Finance Friday
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Market Data
Local
Global
*Data as of 4pm WAT
Market News
Local
Global
Market Commentary:
Currencies/Macro:
The US dollar index experienced a slight decline, down 0.3% at one point overnight, following a weaker than expected services March ISM report from the previous day. However, it recovered to be almost unchanged in late offshore dealings, influenced by a decrease in risk appetite due to surging energy prices and escalating tensions in the Middle East. This resulted in a 1.2% drop in the S&P 500. The EUR fluctuated, rising from 1.0840 to 1.0877, but eventually returned to its starting point at 1.0837. The USD/JPY pair moved sideways between 151.51 and 151.77 for most of the session, later dropping to 151.35.
US weekly initial jobless claims slightly increased to 221k, with continuing claims reported at 1791k, slightly below estimates.
Comments from FOMC members highlighted ongoing concerns about inflation. Non-voter Harker pointed out inflation remains too high, especially affecting ALICE communities. Voter Barkin emphasized the importance of maintaining rates to prevent the reemergence of inflation, given the strong labor market's support. Goolsbee remained optimistic about returning to the inflation target, while voter Mester awaited more data to assess inflation trends. Non-voter Kashkari contemplated the possibility of not implementing rate cuts if inflation does not decrease as expected.
Interest Rates:
The US 2-year treasury yield saw fluctuations between 4.64% and 4.70%, settling at 4.66%, while the 10-year yield ranged from 4.31% to 4.38%, eventually steadying at 4.31%. Market expectations for the Federal Reserve's funds rate, which is currently at 5.375%, do not anticipate a change at the upcoming meeting on May 2nd, with a 60% probability of a rate cut by June.
In the credit markets, there was a noticeable adjustment with the Main credit index tightening by 1.5 basis points to 53.5. Conversely, the CDX index relinquished its early gains to increase by 2 basis points, reaching 54, which is above the Main index. Additionally, in the US investment grade (IG) cash market, spreads widened by 1-2 basis points towards the end of the session. The primary market in Europe experienced solid activity, with seven issuers raising a total of EUR 4.9 billion, prominently featuring corporate issuers (EUR 3.4 billion). In the banking sector, BMO issued a EUR 1 billion 3-year floating rate note (FRN) at E+47 (BBSW+73), though activity in the US was more subdued.
Commodities:
Brent crude oil prices surged above $90, driven by concerns that escalating tensions in the Middle East could exacerbate existing supply pressures. The May contract for West Texas Intermediate (WTI) crude oil increased by 1.5% to $86.72, while the June contract for Brent crude saw a 1.75% rise to $90.91. Contributing to the uptick in prices were announcements that the Israeli army had cancelled all leaves and statements from the Israeli Prime Minister vowing retaliation against any threats or actions against Israel.
Bloomberg reported that Brent crude's ascent above $90 triggered a significant trading activity in call options for the June expiry, with 32,000 lots between $90 and $91, pushing implied volatility to its highest in over a month. JP Morgan highlighted the impact of Ukrainian drone strikes on Russia's oil refining capabilities, noting that attacks reaching deep into Russian territory had caused about 670kbpd of refining capacity to go offline, including the significant 340kbpd Taneco refinery, located 1,200km from Ukrainian lines. This area encompasses 19 refineries with a total capacity of 3.8 million barrels per day, accounting for over half of Russia's refining capacity.
Investment Tip of The Day
Consider the role of real assets, like real estate or commodities, in providing inflation protection and portfolio diversification. These assets often have a low correlation with traditional financial investments like stocks and bonds, potentially reducing overall portfolio volatility and offering a hedge against inflation. Their tangible nature and income-generating potential, such as rental income from real estate, can be valuable additions to a balanced investment strategy.