Over the previous week, Federal Reserve officials earlier this month stressed the need to raise interest rates quickly and possibly more than markets anticipate to tackle a growing inflation problem, minutes from their meeting released Wednesday showed. World stocks rose on Thursday and US treasury yields edged lower, as the policymakers at the Fed unanimously felt the US economy was very strong as they dealt with reining in inflation without triggering a recession. In parallel, oil prices rose on Friday, as signs of a tight market supported prices ahead of the US Memorial Day holiday weekend, the unofficial start of the peak summer demand season in the US.
US dollar to a one-month low
US Treasury yields stagnated over the last week, as investors digested the latest Federal Reserve meeting minutes, knowing that US Treasury yields relative slipped on Friday morning as traders lowered Federal Reserve rate hike expectations amid fears over the Fed’s plans to aggressively hike interest rates appeared to ease, as a key inflation reading showed a slowing rise in prices.
On Friday, the Fed’s preferred inflation metric showed a 4.9 percent year-over-year rise in April. This result matched expectations and could be a sign that inflation is starting to decline. As such, the yield on the benchmark 10-year Treasury yield moved to 2.743 percent, while the yield on the 30-year Treasury bond fell to 2.972 percent.
In detail, the Fed released the minutes from its May meeting on Wednesday afternoon, indicating that the central bank was prepared to go ahead with multiple 50-basis-point interest rate increases, potentially going further than the market expected. The Federal Open Market Committee also said that the central bank may move past its “neutral” policy stance into “restrictive” territory.
In fact, the Fed minutes were much less hawkish than the market was expecting with anticipations of fewer rate hikes on the back of economic growth slowing. In fact, first-quarter gross domestic product declined at a 1.5 percent annual pace, worse than the 1.3 percent Dow Jones, the Commerce Department reported Thursday.
In parallel, the US dollar index, which measures the greenback against a basket of six major peers, fell as low as 101.4 for the first time since April 25. Against the euro, the US currency also slipped to the weakest since April 25 at $1.077 and dropped to the lowest against sterling since April 26 at $1.261. The dollar index headed for a 1.5 percent drop over the week, following the previous week’s 1.4 percent slide. That would be the first two-week decline since the turn of the year, not to mention that a rally in Asian stocks also sapped demand for the greenback as a haven.
In fact, Asian shares extended global gains thanks to strong results from regional tech firms and US retailers, while investors also took comfort from Federal Reserve minutes showing a pause to its rate hikes is on the cards later this year. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5 percent in early trading on Friday, the biggest gain in a week, buoyed by a 1.2 percent rebound in resources-heavy Australian shares, a 2.8 percent jump in Hong Kong stocks, and a 0.7 percent rise for blue chips in mainland China. Wall Street closed sharply higher overnight after optimistic retail earnings outlooks and waning concerns about overly aggressive interest rate hikes by the Fed encouraged buyers. The Dow Jones Industrial Average rose 1.61 percent, the S&P 500 gained 1.99 percent, and the Nasdaq Composite 2.68 percent.
Global supply concerns pushing oil prices to a two-month high
Oil prices recorded a two-month high on Friday, on track for their biggest weekly jump in 1 and a half months, supported by the prospect of an EU ban on Russian oil and the coming summer driving season in the United States and China easing its lockdown in its largest commercial city, signaling an anticipated pick-up in fuel consumption. In parallel, global supply concerns are escalating, as OPEC+ is set to stick to last year’s oil production deal at its June 2 meeting and raise July output targets by 432,000 barrels per day, rejecting Western calls for a faster increase to lower surging prices. As such, Brent crude futures recorded $117.3 a barrel and was on track for a gain of about 4 percent this week.
With supply growth lagging demand growth, the oil market is likely to stay undersupplied. In parallel, European Union countries are negotiating a deal on Russian oil sanctions that would embargo shipment deliveries but delay sanctions on oil delivered by pipeline to win over Hungary and other landlocked member states. Hungary’s resistance to oil sanctions and the reluctance of other countries have held up the implementation of the sixth package of sanctions by the 27-member EU against Russia following its invasion of Ukraine.
Gold prices are on track for the second week of gains
As the dollar continued to weaken, gold prices rose on Friday, putting bullion on track for a second straight weekly rise amid cooling bets for a more aggressive Federal Reserve monetary policy. As such, spot gold was up at $1,854 per ounce, although gains were capped by some investors turning to riskier assets in Asia. It is worth mentioning that a large part of gold’s underperformance over the previous period has been due to investors moving to cash as equity markets fell, whilst lockdowns in China also dented demand.
On another note, Ether and other altcoins like Cardano, Solana, and Avalanche sank last week after a rough few weeks. This comes after the Terra ecosystem completely collapsed, destroying its so-called stable coin TerraUSD (UST) and sister cryptocurrency Luna, in addition to longer-standing macroeconomic factors that had already added downward pressure to the cryptocurrency market. Bitcoin, the largest cryptocurrency by market value, is also struggling to hold $30,000, dipped to a low of $28,412 before ticking up a bit.
