Markets to Watch This Week: Historic S&P500 Bounce Ahead of a (Potentially) Quiet Week

We standardise WoW price changes across different markets to allow for cross-market comparisons.

Market Moves

US equities bounced as the S&P500 returned +6.6% on the week and +2.5% on the Friday. Moreover, each day saw it close higher than the open – a first in the index’s history. JP Morgan (+3.0 std-dev) and big tech helped the index rise. The moves came as markets priced in a softer Federal Reserve. Inflation expectations (+0.7 std-dev) moved higher with the US two-year (-1.1 std-dev) lower as credit spreads tightened (US HY CDS: -2.7 std-dev). Overall, we remain bearish on equities. Meanwhile, this week, earnings are unlikely to drive equities.

The US Dollar struggled as a result. Since the DXY topped at 104.9 on 12 May, it has moved 3.2% lower to 101.5. Over the same period, the G10 returned 3.6% on average. Meanwhile, over the past week, hawkish ECB comments saw the EUR (+1.6 std-dev) strongest in the G10. NZD (+1.6 std-dev) followed suit as the RBNZ forecasted a faster normalisation of the OCR. Turning to EM, the Bank of Korea raising their base rate 25bps saw the KRW (+1.9 std-dev) strengthen the most in FX. They signaled that more rate increases were to come while Korean inflation is due Friday. On the outlook, we see the theme of a USD correction continuing, with attention turning to non-farm payrolls on Friday.

Brent crude posted a +6% WoW return. Spot futures are now trading above $120/bbl for the first time since late March. Net-long positioning has increased as a result, though it falls short of the net-longs held from January to March. On the fundamentals, China’s zero-COVID lockdowns had kept global growth expectations subdued. But the worst looks likely behind us. However, supply-based shortcomings remain. OPEC+ are set to meet on Thursday; the expected increase production for July is likely to remain at 400kbbls/d. Meanwhile, a ban on Russian oil in Europe may be near agreement, though Hungary remains the sticking point..

The Week Ahead

The week ahead looks (potentially) quiet. In Europe, attention turns to May CPI ahead of the 9 June ECB meeting. Two inflation prints beat the markets to the open. German state North Rhein-Westphalia CPI printed at 8.1% YoY for May, 0.4pp higher than April. Prices in Spain have risen by 8.7% over the past year, quicker than the 8.5% markets had expected. Meanwhile, French inflation is still to come. A higher than expected (5.2% YoY) read would help ECB rate hike expectations and the EUR/USD higher. Turning to the US, it is a quiet week for data. The focus will be on the state of employment; markets expect US unemployment to fall 0.1pp to 3.5%. Meanwhile, we expect neighbouring Canada to hike by 50bps, though markets still assign a risk to a faster 75bps. Moreover, it is likely increases continue at this speed, keeping a floor under CAD in the short term. Last, May PMIs are due in China. They’ll provide an update on the resilience of activity as COVID-19 containment remains the key policy. You can read Henry’s views on the week ahead and see our weekly COVID trackers here.