In an eventful week, Canada became the first of the G-7 countries to cut interest rates. The European Central Bank followed suit and cut rates to the tune of 25 bps, but economists remain cautious about the immediate future. Global capital markets were trended upwards as all major economies welcomed the rate cuts in Canada and Europe. Treasury yields for most European countries appreciated post the ECB announcement. The American capital market continued to rise largely, but stalled briefly as Nvidia, Microsoft and OpenAI came under government scrutiny. Internationally, Chinese trade surplus grew to $82.62 billion with growing exports and slowing imports. The Bank of Japan continued to maintain its near-zero rate with the central bank lacking confidence on sustainability of wage and inflation growth. Outcomes of the Indian and Mexican elections disrupted their stock markets for a while with a sharp decline. Finally, the U.S. continues to pressure Israel to agree to a ceasefire deal, even as Hamas switched up its hit-and-run insurgent tactics. The Russian government announced this week that Western nations supplying Ukraine with weapons to strike Russian territory will have to reckon with Russia, after President Vladimir Putin said he was considering arming the West’s enemies in retaliation.

Global Updates
  • The MSCI All Country World Index rose sharply during the week, following announcements of rate cuts of 25 bps by the Canadian and European central banks.
  • The Bank of Canada (BoC) became the first central bank among G7 countries to cut interest rates, raising prospects for Canada’s economy. Canadian stocks and bonds rallied after the announcement, while the Canadian Dollar touched a near two-week low against its U.S. counterpart.
  • The European Central bank (ECB) cut interest rates by 25 basis points from record highs in a long-telegraphed move, but held back from any pledge to ease policy further after inflation and wage growth data in recent weeks came in above its expectations.
  • China’s privately published Caixin manufacturing PMI rose to 51.7 in May from 51.4 in April, indicating China’s factory activity expanded in May. The services sector also grew with a raised Caixin services PMI of 54.0. This is contradictory to NBS PMI, China’s official index, which indicated that China slid into contraction.
  • Claudia Sheinbaum made history as became the first female president of Mexico. Mexican stocks and the Peso edged down as investors fear increasing government intervention in the economy. Yields on Mexican government bonds rose, while yields on dollar bonds issued by Mexican companies declined. 
  • The OPEC+ members agreed to extend oil production cuts to 2025 and this is expected to keep oil prices elevated. The decision is also expected to influence elections in some of the member countries.
  • Australia’s manufacturing PMI rose from 49.6 in April to 49.7 in May, indicating a slow recovery in Australia’s manufacturing sector. 
  • South Korea’s trade ministry announced a 13.8% export growth in April. This was the eighth consecutive month of export growth, especially in semiconductors, powering the 11.7% year-on-year export growth of $58.15 billion.
U.S. Equity
  • The S&P 500 trended upwards as growth in Technology and Pharmaceutical sectors were slightly offset by a fall in Energy and Industrials. Nvidia stock dipped a bit following news of scrutiny by the Justice Department. The U.S. crude rate for July delivery fell 1.3% to $73.25 per barrel while Global Brent crude rate for August delivery fell to $77.52 per barrel.
  • The Federal Trade Commission has sent subpoenas to Microsoft and Inflection to start an antitrust probe of the Microsoft AI deal and OpenAI. It is suspected that the Microsoft-Inflection deal was structured to avoid an antitrust review by the government. 
  • GlaxoSmithKline shares dropped 9% after the Delaware State Court allowed more than 72,000 cases in the Zantac heartburn drug carcinogen case, known generically as ranitidine. In 2020, the U.S. Food and Drug Administration ordered the immediate removal of all ranitidine drugs from the market following the initiation of a 2019 investigation in which the agency detected low levels of contamination of N-Nitrosodimethylamine  in ranitidine, an impurity linked to some cancers.
  • BlackRock and Citadel have announced their backing for a new stock exchange to be set up in Texas by next year.
  • NYSE stopped trades in Berkshire Class A shares after a technical glitch caused a 99% drop in price to $185.1. NYSE also unwound trades already committed during the glitch.
  • Waste Management is nearing a deal to buy medical waste disposal company Stericycle for roughly $7 billion, including debt.
  • Vehicle tracking software maker CalAmp filed for bankruptcy and proposed a $229 million bonds equity restructuring deal for secured lender Lynrock Lake.
  • HF Foods has been ordered to pay a civil monetary fine of $3.9 million to the SEC to settle fraud charges.
  • Bed, Bath and Beyond dropped its sales guidance for second quarter by 2%.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose steadily this week. 
  • The U.S. 10-year Treasury yield fell sharply to 4.3% over the week and the yield on the 2-year note fell to 4.74%.
  • The U.S. Dollar Index marginally fell marginally to 104.05 during the week.
  • U.S. high-yield bond funds enjoyed the biggest inflows of the year in May, driven by the allure of higher yields, potential for price appreciation amid anticipated Federal Reserve rate cuts, and diminishing corporate credit risks.
Sources

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