Hotter-Than-Expected Inflation Drags Stocks Down

Weekly Wrap Content for the week of Jun 10:

1. Week 23 major indexes performance;

2. Week 23 US sector indexes performance;

3. Major indexes weekly charts of support and resistance levels;

U.S

For the week ended 10 Jun, U.S stocks finished with steep losses despite some early-week strength. This week the biggest market-moving economic data arrived on Friday, with the release of the U.S. consumer price index (CPI) inflation reading for the month of May. The inflation data broadly came in hotter than expectations, with the headline figure coming in at 8.6% year-over-year, above expectations of 8.2%, while core CPI (excluding food and energy) came in at 6.0%, slightly above the 5.9% forecast.

Losses in the tech-heavy Nasdaq Composite were worse than in the broad market as higher interest rates reduced the appeal of companies that may not generate meaningful earnings until well into the future. Value stocks held up better than growth stocks. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    The key driver of headline inflation continues to be rising global food and energy prices. With uncertainty in the Ukraine war (which continues to be difficult to handicap) and China's reopening driving demand, commodity prices may remain stubbornly elevated over the next several months. 

2.    The Fed has already endorsed 0.50% rate hikes for the June and July meetings, and today's hot inflation reading increases the odds of a September 0.50% rate hike. Markets are now pricing in a 62% probability of a 0.50% rate hike and a 33% chance that the Fed moves even more aggressively, with a 0.75% rate hike.

SPX sectors in play

All 11 sectors in the S&P 500 closed lower, Technology(XLK) and Financials(XLF) dropped the most. Refer to below sector indexes weekly performance table.

Technically all the three indexes dropped from 4.6% to 5.6% this week, given back all its recent rebound, back to square one and closed at their four-week low respectively.

Technical indicators appear bearish, further downside possible.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China markets rallied amid hopes for looser monetary policy and signs that Beijing was easing its years long crackdown on the technology sector. The broad, capitalization-weighted Shanghai Composite Index (SSE weekly chart) rose 2.8% and the blue chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, climbed about 3.7% in its biggest weekly gain since February 2021, according to Reuters.

China’s regulators are ending their probe into DiDi Global and will restore the ride-hailing giant’s mobile apps back on domestic app stores, The Wall Street Journal reported. Separately, media outlets reported that authorities are in talks about reviving the initial public offering for Ant Group, which was pulled in December 2020 after the fintech company’s founder Jack Ma made critical comments about China’s financial regulators. Both developments signaled that Beijing is dialing back its regulatory clampdown on the tech sector that started in late 2020. In a further sign of policy relaxation, China’s gaming regulator granted publishing licenses to 60 online games, the biggest approval of titles for computers and smartphones since July 2021.

Hang Seng index(.HSI weekly chart) was the top gainer in my indexes weekly performance table above, recorded 3.4%, thanks to a rally in Chinese giant technology stocks. The Hang Seng Tech index rallied 9.7% in the week.  

Singapore

STI index (STI weekly chart) STI index lost 50.24pts or 1.6% for this week. Technically, STI dropped towards its lower sideway range over past two weeks, closed below both of 200dma and 250dma(3224-3207) level. Immediate support to watch at five-week low 3165 level.

Local stocks sentiment turns to a little bit sour on Wednesday as the MAS survey shows Singapore’s GDP growth in 2022 was cut to 3.8% from the 4.0% previously estimated in March. Inflation forecasts for this year also raised to 5%, up from 3.6% in the previous survey. It was a straight 3-day down streak started from Wednesday, led its way south by the three local banks. STI index lost about 50 points or 1.5% in 3 days, as comparison, the index was trading in a narrow 20points the previous whole week.

The STI index has been trading largely within its sideway consolidation range from 3250 to 3165 area over the last 4.5 weeks. This week, the local index lost 50 points or 1.6%(as at 2pm), dropping closer to its 5-week range bottom 3165. Going forward, to watch immediate technical support level 3165, which is its 5-week trading bottom, if the level breached, a further downside expected, with major support at around 3050.