Macro: Sandcastle economics
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Morning Brew May 17 2024
Erik Schafhauser
Senior Relationship Manager
Summary: How will we trade ahead of Pentecost?
Good morning,
Monday is Pentecost, a Holiday in most of Europe.
There was little impulse yesterday and traders spent the day digesting the new interest expectations. Indexes rose initially but the Dow and the S&P500 failed to hold above 40,000 and above 5,300. Especially noteworthy is the traded volume at 17.8 billion against an average of 11 billion. This is not only driven by the Meme stocks, GME and AMC traded app 200 million shares combined.
At the end of the day, we saw small gains but less than 0.3% in the main indexes. Walmart was the stock of the day, up 7% on a strong outlook and Chubb gained nearly 5% on the announcement Warren Buffet was becoming engaged.
We are seeing mixed data out of China; the Retail Sales disappoint at +2.3% vs expected 3.8% but the industrial output beat expectations by 1.2%. This combination will not go down in the west already accusing China of trying to export itself out of its crisis.
Property shares in China rose on the expectation of massive supportive measures to the tune of up to 1 trillion USD – the devil may now be in the details of the plan. The Interest Rate announcement on Monday will also be noteworthy. China will apparently issue USD 138 billion of debt initially and with planned local initiatives, fiscal support could top 3.2% of GDP this year.
Yields and USD Index rose a little yesterday to 4.37 and 104.63, EURUSD is 1.0858, GBPUSD 1.2655 and USDJPY 155.80. Gold and Silver are holding up well, the main question is if we break the 2430 and the 30 or if the strong sentiment stalls.
With little US Data of note on the radar, the EU Inflation at 11:00 CET is the key event of the day, the expectation is 0.6% monthly and 2.4% YoY, the most important impact will be any shift in the expected ECB path: 93% Cut priced in a at the June meeting and 70 Basis points by year end.
If there is any deviation, the GER40 and EURUSD will be the Key instruments to watch.
Overall, the massive rise in equity volumes is a bit curious and my cause sharp moves.
Trade safely.
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