Market Wrap – Risk Mood Improves

Wall Street saw more of positive mood as traders became more positive towards the US debt ceiling despite the House Majority leader Kevin McCarthy sounding more bearish towards talks progressing.

The US dollar moved lower, and stocks moved high on the improved market mood, although tomorrow we are likely to see more debt ceiling news as more talks are scheduled to take place.

On the news front the NY Empire State Manufacturing Index unexpectedly sank to -31.8 in May of 2023 from 10.8 in April, compared to forecasts of -3.75. It is the lowest reading in four months, pointing to a sharp drop-in manufacturing business activity in the New York State, after a big rebound in April.

New orders (-28 vs 25.1) and shipments (-16.4 vs 23.9) plunged after rising significantly last month. Also, delivery times shortened somewhat (-5.7 vs 0), inventories contracted (-12.3 vs 8.2) and both employment (-3.3 vs -8) and hours worked (-3.5 vs -6.4) edged lower for a fourth consecutive month.

At the same time, prices increased slightly (34.9 vs 33), and capital spending plans turned sluggish (0.9, the lowest in three years). Meanwhile, the six-month business conditions index increased only marginally to 9.8 from 6.6, in a sign business continued to expect little improvement in conditions over the next six months.

In central banking news Argentina’s central bank on Monday hiked its base interest rate by six points to 97 percent as the government prepares to announce a spate of measures to tackle soaring inflation.

This was the second time in less than a month that the bank has ramped up interest rates as year-on-year inflation hit almost 109 percent in April. In a statement the central bank said the move aimed at “preventing financial volatility from acting as a driver of inflation expectations.”

Local media claim the government will announce a raft of measures over the coming week, such as an intervention in the exchange rate and facilitating imports to bring down prices.

The measures were prepared at the weekend during a meeting headed by Economy Minister Sergio Massa aimed at finding a way to tackle Argentina’s economic woes just months out from a general election.