U.S. stocks finished the week higher with debt ceiling negotiations and Fed expectations in the driver’s seat. Uncertainty about the debt ceiling kept markets in a holding pattern to start the week, with the clouds parting midweek as negotiators got to work and expressed optimism about a deal. The S&P rose 1.65% on the week, helped by some evaporation in bank concerns – the index of regional banks rose 8.7%. European equities were unchanged last week as ECB President Lagarde remained hawkish despite critical forward looking German data that disappointed.
Treasury yields climbed in a rocky week. The 10-year broke out of its 2-month range, rising as high as 3.70% on the back of cautious optimism for a bipartisan debt accord and easing concerns in the regional banking system. House Speaker McCarthy abated concerns stating he is optimistic the House could vote on a deal as soon as next week. An avalanche of Fed speakers leaned against rate cuts this year, and prospects for an additional rate hike in June resurfaced with markets now pricing in a 35% probability. As yields rose to a post-March high the Bloomberg Agg shed –1.37% and high yield bond returns fell –0.42%.
Crude prices rose 2.16%, finishing the week at $71.55. Expectations for gasoline and jet fuel demand improved as the U.S. enters the heavy summer travel season. The EIA released a bullish report forecasting global oil demand to pick up by 2.2M BPD by yearend driven primarily by growing Chinese demand. Industrial metals retreated further on the week as investors remained generally sour on near-term demand given the uncertain global economic environment.
The data were positive, on balance, with retail sales headlining early in the week with a 0.4% m/m gain in April but an upside surprise in the “control” group of 0.7% m/m. Initial jobless claims data made upbeat headlines. The prior week’s jump to 264,000 was cause for concern at first until it became apparent the gain was focused on fraudulent filings in Massachusetts. This week, claims fell back to the low level of 242,000, a sign the broader labor market remains strong. Regional manufacturing sentiment indicators were weak for May, offsetting the solid tone of April data.
Source: Bloomberg Finance, L.P., as of 11:00am on 5/19/23.