While the focus of investors was the verbal guidance of central bank officials, the intense macroeconomic calendar and the ongoing debt limit crisis in the USA, the mixed signals received made it difficult for the markets to find direction.
The Consumer Price Index (CPI), announced during the week in the USA, increased by 4.9 percent on an annual basis in April, just below market expectations, while annual inflation fell to its lowest level since April 2021.
While the verbal guidance of the US Federal Reserve (Fed) officials continued, Richmond Fed President Tom Barkin, who made statements after the inflation data, stated that despite the CPI increase that was below expectations, inflation remained stubbornly high.
While there is less than a month left for the federal government in the USA to reach the 31.4 trillion dollar debt limit and run out of cash, International Monetary Fund (IMF) Spokesperson Julie Kozack said that if the USA defaults, this situation will not only affect the USA but also the global economy. He warned that it would have very serious repercussions.
US Treasury Secretary Janet Yellen said the US’ failure to meet its debt obligations could threaten gains over the past few years and spark a global recession.
“Unless the debt limit is raised or suspended before the Treasury’s cash and emergency measures are exhausted, the government will have to delay payments for some activities, fail to meet its debt obligations, or both,” the US Congressional Budget Office (CBO) said in its report.
U.S. President Joe Biden has nominated Philip Jefferson as the Vice Chairman of the Federal Reserve and Adriana Kugler as a member of the Fed’s Board of Directors.
On the other hand, the announcement that a meeting was held between the USA and China during the week highlighted the expectation that relations could normalize.
A senior US official is online regarding the meeting of White House National Security Adviser Jake Sullivan in Vienna, Austria, with China’s most senior diplomat, the Director of the Central Foreign Relations Commission Office of the Communist Party of China (CCP), Vang Yi. informed the journalists at the meeting.
Noting that the parties held talks that lasted more than 8 hours for two days, the official said that Sullivan emphasized that the US wants to conduct relations with China “on the basis of competition, not conflict”.
With these developments, the expectations that the Fed will raise interest rates by 25 basis points in the next month’s meeting in the pricing of money markets increased to 12 percent.
After all these developments, the US’s 10-year bond yield fluctuated by about 20 basis points during the week, and ended the week at 3.47 percent with an increase of about 3 basis points. The dollar index, which followed an upward trend, closed the week at 102.7, approximately 1.4 percent above its previous closing.
The ounce price of gold finished the week at $2,011.1 with a decrease of 0.3 percent compared to the previous close. The barrel price of Brent oil, which carried the downward trend for the fourth week in a row, closed the week at $74 with a 1.6 percent decrease.
New York stock markets were mixed
While the US stock markets followed a mixed course in the week with the intense data agenda and verbal guidance from the Fed members, the statements to be made by Fed Chairman Jerome Powell next week were placed in the focus of investors.
Analysts stated that the developments regarding the ongoing debt limit crisis in the USA will remain in the focus of investors, adding that Powell’s verbal guidance will also play an important role in shaping the expectations for the next period.
While the concerns about the banking crisis in the country continue to affect the risk appetite, the share price of the US regional bank PacWest, headquartered in California, fell close to 23 percent after the bank reported that its deposits decreased by 9.5 percent last week.
On the other hand, the US Department of Commerce announced a $500 million financing opportunity for the regional technology and innovation centers program as part of the “Invest in America” agenda.
According to the data released in the country last week, the Producer Price Index (PPI) was below expectations with an increase of 0.2 percent month on month and 2.3 percent year on year. In May, the University of Michigan confidence index remained below the estimates with 57.7, and took the lowest value of the last 6 months.
The number of first-time applications for unemployment benefits in the USA rose to 264 thousand in the week ending May 6, exceeding expectations, and recorded its highest value since October 2021.
With these developments, the S&P 500 fell by 0.2 percent in the New York stock market and the Dow Jones index fell by 1.1 percent, while the Nasdaq index rose by 0.4 percent.
In the data calendar for the week starting May 15, the New York Fed Manufacturing Index on Monday, retail sales and industrial production on Tuesday, building permits and housing starts on Wednesday, the Philadelphia Fed Manufacturing Index and weekly jobless claims filings on Thursday, along with data from the Fed Chairman on Friday. Powell’s speech will be followed.
In Europe, eyes turned to inflation data
While a negative trend was observed in the European stock markets in the week when the BoE increased interest rates by 25 basis points, the statements made by ECB President Christine Lagarde and BoE President Andrew Bailey, as well as the inflation data in the region for the next week, placed the focus of investors.
Last week, the BoE increased the policy rate by 25 basis points to 4.5 percent, in line with expectations. Thus, with the decision of the BoE, which increased interest rates 12 times in a row, the interest rate in the country reached its highest level since October 2008.
BoE Chairman Andrew Bailey, in his statements after the meeting, stated that they no longer expect a recession in the country and that a moderate growth will be seen, and that interest rate hikes may continue if conditions require.
Analysts said money markets were priced in that the ECB could end interest rate hikes sooner than expected, but the net tone of verbal guidance from ECB members added to the uncertainties.
While ECB officials continued their “hawk” statements, ECB Member Isabel Schnabel said the bank should do more to control inflation. ECB Member Martins Kazaks also stated that the bank’s prediction that the rate hikes will end in July may be wrong.
Recalling that the CPI in the Eurozone is expected to increase by 0.7 percent monthly and 7.0 percent annually in April, he said that volatility in the markets may increase after the data are announced.
Analysts stated that the bank is expected to increase interest rates by 25 basis points with a probability of 85 percent at the meeting next month, and stated that the rate hike expectations, which were previously 50 basis points, decreased to 25 basis points in the rest of the year.
On the other hand, economic activity, which continues to slow down despite the high inflation in the region, continues to complicate pricing.
According to the data released in Germany last week, industrial production fell by 3.4 percent monthly and remained below the expectations, while the CPI increased by 0.4 percent monthly and 7.2 percent annually, in line with the forecasts.
While the British economy grew by 0.1 percent in the first quarter, it contracted by 0.3 percent on a monthly basis in March. While industrial production in the country exceeded the expectations with a monthly increase of 0.7 in March, the foreign trade deficit became 16.4 billion pounds in the same period.
Euro/dollar parity closed the week at 1.0850 level, 1.5 percent below its previous close.
With these developments, the CAC 40 index in France depreciated by 0.2 percent, the FTSE 100 index in the UK by 0.3 percent, and the DAX index in Germany by 0.3 percent, while the MIB 30 index in Italy followed a horizontal course. It closed just below its previous close.
Next week, industrial production in the Eurozone on Monday, unemployment in the UK on Tuesday, ZEW index in Germany, growth and foreign trade balance in the Eurozone, inflation in the Eurozone on Wednesday and BoE President Bailey’s statements, Friday In addition to the PPI data in Germany, verbal guidance from ECB President Lagarde will be followed.
Japan’s inflation data is in the focus of investors
In the Asian stock markets, a sales-weighted course excluding Japan stood out last week, while concerns about the Chinese economy were effective in this course. Growth and inflation data in Japan, which will be announced next week, placed the focus of investors.
According to the data announced at the beginning of the week, even though the exports in China were higher than the expectations, the concerns about the world economies decreased by 3.6 percent in the PPI announced in the country during the week, negatively affected the risk appetite.
According to the announced data, exports in China increased by 8.5 percent in April, exceeding the expectations, while the foreign trade surplus was 90.2 billion dollars. While the CPI in the country increased by 0.1 percent annually in April, the Producer Price Index (PPI) decreased by 3.6 percent.
Analysts stated that the said data raises the concern that the economic activity in the country may have slowed down and that there may be a loss of power in worldwide demand.
Emphasizing that the US-China talks are closely followed, analysts noted that the news flow about the talks may increase the volatility in the markets.
According to the data released in the region last week, Japan’s leading index decreased to 97.5 in March, while the service sector Purchasing Managers Index (PMI) rose to 55.4 and the composite PMI to 52.9.
With these developments, the Nikkei 225 index in Japan increased by 0.8 percent on a weekly basis, while the Shanghai composite index in China decreased by 1.9 percent.
Hong Kong’s Hang Seng index fell 2.1 percent and South Korea’s Kospi index lost 1 percent.
In the data calendar of the week starting with May 15, industrial production and unemployment in China on Tuesday, growth and industrial production in Japan on Wednesday, foreign trade deficit in Japan on Thursday and inflation in Japan on Friday will be followed.
BIST 100 index gained 9 percent last week
While the BIST 100 index closed at 4,795.61 points with a 9 percent gain in value last week, eyes were turned to the Market Participants Survey data published by the Central Bank of the Republic of Turkey (CBRT) for the next week.
Last week, the Capital Markets Board (CMB) approved the free capital increase of Otokar Automotive and Defense Industry worth 96 million lira, E-Data Technology Marketing 90 million lira and Mavi Giyim Industry and Trade 99 million 314 thousand lira.
MSCI, one of the global index providers, announced the addition of Tofaş Turkish Automobile Factory to the Turkish standard index, and the changes will be effective in global indices as of May 31.
On the other hand, Banking Regulation and Supervision Agency (BDDK) stated that it would be beneficial to allow the use of the guarantees of the Natural Catastrophe Insurance Pool (DASK) in the earthquake area for the repair of workplaces as much as possible so that the damaged workplaces can be reactivated.
According to the domestic data released last week, the balance of payments had a deficit of 4 billion 484 million dollars in March, while a surplus of 1 billion 372 million dollars was formed in the current account, excluding gold and energy.
Dollar/TL closed the week at 19,5783, 0.4 percent above the previous weekly close.
Analysts said that in the BIST 100 index, technically, 4.700 and 4.600 levels can stand out as support, and 4.900 and 5,000 points as resistance.
Next week, domestic budget balance on Monday, Market Participants Survey on Thursday, as well as weekly money and bank statistics data will be followed.
