top economic priority.
 urn:newsml:reuters.com:*:nL1N2XN0TT
    Here is an early snapshot:
    
    
    (Herbert Lash)
    *****
    
    S&P 500: TRYING TO SHAKE THE BEAR'S GRIP (0900 EDT/1300 GMT)
    For most of this year, bears have certainly been in control.
 urn:newsml:reuters.com:*:nL2N2XJ1BT. However, last week brought an end to some
eye-popping weekly losing streaks for the major U.S. indexes.
 urn:newsml:reuters.com:*:nL1N2XM050
    With this, there appears to be a change in the air given the
market's sudden willingness to take on some risk.
    Since late last year, the S&P 500  .SPX  started
underperforming a composite of its defensive sectors including:
real estate  .SPLRCR , staples  .SPLRCS  and utilities
 .SPLRCU :
    
    
    In fact, the SPX / defensive composite ratio peaked in
early-November. It then diverged into the S&P 500's
early-January peak.
    Of note, major SPX tops in late 2018 and early 2020 were
also preceded by a bearish divergence vs the defensive
composite. Against this, major SPX lows in December 2018 and
March 2020, came with a bullish ratio convergence.
    More recently, on May 19, the SPX ended down 18.7% from its
early-January peak. However, the SPX / defensive composite ratio
bottomed on May 11 and had risen to a more than two-week high.
Since May 19, the SPX has rallied 6.6% on a closing basis.
    It now remains to be seen if this return of animal spirits
will become a full-blown stampede or if it will prove to be just
a fleeting spurt - click here:  urn:newsml:reuters.com:*:nL2N2WX0N9
    That said, constructive VIX  .VIX  action  urn:newsml:reuters.com:*:nL2N2XF0O5,
improving market internals  urn:newsml:reuters.com:*:nL2N2XI0LC and sudden chip-stock
relative strength  urn:newsml:reuters.com:*:nL2N2XJ0JK may be other signs that the 
bear's grip may be may be loosening. 
    
    (Terence Gabriel)
    *****
    
    FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
- CLICK HERE:  urn:newsml:reuters.com:*:nL8N2XN3QQ  urn:newsml:reuters.com:*:nL8N2XN26Y   
    
      
    


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SPXdefcomp05312022    https://tmsnrt.rs/3GwIb5E
Opening market prices    https://tmsnrt.rs/3lYzjMB
Consumer confidence    https://tmsnrt.rs/38ygNaH
Case Shiller    https://tmsnrt.rs/3t6yLs9
Chicago PMI    https://tmsnrt.rs/3wYNOFh
May STOXX    https://tmsnrt.rs/3ayKxF9
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)