Every major market ended in the green this week as good economic data rolls out.
The week between the 15th and 19th of May was a good one for markets, as positive data from the United States rolled out. It was also the week when US president Joe Biden finally addressed the debt ceiling situation, canceling his important meeting in Asia.
Let’s look at some numbers first:
- American stocks were on a rise this week, with the S&P 500 closing with +1.44% and the Nasdaq with +2.74%;
- Even the Dow Jones, after two bearish weeks, managed to grow by 0.50% in the last five days;
- Europe followed along with +2.02% for the Frankfurt DAX, +0.26% in London and +0.62% in Milan;
- Finally, the Tokyo Nikkei was on a literal rampage this week, ending Friday with +4.27%.
Fed changes strategy on interest rates
The biggest reason for the market rally this week was the good news coming from the United States.
Inflation in the US came down to 4.9% in April, beating market estimates. Furthermore, the American job market keeps looking healthy despite continuous interest rate hikes.
This might give the Federal Reserve a reason to keep raising interest rates in June, delaying the stabilization by another month. After all, the American banking system truly looks safe and sound, as Fed chairman Jerome Powell assured when he laste announced a rate hike.
In Europe, unfortunately, interest rates will continue growing as inflationary data looks disappointing. Inflation in the Eurozone rose to 7% in April from 6.9% the month before. In the United Kingdom, consumer prices are still up by double digits.
The European Central Bank and the Bank of England both announced they will continue raising interest rates, even if the Fed stops. This means that while the US might avoid a recession, Europe will almost definitely fall into one.
Debt ceiling discussion starts
Another good news coming from Washington is the start of discussions about the US’ debt ceiling.
Last month, Republican House speaker Kevin McCarthy proposed a bill limiting public spending in order to control American debt. Though the bill would cut right into president Biden’s agenda, it would limit uncontrolled spending and it would start seriously addressing the issue.
American debt is a whopping $31,4 trillion, 20% higher than the US’ own GDP. This massive debt is eroding the dollar’s purchasing power and exposing the American economy to constant default risks.
While it is likely that the United States will raise the debt ceiling again, negotiations on the bill just started and will hopefully bring change.
