MARKET COMMENTARY
While European markets started May with sales, American markets started with a increase despite the pressure from the Fed meeting. After the Fed, US indices increased their premiums with the messages Jerome Powell gave at the press conference.
At the FOMC meeting in May, it was decided to raise interest rates by 50 basis points, as expected. The Fed stated in its statement that it would start the balance sheet reduction operation from June. Speaking at the press conference after the decision was announced, Fed Chairman Powell stated that the US economy is strong, economic activity is possible to show a controllable cooling, and they think that the economy can handle interest rate hikes, adding that a 50 basis point rate hike is on the table in the upcoming meetings.
The most striking point in Powell's speech was that he stated that the interest rate hike by 75 basis points was not evaluated now, and after this discourse, rapid increases were observed in stock indices. However, in the next two trading days, very hard sales were observed in major European indices and US indices due to the concerns of recession possibility.
After Jerome Powell said at the press conference that the US is not in a wage-price increase cycle, the employment market is quite warm and the US economy is strong enough to handle interest rate hikes, the importance of non-farm employment data has increased even more. The data, which had an expectation of 380 thousand in the headline, exceeded the expectations and was announced as 428 thousand. The unemployment rate remained at 3.6%, while monthly hourly earnings rose 0.3%, worsening than expectations of 3.5% and 0.4%, respectively. Labor force participation in the American economy was 62.2% in April, below the expected level of 62.5%.
CPI in the USA, realized as 8.30%, above the expectation of 8.10% in the annual data, and as 0.3%, above the expectation of 0.2% in the monthly data.
The fact that the data was realized above expectations had a negative impact on the US stock markets, with the fear that the FED might be more hawkish in its decision to increase interest rates. Investors continued to be concerned about the economic effects of aggressive rate hikes to contain inflation.
In PPI, the headline figure was in line with the monthly expectation of 0.5%, while the producer price index in the basket excluding food and energy increased by 0.4%, below the expectation of 0.7%.
Powell stated that they would continue to tighten their monetary policy until inflation falls, and that they will need to consider acting more aggressively if they do not see clear and convincing evidence that inflation is falling. After Powell's hawk statements, on Wednesday, May 18, US indices experienced a daily depreciation of close to 5%.
Global markets started the last week of the month with a rising reaction after the hard sales they experienced. Another agenda item was the rumors that the United States might reduce some of the customs duties imposed against China during the time of Donald Trump. Positive expectations for China-US relations also supported the positive mood.
The minutes of the Fed's meeting on May 3-4 also gave support to Wall Street, showing that officials continue to believe the US economy is strong.
According to the minutes, while all of the officials supported the 50 basis point rate hike, "most of the participants" stated that it would be "appropriate" to increase interest rates at the same rate at the meetings in June and July.
Market players, who learned that 50 basis point increases were agreed in the next meetings, in order not to be left behind in case of future economic weakness and there are no surprises in the Fed meeting minutes, did not spoil their risk appetite.
With the recovery, US indices Dow Jones and S&P 500 closed flat on a monthly basis, while Nasdaq lost 2.05%.
Eurozone April retail sales figures, on the other hand, failed to meet expectations, with data showing an annual increase of 0.8%, which was expected to increase by 1.8%.
The Bank of England, on the other hand, increased the interest rate by 1% in line with the expectations.
The UK CPI was announced as 9% in April, just below the 9.1% expectation, at the highest level in 40 years.
While the CPI in China was announced as 2.1%, above the expectations of 1.8%, the PPI was announced as 8%, above the expectations of 7.7%.
The pessimism was felt in the weak economic data from China in the middle of the month. In April, industrial production in China fell 2.9% year-on-year, against expectations for a 0.5% increase. Similarly, retail sales declined by 11.1%, well above the 6.6% decrease expected.
To support its slowing economy, China lowered its five-year borrowing rate (LPR) more than expected by 15 basis points, but kept its one-year LPR rate unchanged. The five-year LPR affects mortgage pricing, with most analysts surveyed by Reuters predicting a 5 basis point cut in both rates.
Oil, started May with losses as lockdowns in China, a stronger dollar and rising recession risk bolstered concerns about the global demand outlook. Afterwards, oil prices, which were supported by the expectations that demand, will recover with the gradual relaxation of some of the strict coronavirus measures in China, made premium closures, supported by the EU's plans to impose a ban on Russian crude oil and the approach of the summer season when demand increased in the USA. Brent oil was appreciated by 12.35% and US crude oil by 9.53% on a monthly basis.
Gold, closed at $1,838 with a loss of 3.13% in May due to the rise in dollar and bond yields supported by the Fed's pro-tightening stance.
LME copper, which rose to $9,770 after the Fed meeting, could not rise above this level again due to recession concerns, declining risk appetite and harsh sales in global indices.
While demand concerns caused by the quarantines in China weighed down the price, it fell to $8,938, the lowest level in the last 7 months, on May 12.
LME copper, which moved upwards with the support of decreasing stocks and weakening dollar in the last week of the month, as well as the news flow about the loosening of restrictions in China and the incentives announced by China within the scope of reviving the economy. LME copper ended May with a loss of 2.83% at $9,439.