Though US inflation cooled and the Fed may be ready for a rate hike pause in the coming month, markets seem not optimistic about the economic playout. With the US government debt risking a sovereign default, the banking crisis still lingering, and signs of rising jobless claims, an economic downturn might be near, which may shift funds into safe destinations. Slowing bank deposits suggest investors seek high-yielding assets, such as high-grade corporate bonds and equities, typically in those cash-health big techs. Nasdaq again outperformed most global indices, with Alphabet’s new AI development adding to the rally. More economic data will be released this week to continue gauging major economic trajectories, including US retail sales, China’s industrial output, Australian employment change, and New Zealand’s annual budget.
On the earnings front, the big US retailers, including Walmart and Home Depot, will release their quarterly results, providing clues for the country’s consumer sentiment. The Chinese tech giant Alibaba’s earnings will also be a parameter for the country’s economic health.
What are we watching?
- US dollar rebounds: The rebound in the US dollar may suggest that funds were seeking haven destinations, while the US bond yields climbed higher, though the Fed may pause rate hikes in June.
- Divergent moves in growth vs. cyclical stocks: Growth sectors, such as telecommunications, consumer discretionary, and technology, outperformed, as these financially solid companies are considered to endure well in an economic downturn. By contrast, those cyclical sectors, including financials, industrials, and energy, lagged broad markets.
- Gold’s technical correction: Gold has been rejected at the resistance of an all-time high, which may have been triggered by a triple-top technical correction. A rebound in the USD also pressed the metal prices.
- The rebound in oil losses steam: Oil prices slid amid economic concerns as China’s recent disappointing economic data added to the downside pressure. In fact, China-growth sensitive commodities, such as copper and iron ore, all fell sharply.
- Bitcoin retreats: Crypto markets sharply retreated amid a contagious selloff due to Bitcoin’s record withdrawal at Binance, which sparked a surge in transaction fees. A head-and-shoulder-top pattern surfaces in Bitcoin, which may lead the coin to re-test 25,000 support.
The ASX 200 finished higher for the week, up 0.51%, with information technology, health care, and energy sectors leading gains. Meanwhile, defensive sectors, such as utilities and consumer staples, finished in the red. The Australian dollar weakened against the US dollar due to a drop in commodity prices. The RBA meeting minutes, Q1 wage growth, and employment data will be closely watched for clues into the policy and economic trajectory this week.
Source: ASX as of 14 May 2023