Image Source: Unsplash

MARKETS
 

This week, the US market felt more like a wild rollercoaster ride than a smooth cruise, as sentiment took a beating from various factors, mainly those pesky rising bond yields. A lacklustre bond auction and some hawkish whispers from the Fed had investors second-guessing their dreams of rate cuts.

Sure, yields dropped after a weaker-than-expected GDP report, but it wasn't exactly party time. The report painted a picture of the US economy strolling, with both spending and inflation getting a downgrade. While this cooler economic breeze might nudge the Fed towards rate cuts, it's also waving a caution flag for Corporate America, hinting at potential dips in consumer spending—the kind of red flags they don't hang up for decoration.

But wait, there's a glimmer of hope! Downward tweaks to economic data brought a breath of fresh air to the rate cut narrative. Traders were itching for signs of consumer spending fatigue, a significant driver of inflation. The BEA delivered, slicing personal consumption down to 2.0% from the initial 2.5%.

The core price index dropped to 3.6% in a small but decent development. The initial 3.7% in the preliminary tea leaves was hottish, suggesting a faster-than-expected climb. But if you raised your risk profile on Thursday's one-tenth downward revision, maybe it's time to rethink your career choices.

The slight downward shift is hardly a pat on the back for a Fed trying to rein in inflation.

Final sales to domestic purchasers—a GDP component that's a big deal—got a haircut down to 2.5%, marking the slowest pace since Q2 last year. This twist in the plot creates a classic "between a rock and a hard place" narrative for investors.

Meanwhile, initial unemployment claims decided to play a game of hopscotch, rising by 3,000 to 219,000 for the week ending May 25, just a tad above the 217,000 consensus. But let's not hit the panic button just yet. It's like a blip on the radar, especially considering the recent dance moves in unemployment claims.

The macro narrative still tries to find its groove amidst the ever-changing tides. Yields are calling the shots, with key levels to watch on the US 10-year bond at 4.59% and 4.69% on the upside and 4.49% and 4.39% on the downside, where lower levels seem as elusive as a unicorn at a rodeo.

So, keep your eyes peeled and your trading helmets strapped tight! When will these higher rates finally knock the US economy enough for the Fed to pull the trigger? Your guess is as good as mine!

Ah, the end of the month—a time when the markets can sometimes behave in mysterious ways, defying all logic and reason. It's the perfect opportunity to step back, take a breather, and enjoy some well-deserved downtime over the weekend. After all, even the most seasoned traders need a break from the rollercoaster of market fluctuations.

OIL MARKETS
 

In a bearish turn of events, a substantial drop in US stockpiles failed to uplift sentiment in the crude oil market. According to Energy Information Administration data, commercial inventories plummeted by 4,156kbbl last week, surpassing market expectations of a mere 1.15kbbl decrease. However, the market's focus shifted to the increase in gasoline and distillate inventory, which surged by 2,012kbbl and 2,544kbbl, respectively. Adding to the gloom, gasoline's implied demand saw a slight dip to 9.148mb/d despite the kickoff of the US driving season over the Memorial Day weekend.

The downward revision of US GDP further dampened the mood. This recent weakness in crude oil prices will likely pressure OPEC to stabilize the market further. Insider reports suggest the oil group is exploring options to extend production curbs well into 2025. Additionally, there are discussions about tightening compliance with current quotas as several members exceed their production limits.

FOREX MARKETS
 

On a solemn tone, the foreign exchange market bids farewell to a true legend with the passing of Ian Naysmith this week. I remember crossing paths with Ian in the mid-80s when he joined RBC. His knack for navigating the Forex market was like watching a master at work, and it didn't take long for him to rise to the top of their global FX desk.

Ian's career took flight even further with notable stints at CIBC Global Markets. While our professional paths may have diverged when I ventured into e-trading with the then-startup FX broker OANDA Corporation, Ian remained a shining star on Bay Street—a name synonymous with excellence in the world of foreign exchange.

In May, Tokyo's consumer price index (CPI) saw inflation growth in line with expectations, accompanied by a slight uptick in spending. However, the figures still hovered around levels that cast doubt on the Bank of Japan's plans to raise interest rates further this year. Headline CPI inflation reached 2.2%, a modest improvement from the 1.8% recorded in April.

Meanwhile, the core inflation reading, which excludes fresh food and energy prices and is closely monitored by the BOJ, dipped to 1.7% in May, down from 1.8% the previous month. This figure remains notably below the BOJ's targeted annual rate of 2%.

Tokyo's inflation data typically serves as a precursor to nationwide inflation trends in Japan. The May reading suggests that consumer spending saw only marginal improvement throughout the month.

These numbers follow closely on the heels of nationwide CPI data for April, which showed inflation growth falling short of expectations. It's not exactly music to the ears of the struggling Japanese yen.

Stay tuned for the next episode, and remember, in the wild world of trading, it's always safety first!

More By This Author:

Who Brought The Skunk To The Garden Party ?
Yen Stumbles As Traders Embrace The Carry Trade; BoJ Under Pressure To Act
Tech Booms As HIgher Treasury Yields Loom