Written by Investing.com Staff, Investing.com
S&P 500 Snaps 2-Week Losing Streak Amid Renewed Bets on Tech
The S&P 500 closed modestly higher Friday, snapping a two-week loss on rising technology stocks as falling U.S. bond yields suggests they may be starting to buy the Federal Reserve’s bet that the turn-up in inflation will prove transitory.
The S&P 500 rose 0.08%, the Dow Jones Industrial Average was up 0.19%, or 64 points, and the Nasdaq Composite added 0.09%.
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The personal consumption expenditures, or PCE, index, the Federal Reserve’s preferred inflation measure rose 3.1% in the 12 months through April.
The sharp uptick in inflation was driven by a boost in demand for the services sector of the economy, including air travel, recreation and accommodation as the reopening gathered pace. But this services-led push in inflation will likely fade.
“As demand rotates from the supply-constrained goods sector to the labor intensive service sector, this should help ease inflationary pressures and accelerate employment growth,” Jefferies (NYSE:JEF) said in a note.
Against the backdrop of increasing expectations that inflation could prove transitory, U.S. bond yields slipped, paving the way for growth corners of the market like tech to shine.
Tech notched a second weekly win as investors digested mostly positive earnings from sector heavyweights including Salesforce.
Salesforce.com (NYSE:CRM) jumped more than 5% after the enterprise software company reported first quarter results that topped expectations, and raised guidance amid ongoing demand for cloud services that is set to continue.
“The work from home shift clearly accelerated growth prospects, however the longer term trend around cloud is a massive market for cloud transitions and digital transformation initiatives for CRM as the company continues to be front and center on many of these projects in both the public and enterprise sectors,” Wedbush said in a note.
Chip stocks also played a role in the broader rally in tech, with Nvidia (NASDAQ:NVDA) rally more than 5% following it’s better-than-expected quarterly results released earlier this week. Broadcom (NASDAQ:AVGO), Texas Instruments (NASDAQ:TXN) an Analog Devices (NASDAQ:ADI) were up close to 1%.
The day of green for tech stocks came at the expense of cyclicals, with financials, industrials and energy underperforming the broader market.
Industrials were weighed down by a fall in Boeing (NYSE:BA) after the aircraft maker was forced to temporarily halt deliveries of 787 Dreamliner jets while the Federal Aviation Administration awaits further data to determine whether proposed solutions meet safety standards.
But cyclicals are up sharply since the start of the year as investor appetite has broadened out beyond tech. History suggests this broadening out in the market is good news for stocks.
“We’re not going to see the market crashing if, in fact, investors are broadening out and buying more and more,” Melissa Brown, managing director of applied research at Qontigo, an index and analytics provider, said in an interview with Investing.com on Friday.
“Market crashes tend to be characterized by a narrow market … a few big stocks going up, while the average stock doesn’t. But that doesn’t seem to be what we’re seeing now, so that is good news,” Brown added.
The short-squeeze on Reddit-linked stocks including AMC, GameStop, SPCE continued. The Redditors are set to close out the week with a big win as traders betting against AMC Entertainment (NYSE:AMC), GameStop (NYSE:GME), Virgin Galactic Inc (NYSE:SPCE) have lost a staggering $2.8 billion since Monday.
AMC, which has more doubled this week, has inflicted the most pain on short-sellers, who have lost about $1.5 billion, according to data from S3 Partners.
The dollar edged higher in early European trade Friday, helped by rising U.S. bond yields ahead of the release of key inflation data.
At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 90.120.
EUR/USD traded 0.1% lower at 1.2180, slipping after reaching a 5 1/2-month high of 1.2266 on Tuesday, USD/JPY rose 0.1% to 109.92, climbing to its highest levels in about seven weeks, while the risk-sensitive AUD/USD was down 0.1% at 0.7731.
Helping the greenback was a report by the New York Times that President Joe Biden will announce later Friday a $6 trillion budget for 2022 to ensure investments in major infrastructure, education and healthcare projects. If this manages to get through a divided Congress, it would take federal spending to its highest levels since World War II.
Yields on benchmark 10-year Treasurys climbed to around 1.62%, from around 1.58%, on debt supply risks to fund the spending, providing support for the dollar.
The budget proposal came as the U.S. economic recovery appears to gain momentum. On Thursday, the number of Americans filing new claims for unemployment benefits dropped to a post-pandemic low of 406,000, ahead of next week’s widely-watched monthly June payrolls data.
Later Friday comes the release of the Federal Reserve’s key gauge of inflation, core personal consumption expenditures, at 8:30 AM ET (1230 GMT), with a high reading likely to fuel further expectations of policy tightening.
Economists expect core PCE to have jumped 2.9% year-on-year in April, way above the Fed’s nominal target of 2%, compared with a year-on-year rise of 1.8% a month earlier.
Elsewhere, GBP/USD fell 0.1% to 1.4190, retreating slightly after earlier climbing above 1.42 and hitting a three-month high. Fuelling the pound’s gains were comments by a Bank of England policy maker, who hinted at an earlier than expected rate hike by the U.K. central bank.
Gertjan Vlieghe, a member of the BOE’s Monetary Policy Committee, said late Thursday that the central bank was likely to raise rates well into next year, and an increase could come earlier if the economy rebounds more quickly than expected.
“It would probably take until the first quarter of next year to have a clear view of the post-furlough unemployment and wage dynamics, so a rise in Bank Rate could be appropriate soon after, along a slightly steeper path than in my central case,” Vlieghe said.
USD/CNY fell 0.2% to 6.3688, falling to a three-year high overnight and raising expectations that it could hit levels last seen before its shock devaluation in 2015.
“Any signs of independent Renminbi strength could lend weight to the notion that the PBOC wants a stronger currency to insulate against imported commodity price rises. This would be bearish for the dollar,” said analysts at ING, in a note.
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- Dollar Edges Higher; Tapering Talk Helps (Thursday)
Gold vaulted back to above $1,900 an ounce on Friday, effectively crossing the finishing line for May with a near 8% gain that handed longs in the yellow metal their best return in 10 months.
“Bullion had a good week and while the rally appears to be taking a break, it seems it might only be a temporary one,” said Ed Moya, analyst at online trading platform OANDA.
“The true test for gold will be after the next couple of months of hot inflation reports and if we have some surprising better-than-expected nonfarm-payrolls reports,” he said, referring to U.S. monthly jobs numbers, that have been volatile since February.
One of those inflation reports – Personal Consumption Expenditure – which is the Federal Reserve’s closely-watched gauge for inflation, jumped 3.6% in the year to April, data from the Bureau of Economic Analysis showed.
The higher PCE reading helped gold, which is typically viewed as a hedge against inflation, regain its erratic $1,900 footing.
Gold for June delivery on New York’s Comex settled Friday’s trade up June $6.80, or 0.4%, at $1902.5 an ounce.
The more active Comex gold contract for August also rose $6.80 on the day to settle at $1,905.30.
For the week, both contracts were up about 1%, while for the month, they rose about 8% – the biggest monthly gain since July 2020.
All things being equal, a higher inflationary environment is good for gold, which is seen as the best store of value in times of both financial and political trouble.
Yet in recent months, gold’s rivals, the dollar and U.S. bond yields, have rallied instead on signs of ramping inflation, as investors bet the Fed will hike rates faster than anticipated – something the central bank has sworn against. Such speculation triggered sell-offs in gold that sent it to a near 11-month bottom of under $1,674, before a retreat in yields and the dollar helped the yellow metal claw its way back to $1,900.
The Fed acknowledges the price pressures arising from bottlenecks in U.S. supply chains struggling to cope with demand in an economy reopening after months of pandemic-suppression.
The Fed has targeted an annual inflation of 2% over the past decade but it has barely met that goal, with critics attributing the mismatch to the central bank’s dogged following of the PCE – a tame indicator stripped of food and energy costs, the most volatile components of inflation.
On the other hand, the Consumer Price Index, or CPI, which includes food and energy components, registered a 4.2% growth in April for its largest increase in almost 13 years after intense cost increases in an economy rapidly recovering from the coronavirus pandemic.
Prices of almost everything, from houses to the lumber that goes into building them, soared in recent months, scaring economists into believing that inflation growth in 2021 could be the highest in 35 years.
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Oil prices dipped on Friday but posted a gain of more than 4% on the week and month as average pump prices of gasoline hit seven-year highs of more than $3 per gallon going into Monday’s Memorial Day holiday.
Memorial Day marks the unofficial start of the peak U.S. summer driving season and the American Automobile Association expects as many as 37 million travelers for the occasion this year, up 60% from last year’s pandemic-suppressed number of 23 million. Those driving over the three-day stretch usually fill their tanks more than once, typically resulting in a boon for gasoline consumption.
Oil prices have mostly risen this week in anticipation of Memorial Day demand, catching up with pump prices that have been edging higher for weeks.
“The average retail price for regular gasoline in the United States on May 24, the Monday before the Memorial Day weekend, was $3.02 per gallon, the highest gasoline price before Memorial Day since 2014,” the U.S. Energy Information Administration said in a post.
The EIA also said gasoline prices were up $1.14, or 61%, from a year ago.
West Texas Intermediate crude for July delivery, the benchmark for U.S. oil, fell on Friday for the first time since the week began, sliding 53 cents, or 0.8%, to settle at $66.32.
For the week and month though, WTI rose 4.3%.
Brent crude for July delivery, which acts as the global benchmark for oil, settled Friday’s trading down 74 cents, or 1%, at $68.72.
For the week, Brent was up 3.4% while for May, it rose 2.2%.
The downside in WTI and Brent were limited by U.S. government data on Wednesday showing strong weekly drawdowns in crude, gasoline and distillate stockpiles.
Bets over Memorial Day consumption also helped oil prices offset lingering concerns about a possible surfeit in supplies from Iran entering the market in coming months if Tehran succeeds in clinching a new nuclear deal with world powers that would lift U.S. sanctions on its crude exports.
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Natural Gas (Hellenic Shipping News)
Keeping natural gas costs low key to US export success amid transition: Venture Global
US liquefaction project developers’ success in advancing new projects hinges in part on their ability to keep costs low enough to compete with coal globally, Venture Global LNG CEO Michael Sabel said May 19.
Even as the energy transition takes aim at fossil fuels, coal remains a major fuel in power production in emerging markets in Asia.
During the second day of the US Chamber of Commerce’s Global Forum on Economic Recovery, Sabel said that natural gas can maintain its share of a diversifying energy mix as long as the industry is able to build sufficient infrastructure.
“The demand for global energy is going to continue to grow and accelerate and, in particular, in Asia,” Sabel said. “If we don’t support gas exports, you’re going to have a lot of renewables and a lot of coal.”
Venture Global’s Calcasieu Pass export terminal in Louisiana is under construction and preparing to possibly begin production in the coming months. The company said in March that it plans a phased operational start-up that, with the requisite review and approvals from US regulators, could include the first exports of LNG in late 2021.
That would be about a year earlier than originally anticipated. Full operations at the export terminal are currently expected in mid-2022.
Venture Global is developing three other proposed LNG export facilities in Louisiana. Plaquemines LNG, which would be built in two phases and have a production capacity of up to 20 million mt/year, has not yet been formally sanctioned .
While he did not specifically address construction progress at Calcasieu Pass or commercial progress for the other projects, Sabel said Venture Global’s work over the last decade in the LNG space has informed the company’s perspective on the current global energy transition.
“Gas is going to be a critical part of the short-, middle- and long-term transition to alternative energy production and uses,” he said.
That is especially true when it comes to countries’ stated goals for reducing greenhouse gas emissions, Sabel said.
“We view it as impossible to achieve these targets without gas,” he said.
Source: Platts
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Dollar Up Ahead of U.S. Inflation Data, Pound Moves on BOE Rate Hike Expectations
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