S&P 500 Enters a Bear Market, Gold Up for 1st Week in 5 – Daily Market Brief, May 23, 2022

European stocks are set to open higher after booking mild losses across last week. The USD selloff continues.

·         Stocks are set to climb cautiously high even as stagflation concerns remain

·         German IFO business climate data due

·         Gold rises to a weekly high on USD weakness

European stocks held up significantly better than US peers across the last week. The FTSE fell 0.4% across the week and the DAX 0.3%. Meanwhile, the S&P500 tumbled to an 18-month low, booking losses of 2.8% marking its seventh straight weekly decline and hit a bear market, down over 20% from its record high. The NASDAQ recorded similarly depressing figures, dropping 3.8%, in its seventh consecutive weekly decline.

It wasn’t just US stocks that came under pressure; the USD also booked its first weekly loss in seven weeks and its largest weekly decline since February.

Recession fears finally caught up with the US last week. Softer economic data and earnings, rising inflation, and slowing growth at a time when the Fed sounds more hawkish fuelling bets increasingly that the US economy could tip into recession later in the year.

The Fed appears to be focused on the strong jobs market as a sign that there is still plenty of room to bring inflation under control. However, the market was spooked by initial jobless claims rising to a 10-week high and big-box retailers such as Walmart and Target taking a hit to their bottom line as higher costs take their toll.

The selloff in European markets was much more contained last week. Stocks are set to start this week on the front foot despite continued uncertainty over inflationary pressures amid the fallout from the ongoing Ukraine war and expectations of higher interest rates.

Last week the minutes of the latest ECB meeting showed that the central bank was adopting a more hawkish stance. PPI inflation in Germany also rose to a fresh record high of 33.5%

German IFO business climate

Looking ahead, the release of German IFO business climate data for May will be in focus and is expected to show a decline to 91.4 from 91.8, as soaring costs weigh on sentiment. However, more important is likely to be the PMIs from Germany and the broader eurozone due tomorrow.

The DAX has risen over 14000, and EUR/USD has pierced above 1.06 at the time of writing and trades at a 12-day high.

The World Economic Forum in Davos also kicks off this week with the Ukraine conflict and the high inflationary environment expected to feature heavily.

Gold

Gold rose 1.9% across last week, marking its first weekly gain in 5 weeks as it rebounded from below 1800. The precious metal is extending those gains as the new week kicks off, hitting a one-week high. While the flight to safety appears to still be in play, the weaker USD has been the principal catalyst for driving gold higher. 

There is plenty of data due this week that could influence the greenback on the precious metal, including the minutes of the latest FOMC meeting, US GDP data, and US core PCE on Friday, the Fed’s preferred gauge for inflation. The critical test for Gold will be if the precious metal can maintain its gains, even if the USD selloff eases.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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