Aviso Weekly Market Monitor: May 22nd – May 26th

May 29, 2023

Market developments

Equities:
The stock market saw another week of gains driven by the enthusiasm surrounding artificial intelligence (AI) and growing confidence in the U.S reaching a deal on their debt limit. The S&P 500 climbed 0.3%, and the tech-heavy Nasdaq surged 2.5% following Nvidia Corp.’s earnings release caused a 32% price surge. Alongside the AI optimism, progress in US debt limit negotiations added to market positivity, as House Speaker Kevin McCarthy expressed belief in recent advancements. The S&P 500 closed above $4200 for the first time since August 2022.

Fixed income:
Treasury bills expiring in early June yielded less than 6% on Friday as the likelihood of reaching a debt deal increased. Meanwhile, the two-year Treasury yield hovered around 4.56% as traders considered the impact of a debt deal on the Federal Reserve’s interest rate trajectory. The consumer spending report revealed that the Fed still has work to do in achieving its inflation target. Analysts noted that a debt resolution before the Federal Open Market Committee (FOMC) meeting could reduce the need for Fed rate hikes, but failing to meet the debt ceiling deadline would have severe consequences and eliminate the possibility of a rate hike.

Commodities:
Oil prices experienced a second consecutive week of gains as investors closely monitored progress in debt-ceiling talks to avoid a U.S. default. Meanwhile, supply dynamics remained in focus as conflicting statements from Saudi Arabia and Russia created uncertainty regarding potential production cuts by OPEC and its allies. The lackluster economic recovery in China, a top importer of oil, and the U.S. Federal Reserve’s aggressive monetary tightening campaign have contributed to a nearly 10% decline in crude prices this year.

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