â– U.S. CPI, Retail Sales fail to meet expectations, weighing on market sentiment
â– S&P 500 halts three consecutive weeks of gains, at it loses 0.35%
■Bond markets lose certainty that the Fed will hike rates on next month’s meeting
â– EUR/USD records Friday gains amid weak U.S. macro
â– Oil gains resume following larger than expected draw of U.S. inventories
Following some hiccups, the adage to sell in May proved correct, as three consecutive weekly gains for the S&P ended with a 0.35% decline Mon-Fri. Selling pressure began to mount towards the weekend, amid lackluster indicators in the U.S. economy. The Dow’s performance was even worse than the S&P, with a 0.5% weekly decline. Furthermore, a dip to 20,798 points on Thursday has marked the lowest level for the index thus far in May.
The soft indications in the U.S. were led by inflation declining from 2.4% in March, markedly above the Fed’s 2.0% target, to a closer 2.2%. The weak CPI data also followed the Producer Price Index pointing to 2.5% Year over Year gain, exceeding analyst expectations for 2.2%. If producer prices are increasing but consumer prices not as much, this could mean that something is wrong with consumer sentiment. Furthermore, Advance Retail Sales data, released alongside the CPI figures, pointed to a 0.4% Month over Month advance at the value of goods sold, failing to meet expectations for a 0.6% increase.
The weaker performance for the economy further translated to lower odds for the Fed to hike interest rates on its upcoming decision, in June. Market derived expectations for a more by the Fed have declined from a perfect 100% down to 97.5%. The yield of the U.S. 10 year bond, similarly, slid to a level of 2.33% by the end of the day, after heating markets have drawn it to a peak of 2.42%.
Expectations for a more accommodative Fed have also led to a selloff at the Dollar, with EUR/USD adding 0.65% on Friday. A strengthening of the greenback at the earlier stages of the week, though, have translated to a 0.6% decline for the currency pair, ending the session at a level of 1.0931. USD/JPY, similarly, was down 0.4% on Friday, but up 0.6% for the week. The GBP lost some 0.7% vs. the Dollar this week. Much of the loss of value for the Pound was recorded on Thursday, after BoE Governor Carney words sparked speculation that a harder Brexit may necessitate more accommodative policy up ahead.
