Summary: The yield on U.S. bonds maturing on June 1 rose above 7%, an intra-day increase of over 100 basis points. Minutes from the Federal Reserve's meeting revealed officials' disagreement over further rate hikes, emphasizing that there would be no rate cuts this year. U.S. stocks fell for two consecutive days, with luxury stocks also experiencing a two-day drop. AI darling Nvidia's positive earnings report led to a 20% increase in after-hours trading. Chinese indices hit a six-month low. The yield on two-year U.S. bonds increased by 12 basis points, pushing the U.S. dollar index to over 104, the highest in over two months. The yen hit an 11.5-year low, and the offshore yuan dropped below 7.08 yuan, a six-month low. Gold hovered at a seven-week low, while copper in London plunged 2.5%, wiping out this year's gains.
Representatives from the White House and the Republican Party in Congress say they will continue negotiating the debt ceiling, with the main sticking point being the scale of expenditure cuts. Analysts have said that it would take at least a week to draft and pass an agreement through Congress, making it very tense to reach an agreement before June 1.
U.S. Treasury Secretary Janet Yellen reiterated that the Treasury Department could run out of money as early as June 1, and there's a high chance that there will be a shortage of fiscal funds in early June. She has observed pressure on the financial market, such as the sale of national debt, but she believes it is still possible to reach a debt ceiling agreement.
Minutes from the Federal Reserve's FOMC meeting in May show that officials disagree over whether to raise rates further, emphasizing that decisions will be based on data, and there will be no rate cuts this year. Most officials believe that inflation prospects face upward risks, and the recent tightening of credit conditions has increased the downward risk to U.S. economic growth, but they still expect a "mild" recession this year.
Meanwhile, the Bank of New Zealand raised its interest rate by 25 basis points as expected. The highly watched German Ifo Business Climate Index for May stopped its six-month rise, showing "significantly more pessimistic expectations," a "particularly sharp decline" in manufacturing, and a sharp drop in trade indicators.
Bank of England Governor Bailey said that "inflation needs more time to fall," and the UK's core CPI for April increased by 6.8% year-on-year, the highest since March 1992, making the country's 6-point interest rate increase in June a foregone conclusion. The market is betting on another 100 basis point rate increase, and the yield on two-year UK bonds jumped over 20 basis points.
The average interest rate for a 30-year fixed-rate mortgage in the U.S. broke 7% on Tuesday, the highest since early March. The rate rose 12 basis points to 6.69% last week. The number of mortgage applications for home purchases fell 4.3% that week, down 30% year-on-year; mortgage refinancing applications fell 5%, down 44% year-on-year.
The Dow Jones fell for four consecutive days to nearly two-month lows, and the bank stock index fell 2%. The Chinese index hit a half-year low, and luxury goods fell for two consecutive days.
On Wednesday, May 24, the market was filled with tension over debt ceiling negotiations. U.S. stocks collectively opened lower, and the Dow Jones dropped over 200 points within 50 minutes of opening. The "fear index" VIX, which measures short-term volatility of the S&P 500, rose above 20, the first time since May 4.
U.S. stocks continued to fall and kept hitting new daily lows after midday. The Dow Jones fell as much as 300 points, or 0.9%, losing the whole number of 33,000 points. The S&P 500 index fell as much as 1%, approaching 4100 points, and the Nasdaq, Nasdaq 100, and Russell small-cap stocks all fell more than 1%.
By the close, the S&P 500 fell for two consecutive days and nearly wiped out the gains since last Tuesday. The Dow Jones fell for four consecutive days to the lowest level since March 29, nearly two months ago. The Nasdaq and Nasdaq 100 both fell for two consecutive days to a new weekly low, falling off their nine-month and 13-month highs, respectively.
The S&P 500 index fell 30.34 points, or 0.73%, to 4115.24. The Dow Jones fell 255.59 points, or 0.77%, to 32799.92. The Nasdaq fell 76.08 points, or 0.61%, to 12484.16. The Nasdaq 100 fell 0.5%, and the Russell 2000 small-cap stocks fell 1.2%.
Almost all 11 sectors of the S&P fell, with real estate falling more than 2% and finance, industry, and materials falling as much as 1.31%. The energy sector rose 0.52%, the only sector to rise.
High-profile tech stocks were mixed. Meta fell 0.7% before rising 1%, hitting a new high of over 15 months. Apple fell 0.6% before rising 0.2%, ending a two-day fall. Amazon rose 1.5%, approaching a seven-month high. Microsoft fell 0.5%, further losing its high since last January. Netflix rose 2.5%, ending a three-day fall and pushing back up to over 13 months' new high. Google A fell 1.4%, falling for two consecutive days from a 13-month high. Tesla fell 4% before closing down 1.5%, falling for two consecutive days from a seven-week high.
Semiconductor stocks narrowed their losses in the final trading session. The Philadelphia Semiconductor Index fell 1.7%, approaching 3100 points at a new weekly low. AMD erased more than 2% of its losses, hitting a new 15-month high. Nvidia fell 0.5%, falling for four consecutive days from its high since November 2021. Intel fell nearly 2%, and Micron Technology turned to a 0.8% rise. Nano Micro Semiconductor fell nearly 21%, losing its 13-month high since last April.
AI concept stocks rebounded at the end of the day. C3.ai turned to a 2.5% rise, and SoundHound.ai turned to a nearly 2% rise, both pushing close to their seven-week highs since April 3. BigBear.ai cut its end-of-day loss in half to a 1.6% fall, ending a two-day rise and falling off a one-week high.
In the news, Nvidia's first-quarter revenue surpassed expectations, resulting in a post-market surge of over 20%. Meta launched its third round of layoffs, cutting a total of 10,000 jobs in conjunction with the second round of layoffs in April and 11,000 layoffs last November. Apple will launch iOS 17 operating system at its Worldwide Developers Conference (WWDC) in June. Nano Micro Semiconductor has set the issue price for its 10 million additional shares at $8 per share, a 15% decrease from yesterday's closing price.
Popular Chinese concept stocks followed the U.S. market down. Chinese concept ETFs KWEB and CQQQ fell 1.6% and 1% respectively, while the Nasdaq Golden Dragon China Index (HXC) fell over 2% to a new six-month low. Among the Nasdaq 100 constituents, JD.com fell over 3%, Pinduoduo fell 1.6%, Baidu fell 2%, and NetEase fell 0.3%. Other individual stocks included Alibaba, which fell 2%, Tencent ADR, which fell 1%, and Bilibili, which fell 4%. Among the "Three Idiots of EV Making," Xpeng Motors fell over 12% before closing down over 5%, while NIO fell over 9% and Li Auto turned to a slight gain.
In the news, Xpeng Motors' first-quarter revenue declined by 21% quarter-on-quarter and 50% year-on-year, and its net loss was larger than expected. The guidance for second-quarter revenue was weak, and deliveries may fall 39% year-on-year. Futu Holdings rose over 1%, with first-quarter revenue increasing by 52% year-on-year and net profit doubling. Zhihu rose 4%, with first-quarter revenue of 994 million yuan exceeding expectations. Xiaomi Group ADR fell 2%, despite first-quarter net profit far exceeding expectations, a record high gross margin, and entering the AI large model competition.
The bank stock index fell 2% after reaching its highest point since May 1 for two consecutive days. The Philadelphia Stock Exchange KBW Bank Index (BKX) fell 1.8%, reaching its lowest point since October 2020 on May 4. The KBW Nasdaq Regional Banking Index (KRX) fell 1.9%, reaching its lowest point since November 2020 on May 11; and the SPDR S&P Regional Banking ETF (KRE) fell 1.8%, reaching its lowest point since October 2020 on May 4.
Among the "Big Four" U.S. banks, JPMorgan Chase, Bank of America, and Wells Fargo all fell about 1%, while Citigroup fell 3%. Among key regional banks, PacWest Bancorp fell over 2%, ending a two-day rise and falling off its highest point since May 1, while Western Alliance Bancorp fell nearly 3%, and First Horizon, which had risen over 2% pre-market, fell over 1%.
In the news, Jefferies upgraded regional bank First Horizon to "Buy," citing the bank's first-class capital strength and valuation lower than its peers. Citigroup plans to complete the spin-off of its Mexican business next year and list it in 2025. Blackstone CEO Stephen Schwarzman said that Blackstone is in talks to acquire assets and loans of several U.S. regional banks.
Other notable stock changes include:
Snowflake's first-quarter performance was better than expected, but it cut its full-year revenue and operating profit margin guidance, causing its stock price to plunge more than 11% after the market.
Kohl's rose over 19% before closing up over 7%, nearly erasing its decline since last Thursday. It unexpectedly earned 13 cents per share in the first quarter, while the market had expected a loss of 42 cents per share. However, it reiterated its full-year net sales guidance to decrease 2% to 4%.
U.S. casual clothing brand Abercrombie & Fitch rose over 31% to a three-month high. It unexpectedly achieved a profit per share in the first quarter, exceeding the expected loss of 5 cents per share, and raised its revenue guidance for the fiscal year.
"COVID-19 beneficiary" and video conferencing provider Zoom fell another 4.6%, after being added to multiple ETFs under "Bull Market Queen" Cathie Wood's ARK when it fell over 8% yesterday, adding more than $17.5 million in stock. Zoom is the second-largest holding of ARKK and has fallen over 7% this year.
European luxury goods giants fell for two consecutive days, with Bernard Arnault, the world's richest man and owner of French luxury group LVMH, losing over $10 billion in net worth. The Stoxx European Luxury Goods 10 index fell over 4% yesterday, the largest drop in 15 months, and fell 1.5% on Tuesday to a seven-week low.
European stocks plunged about 2% across the board. Analysts say this was due not only to the tension of U.S. debt negotiations, but also to the slower-than-expected drop in UK inflation.
The pan-European Stoxx 600 index fell 1.81%, dropping for two consecutive days to a seven-week low, with all sectors falling over 1%, and auto, bank, insurance, and travel stocks falling over 2%. The Eurozone Stoxx 50 and the FTSE Pan-European Performance 300 index fell for three consecutive days, and the Italian bank index fell nearly 4%.
Treasury notes due June 1 saw their yield rise above 7%, and two-year yields rose 12 basis points to over a two-month high. U.S. Treasury yields due in early June collectively rose above 6%, with the yield on cash management bills due June 1 rising above 7%, increasing by more than 100 basis points in the day, as negotiations stalled, leading to the highest risk of late payment for Treasuries due in early June.
Ahead of the release of the Federal Reserve's most closely watched indicator, April's PCE inflation data, the yield on the more sensitive two-year Treasury rose more than 12 basis points, approaching 4.40% and continuously refreshing over a two-month high since mid-March. The yield on 10-year Treasury notes rose more than 4 basis points and rose above 3.70%, lingering around a new high for over ten weeks set yesterday. The yield on 30-year bonds continues to approach the 4% threshold.
European bond yields fell back after hitting a one-month high during the session, mainly due to emerging concerns about the economic outlook. The yield on 10-year German bonds, the benchmark for the Eurozone, was near flat, after rising more than 3 points to 2.50%, while the yield on two-year bonds rose by 5 basis points to 2.87% at one point, both hitting their highest levels since April 24. The yield on 10-year Italian bonds rose to a two-and-a-half month high of 4.38% since March 9.
Analysts say that traders added bets on a European Central Bank rate hike this year, with the year-end peak interest rate around 3.84%, the highest expectation since the end of April. Analysts say that the reality of persistently high inflation seems to finally be taken seriously by the market.
The yield on 10-year British bonds fell more than 5 basis points at the close, after soaring more than 20 basis points to 4.37% after the release of hotter-than-expected inflation data in the early session, marking the highest level since the bond crisis last October. The yield on two-year bonds also rose more than 20 basis points at one point, marking the biggest rise since last September. The inversion of the key two-year/10-year yield curve deepened to the steepest since February this year, reflecting the heating up of rate hike expectations.
Oil prices climbed 2%, achieving a three-week high for the third consecutive day, while European natural gas prices plummeted over 5% to a near two-year low. U.S. oil inventories surprisingly plummeted, and Saudi Arabia warned short sellers to be cautious, pushing oil prices up by 2%. WTI June crude oil futures rose $1.43, an increase of 1.96%, to $74.34 per barrel. Brent July futures climbed $1.52, an increase of 1.98%, to $78.36 per barrel.
WTI crude rose as much as $1.82, or 2.5%, breaking the $74 mark, while Brent climbed as much as $1.82, or 2.4%, breaking the $78 mark, both reaching three-week highs not seen since May 2nd.
Last week, U.S. EIA crude oil inventories sharply decreased by 12.45 million barrels, significantly outpacing expectations of a 2 million barrel increase. This led to the biggest decline in inventory in the Gulf of Mexico ever recorded. At the same time, refined oil inventories fell to a new low since May last year, and gasoline inventories unexpectedly dropped by over 2 million barrels for the third week in a row.
The ICE UK natural gas futures fell 2.6% at the close, while the European benchmark Dutch TTF natural gas futures fell 5.6%, continuously trading below 30 euros per megawatt-hour, hitting the lowest level since June 2021. On August 26 of last year, the price had soared to 340 euros per megawatt-hour. U.S. July natural gas futures surged over 3%, halting a three-day decline and moving away from a one-week low.
The U.S. dollar index threatened the 104 mark, reaching a more than two-month high, while the yen hit an eleven-and-a-half-year low. Offshore RMB fell below 7.08 at one point. The expectation of interest rate hikes, coupled with certain safe-haven demands, pushed the dollar index DXY, which measures a basket of six major currencies against the dollar, up 0.4%, and towards the 104 mark. This marked a three-day rise, the highest level since March 20, and a total increase of about 2% in May.
Bitcoin, the cryptocurrency with the largest market cap, fell over 3% and slipped below the $27,000 mark. Ethereum, the second-largest cryptocurrency, also fell 3% and fell below the $1,800 mark, both reaching a more than two-month low.
Gold prices fell for the third consecutive day, with spot gold prices dropping almost 1% to a seven-week low. The prospect of demand raises concerns, with London industrial base metals falling for three consecutive days. Copper, also known as "Dr. Copper" as it is considered an economic bellwether, fell $200 or 2.5%, breaking through the $8100 and $8000 marks, reaching a six-month low since November last year.
Concerns over demand prospects have resulted in a three-day general decline in London industrial base metals:
The global economic bellwether, commonly referred to as "Dr. Copper," fell by $200 or 2.5%, breaking through the $8100 and $8000 marks consecutively, marking a half-year low not seen since November of last year.
Copper on the London Metal Exchange has cumulatively fallen 8% in May, potentially resulting in the worst performance since June last year. In January, it reached a seven-month high of $9550. According to analysts, the LME copper inventory has increased by more than 1600 tons, creating a negative $66 difference between spot copper and three-month futures prices, the deepest since the early 1990s.
London aluminum fell 1%, pushing towards $2200, the lowest level since last October. London zinc fell 2.5%, nudging towards $2300, and refreshing the two-and-a-half-year low not seen since October 2020 for several consecutive days. London nickel fell 1.5%, breaking through the $21,000 mark to reach the lowest level since last September. London tin fell 1.5%, slipping below the $24,000 mark to reach a six-week low since April 11th. London lead fell over 1%, nearing a three-month low.
