Inflation Disappoints On The Upside In U.S. And On The Downside In China

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Key takeaways:

1.     A hotter-than-expected inflation report, alongside rising concerns of an Iranian retaliatory strike on Israel, sparked a bout of market indigestion last week. The Dow ($DJI) tumbled Friday to its lowest level since late January, the SPX ended at a four-week low.

2.   Gold price advances to new lifetime high to the $2400 neighbourhood. 

3.    WTI Crude Oil (/CL) futures earlier Friday spiked to a five-month high above $87 per barrel. 

4.    “Sell in May and go away” more often misses market gains based on historical data. 

5.    Q1 earnings started, more banks earning in coming week.

U.S.

For the week ended Apr 12, a hotter-than-expected inflation report, alongside rising concerns of an Iranian retaliatory strike on Israel, sparked a bout of market indigestion last week. Stocks moved lower, while interest rates and gold prices moved higher. The Dow ($DJI) tumbled Friday to its lowest level since late January, the SPX ended at a four-week low. Large-caps held up better than small-caps, with the Russell 2000 Index suffering its biggest daily decline in almost two months on Wednesday and falling back into negative territory for the year to date. Refer to below major indexes monthly performance table. 

Key highlights for the week and next:

1.    Latest inflation check. The primary factor weighing on sentiment appeared to be Wednesday morning’s release of the consumer price index (CPI) data, which showed headline prices rising by 0.36% in March, right in line with February’s increase, in contrast with consensus hopes for a small decline from the month-earlier pace. 

2.    Interest rate cut expectation. In the wake of the CPI report, futures markets began pricing in roughly a 20% chance of a rate cut at the Fed’s June policy meeting versus roughly 50% before its release. Markets expect the first cut will be pushed back to Jul, with fewer cuts this year. 

3.    Middle East conflict. Reports of possible imminent strike on Israel send investors flocking to oil and “safe heaven” Gold and U.S. dollar. Gold price advances to new lifetime high to the $2400 neighbourhood. WTI Crude Oil (/CL) futures earlier Friday spiked to a five-month high above $87 per barrel after The Wall Street Journal reported Israel is preparing for a direct attack from Iran as soon as Friday or Saturday. 

4.    Q1 earning report. Big banks such as JPM, Citi Wells Fargo(WFC) reported their quarterly result on Friday, JPM reported disappointed result and declined more than 6% on Friday. Other banks followed sell-off. Major bank earnings continue next week with Dow member Goldman Sachs (GS) expected to report results Monday. Bank of America (BAC) and Morgan Stanley (MS) are expected to report earnings Tuesday, along with Johnson & Johnson (JNJ) and UnitedHealth (UNH).

Sell in May and go away?

The antiquated saying is based on the notion that the stock market is weaker during the summer, but the data doesn’t confirm. “Sell in May and go away” more often misses market gains. That said, with May fast approaching, nearing the one-third mark for 2024, historical perspective is informative: Over the last four decades, the average return for the stock market from May to August was a respectable 3.4%, hardly a period worth missing.

SPX sectors in play

For the week, all 11 sectors in the SPX closed in red. Large-caps held up better than small-caps, with the Russell 2000 Index suffering its biggest daily decline in almost two months on Wednesday and falling back into negative territory for the year to date. Growth stocks such as Technology(XLK) and Consumer Discretionary(XLY) also fared better than value shares, which were weighed down by interest rate-sensitive sectors, such as real estate investment trusts (REITs), regional banks, housing, and utilities. Financial(XLF) was the worst performer. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

All the three indexes retreated from their record level.  to their monthly new records. Click below three indexes for their weekly charts.  

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China stocks retreated as weak inflation data underscored the lackluster demand hanging over China’s economy. The Shanghai Composite Index(SSE) declined 1.62%, while the blue chip CSI 300 gave up 2.58%. In Hong Kong, the benchmark Hang Seng Index nearly flat losing 0.01%. (Refer to the above weekly performance table).

Key highlights for the week and outlook for China/HK:

1.    China’s consumer price index rose a below-consensus 0.1% in March from a year earlier, down from February’s 0.7% rise. Core inflation rose by 0.6% but was weaker than February’s 1.2% increase. Meanwhile, the producer price index fell 2.8% from a year ago, marking its 18th month of declines and accelerating from February’s 2.7% drop. 

2.    China’s exports and imports fell in March and reversed gains from the first two months of the year. Exports shrank a worse-than-expected 7.5% in March from a year ago compared with a 7.1% rise in the January to February period. Meanwhile, imports dipped 1.9%, down from 3.5% growth in the first two months of the year. The latest results dealt a setback to China’s reliance on external demand to bolster its economy and added pressure on Beijing to ramp up stimulus measures as it tries to achieve its 5% annual growth target set at the National People’s Congress in March.

Hang Seng Index stocks top weekly gains: ENN Energy(2688) +10.37%; China Hongqiao(1378) +9.28%;  

Hang Seng Index stocks top weekly losers: AIA(1299) -9.41%; Li Ning(2331) -8.43%

Click below title to view weekly charts.

SSE weekly chart

.HSI weekly chart

Singapore

STI index nearly flat, losing 0.04% this week. The index continues hovering around resistance level 3250 in a narrow range. Immediate support 3200 and resistance 3250.

Top weekly gains: Jardine C&C +9.04%; Wilmar +2.31%;

Top weekly losers: YZJ -6.35%; Seatrium -3.57%

STI weekly chart

Source: Some contents and data excerpted from various public market reports.