U.S. equities continued their rally on Friday with the S&P 500 gaining 0.8% (0.9% for the week) due to better-than-expected earnings from Exxon and Intel. Earlier gains were hampered after midday fluctuations on calls for broad changes to bank rules by Federal Reserve officials. The Nasdaq rose 0.7%, weighed down by Amazon’s 3.4% loss after a warning about growth in its key cloud computing business, and First Republic Bank fell ~40% after reports of FDIC receivership. Investors are concerned about the uncertainty of Federal Reserve interest rate hikes after fresh inflation data showed a rise in the personal consumption expenditures price index. U.S. equities are on track to end the month 1.2% higher.
On Friday, Treasuries saw gains, driven by European rates. Intermediate and long-dated yields fell approximately 9 basis points, leading to a flattened curve. The German inflation rate slowed, easing the chances of a 50bps ECB rate hike at the next policy meeting, causing the European bond rally to accelerate. The U.S. 10-year yields ended at 3.44%, near the low end of the 3.37% – 3.57% weekly range. The Fed’s policy expectations remained unchanged, with a quarter-point rate increase anticipated by mid-year.
Oil futures finished strongly on Friday, causing a month-on-month increase in U.S. prices, based on expectations of tighter supplies. Supporting prices and speculation of a rescue for the struggling First Republic Bank helped counteract banking issues affecting the economic outlook and energy demand prospects. A monthly report showed that U.S. petroleum demand was at its highest since November 2022, while production was the lowest since December 2022. Analysts suggest that this week’s crude futures gains filled a gap left in early April after Saudi Arabia and OPEC+ announced additional production cuts. However, Russia’s export figures have raised doubts about whether it has truly reduced production as it announced.