Turkish President Erdogan falls short of clear victory

US equities drifted lower Friday, with the S&P 500 Index and Dow Jones Industrial Average notching their second week in the red, as concerns over the banking system and the debt ceiling impasse weighed on investor enthusiasm.  With earnings season winding down, the market is increasingly focused on the outlook for the economy and interest rates, not to mention the possibility of potentially catastrophic economic consequences should Democrats and Republicans fail to raise the debt ceiling. Recession worries were exacerbated Friday by the University of Michigan’s latest consumer sentiment index reading, which dropped more than analysts were expecting.  Technology shares were one of the few bright spots last week, with the Nasdaq closing near an 8 ½ month high Friday, while the rest of the market lagged.  Meantime, European markets ended Friday’s session in positive territory but the Euro Stoxx 50 Index was still down 0.60% for the week. 

Summary for 15.05.2023 

• Asian equity markets started cautiously on Monday as investors braced for a string of Chinese economic readings due on Tuesday.  China’s Shanghai Composite Index was the worst performer for the day, down by over 1%.  Hong Kong’s Hang Seng index was flat on Monday, while South Korea’s Kospi and the Taiwan Weighted index lost 0.3% each. 
• European and US equities are headed for a steady start to the week as investors assess US debt-ceiling talks and the inflation outlook. 
• Oil prices retreated further in Asian trade on Monday after logging four straight weeks of losses amid concerns over slowing economic growth, with the focus now turning to more financial data and a slew of Federal Reserve speakers this week.  Strength in the US dollar, which rebounded over one-year lows, also kept prices under pressure, as markets dialled back bets that the Fed would trim interest rates this year. 

• Turkish President Recep Tayyip Erdogan failed to carve out a lead large enough to avoid a runoff in an election that left the incumbent with momentum heading into a decisive showdown.  Boasting a lead of more than 2 million votes, Erdogan will go head to head on May 28 against Kemal Kilicdaroglu, who has the backing of the nation’s broadest-ever grouping of opposition parties.  Early results on Monday showed Erdogan winning 49.3% of the votes, while Kilicdaroglu secured 45% support, with more than 98% of ballot boxes having been counted.  
• US President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders are planning to meet Tuesday to discuss budget negotiations to avoid a default.  When questioned on Sunday, Biden remained tight-lipped about the terms of the negotiations but said he believed a deal could be reached. 
• Data on Friday showed that the University of Michigan consumer sentiment for the US fell sharply to a six-month low of 57.7 in May, well below forecasts of 63, with both current conditions and expectations gauges substantially down.  Meanwhile, year-head inflation expectations receded slightly to 4.5% but the five-year outlook increased to 3.2%, the highest since 2011.  
• The British economy expanded 0.2% year-on-year in the first quarter, the lowest annual growth rate since 2021, compared to 0.6% in the previous period.  The figures came in line with market expectations.  The services sector increased by 0.7%, with transportation, storage and communication rising the most.  Also, the construction sector grew by 4.5%.  On the other hand, production shrank 2.6%, with manufacturing declining 1.9%. 
• Gold giant Newmont secured a $19.2 billion deal to buy Australian rival Newcrest Mining, consolidating its position as the world’s biggest bullion producer with mines across the Americas, Africa, Australia, and Papua New Guinea.  The transaction, now unanimously approved by Newcrest’s board but pending regulatory approval, is the gold mining sector’s largest deal to date, surpassing Newmont’s purchase of rival Goldcorp in 2019. 

• Axa this morning reported a rise in its first-quarter revenue driven by growth at its property and casualty business.   Total gross revenue came in at €31.8 billion in the quarter, a 2% rise compared with €31.17 billion a year ago. 
• This week in the US, the spotlight will be on speeches by several Fed officials and retail trade data, followed by industrial production and several housing indicators.  Elsewhere, Q2 GDP growth rates will be released for Japan and Russia.  Investors will also closely follow industrial production and retail sales for China, inflation rates for Canada and Japan, and unemployment rates for the UK, France and Australia.  The ZEW Indicator of Economic Sentiment for Germany and the GfK Consumer Confidence Indicator in the UK will be interesting to watch.