This week, the US released its May CPI, showing a year-on-year increase of 3.3%, and PPI rose by 2.2%, surpassing expectations. Following the CPI release, Chairman Powell’s hawkish tone at the FOMC meeting initially boosted asset prices, but they retreated during his remarks. The US dollar index experienced significant volatility, briefly surging above 105 post-Powell’s speech.
Global stock markets, except for the NASDAQ, generally declined this week, led by Europe. Japan’s momentum paused, while the Dow Jones held steady. China and Hang Seng experienced some pullback. NASDAQ’s gains were primarily driven by tech giants like Apple, while other sectors struggled to advance. Overall, global risk assets showed weak upward momentum, amid expanding risk factors.
Despite the favorable US CPI data, Powell indicated at the press conference that while popular, the data alone does not support the Fed’s plan for two rate cuts in 2024, dampening overall market sentiment. Bitcoin prices fell back from $70,000 to $68,000, indicating continued volatility since the previous phase.
Global commodities maintained stability this week, with support at lower levels but lacking momentum for upward movement. Besides the Fed’s rate decisions, the rise of right-wing political forces in Europe significantly impacted overall performance, especially in France, which saw substantial declines. The resurgence of anti-globalization sentiments among right-wing policies could disrupt the path of global inflation reduction, especially amidst trade frictions between Europe and China.
Although the US dollar index surged above 105 again, influenced by European rate cuts, US two-year and ten-year Treasury yields continued to decline, placing the US in a relatively favorable position. Domestic financing costs showed signs of decline, reducing systemic financial risks. The market now enters a quiet period after this week, focusing on whether the NASDAQ index will retreat and upcoming European elections.
In domestic news, China reported a 0.3% CPI and -1.4% PPI for May. Financial data showed M2 growing by 7%, M1 contracting by -4.2%, and social financing expanding by 8.4%. PPI data saw a significant rebound from the previous month, better than expected, reflecting a slowdown in the decline of raw material prices related to real estate. However, upward movement remains challenging due to existing oversupply conditions, particularly in industrial goods related to exports.
Over the past three months, the faster-than-expected decline in M2 suggests worsening conditions for household savings. Despite M1’s sharp contraction, caution is advised against overinterpreting it, as adjustments including current deposits might keep M1 growth positive. Amid tighter liquidity from reduced current deposits by households and enterprises, there are indications of credit tightening. Domestic demand pressures in China remain significant, requiring substantial fiscal efforts in the coming period.
Next week, China’s May production and consumption data will be released, potentially facing significant pressure based on already disclosed information. Looking ahead, the effectiveness of current macroeconomic policies seems to diminish as market expectations adjust following recent declines and ahead of the Third Plenum.