Friday Roundup: US and European markets up on back of ‘economy-boosting’ interest rates in China; Oil looks for fourth weekly gain over demand outlook

by Market Updates and Alerts

Major US futures started the day up more than 1%, while the European Stoxx 600 was up 1.5%; oil on the rise with prospects for increased demand

US and European markets up on back of ‘economy-boosting’ interest rates in China

Investors return to equities and lift both European markets and US index futures contracts. This time, China is helping to lift spirits up.

Futures pegged to the S&P 500 and the Nasdaq 100 rose more than 1%, shrinking losses on Wall Street on Thursday. Premiums on US Treasuries advanced and the dollar showed stability, after registering its biggest one-day drop since 2020. Oil was above US$ 112 a barrel.

In Europe, the Stoxx Europe 600 index was up more than 1.5%, erasing the week’s losses. In this market, automakers led the advance, recovering after two days of decline. Stocks in basic resource companies were also on the upswing, closely following industrial metal prices recovery. Consumer products were the only sector to insist on the negative camp, influenced by forecasts of hard times by Swiss watchmaker Richemont.

A boost for the Chinese economy

The country’s Central Bank reduced the interest on five-year loans by a higher-than-expected amount, in a clear attempt to offset the impact of the lockdowns caused by the Covid-19 outbreaks on the economy, especially in the real estate market.

Inflation vs Economy conundrum still in the spotlight

This does not mean that concerns that a more restrictive monetary policy could put a brake on the US economy have dissipated. The fear over the dose of the drug to treat rampant inflation has been a high in global markets, which were heading for a sequence – historic – of seven weeks in decline.

Eyes on the macro

In Europe, the highlight of the day is consumer confidence in the Eurozone, which should show deterioration. In the US, today the agenda is weak.

Yesterday, the industrial activity indicator compiled by the Philadelphia Fed showed a worse deterioration than analysts projected. It dropped to 2.6 in May from 17.6 the previous month – the lowest level of activity since early 2020, which suggests the Fed may not need to use all its artillery to cool the economy and, with it, curb inflationary pressures.

Oil looks for fourth weekly gain over demand outlook

Oil prices were heading for a modest weekly gain, as optimism over the demand outlook eclipsing concerns over tighter monetary policy and an economic slowdown have combined to roil financial markets.

West Texas Intermediate (WTI) was trading close to $112 a barrel after closing higher on Thursday (19), up about 1% so far this week. The contract is on track for a fourth straight weekly gain, its best run since mid-February.

Global markets for fuel products are tightening, especially in the US, where gasoline and diesel prices have soared to unprecedented levels in the run-up to the summer season. Travel across the country is expected to approach levels seen before the coronavirus pandemic, according to a forecast by auto club AAA.

Oil is up nearly 50% this year as demand recovers from the impact of the pandemic and as Russia’s attack on Ukraine sends shockwaves through global markets. While the US and UK have announced bans on Russian exports, flows to Asia have increased. China is trying to replenish strategic stockpiles with cheap Russian oil, even as authorities struggle to suppress Covid-19 outbreaks.

There were mixed signals from China earlier this Friday (20). As banks cut a record interest rate on long-term loans to boost a slowing economy, Shanghai has found the first cases of Covid-19 outside the lockdown in six days, raising questions about whether the easing of the city’s lockdown will be affected.

Oil prices

  • WTI for June delivery was down 0.3% to $111.84 a barrel on the New York Mercantile Exchange at 6:15 am EDT
  • Brent for July settlement slipped 0.2% to $111.79 a barrel on ICE Futures Europe.

Thursday’s numbers

Dow Jones (-0,75%), S&P 500 (-0,58%), Nasdaq Composite (-0,26%), Stoxx 600 (-1,37%), Ibovespa (+0,71%)

In a day where stock exchanges struggled to keep the numbers in the black, concerns about a tighter monetary policy weighed on the stock exchange’s performance in the end. This week’s massive stock selloff has left the S&P 500 on the cusp of its seventh weekly decline, the longest streak since the internet bubble burst more than two decades ago.

What to watch for

  • USA: Baker Hughes rig count
  • Europe: Eurozone (Consumer Confidence/Mai); Germany (IPP/Apr); United Kingdom (Retail Sales/Apr)
  • Latin America: Brazil (Federal Tax Revenue); Argentina (Budget Balance/Apr)
  • Central banks: Speeches by Edouard Fernandez-Bollo and Philipe Lane (ECB); Huw Pill (BoE); Joachim Nagel (President of the Bundesbank)
  • Balance sheets: Deere & Company