Wall Street Relieved After Inflation Data

Investors felt a sense of relief after softer-than-expected inflation data. The US Producer Price Index for final demand unexpectedly fell 0.5% in March. On a year-over-year basis, the PPI advanced 2.7%, well below the 3% forecast. Meanwhile, the Core PPI excluding food and energy dropped 0.1% versus a +0.2% estimate.

The cooler-than-expected PPI print should have fuelled hopes of a pause in the Fed’s rate hike and pushed stock indexes higher. Yet, the upside was kept in check by hawkish comments from Fed Governor Christopher Waller. He said on Friday that US central bankers "have not made much progress" in returning inflation to the 2% target and still need to move interest rates higher. He added that investors should not “expect rates to fall any time soon.” As a result, they upped their bets on further Fed monetary policy tightening. The Fed is expected to lift rates by 25 basis points in its May 2-3 meeting.

The S&P 500 rose 0.79% for the week (+7.77% for the year), the Dow Jones Industrial Average added 1.20% (+2.23% year-to-date), or 401 points, and the Nasdaq inched 0.29% higher (+15.83% YTD).

In Europe, the MSCI EMU index jumped 1.60% (+13.57% YTD), while the FTSE index gained 1.68% over the week (+5.64% YTD). The Paris CAC 40 index of leading French companies hit a record high above 7,500 points (+2.66% for the week, +16.16% year-to-date) in the wake of strong earnings from luxury groups such as HERMES International and LVMH. LVMH, Europe's largest company by market value ($486 billion accounting for 18% of the CAC 40 index), has entered the list of the world's top 10 companies.

In Asia, Japan's Nikkei shot up 3.54% (+9.19% YTD) with a more dovish stance from the Bank of Japan. Hong Kong's Hang Seng index edged up 0.53% (+3.32% YTD) even though investors sold Chinese tech stocks. The Cyberspace Administration of China suggested companies in China should be required to meet certain government protocols to provide AI services, putting a damper on many tech giants. South Korea’s KOSPI jumped 3.26% (+14.98% YTD) while India’s NIFTY added 1.30% (-1.53% YTD) and Australia’s SP/ASX200 gained 1.98% (+4.59% YTD). Singapore’s Straits Times Index managed to stay above the flatline (up 0.07% for the week, up 1.58% for the year). Singapore’s central bank kept its monetary policy settings unchanged after five straight tightening moves since mid-October 2021. This decision came shortly after similar moves from their regional peers, including India, South Korea, and Australia.

Earnings-led rally in banks   

Financials shone again after last month's turmoil in the banking sector. The S&P financials index led the pack, up 2.86% week-over-week. JPMorgan Chase (JPM) was in rally mode (+8.83%) after reporting Q1 results that beat analyst estimates amid higher interest rates. Wells Fargo & Co (WFC) and Citigroup Inc (C) followed suit, up 4.59% and 8.06% respectively.

The energy sector extended its winning streak to four weeks (+2.47% week-over-week) as the WTI crude oil prices continue to rise (+2.26% for the week) on hopes of demand growth in Asia as well as expectations that inventories in the US may fall again. Furthermore, data showed that fuel consumption in India, the world's third-biggest oil consumer, jumped by 5% in March from a year earlier.

Four S&P sector indexes finished the week in negative territory. Tech stocks were still reeling this week (-0.37%) with Microsoft Corp (MSFT) down 1.87% while defensive stocks remained the biggest drag on the market with real estate, utilities, and consumer staples losing 1.45%, 1.34%, and 0.25% respectively.