Wall Street was under pressure for most of the week, however a rally on Friday saw losses pared. For the week the S&P 500 lost 0.8% while the Nasdaq was modestly higher. There were worries about the debt ceiling with US Treasury Secretary Janet Yellen stating that the US might not be able to meet debt obligations as early as June. The mood was also cautious around the Federal Reserve meeting where the central bank hiked interest rates by a quarter percentage point as expected, with markets viewing post-meeting comments as an indication the central bank was going on pause.
Concerns about the stability of the financial system were reignited, with First Republic becoming the third bank to collapse this year. While JPMorgan stepped in to acquire the majority of its assets on Monday, market unease lingered. Regional lenders saw a steep sell-off on Thursday, with investors on high alert as to who could be the next domino to fall. Friday’s session saw a rally led by a sharp bounce back in regional bank names as well as Apple, following its earnings report. The non-farm payrolls report came in stronger-than-expected, pushing US Treasury yields higher as doubts grew over the prospect of interest rate cuts.
European markets saw their second consecutive weekly decline, with the STOXX 600 losing 0.3%. One of the focal points was the meeting of the European Central Bank where it raised its main deposit rate by a quarter percentage point to 3.25%, its smallest increase since its hiking cycle began. Earlier in the week, the preliminary reading for eurozone inflation for April unexpectedly rose 7% year-on-year, its first increase in six months. On the brighter side, core inflation did ease to 5.6% in its first decline since June 2022.
The Shanghai Composite managed to log a weekly gain, in a holiday shortened week. Economic data out of China was mixed. Caixin’s Manufacturing PMI unexpectedly dropped into contractionary territory in March, while the Services PMI remained in expansionary territory. Meanwhile domestic tourism over the five-day holiday rebounded to pre-pandemic levels. Japanese markets were only open for the first two days of the week but the Nikkei was up 1%, lifted by a weaker yen that supported exporters.
Oil had another rough week, with the price of Brent crude down 5.2% despite a surge on Friday. Prices were under pressure from concerns of slowing economic growth from the US and China which could weigh on oil demand. Meanwhile gold had approached record highs, firming following the Fed rate hike as well as the softer US dollar and heightened geopolitical tensions following a drone attack on the Kremlin. Prices moderated on Friday, but for the week it was up 1.1%. Latin American currencies were lifted by the weaker dollar and firmer prices of some commodities, with MSCI’s index hitting its highest level since 2014. The Colombian peso was particularly strong, up after Congress approved a four-year development plan. The Brazilian central bank once again held its benchmark Selic rate at 13.75% and the Bovespa index was up 0.7%.