Oil is back, and it shows

• European Central Bank surprises with a hike.
• Inflation is hotter than expected, but why?
• Is the IPO market staging a comeback?

It was a big week of macro data and central bank news, with surprising inflation numbers and an unexpected decision from the European Central Bank. Let’s do the play-by-play.

We kicked the week off with a strong performance in the stock market, led by the Nasdaq. Market sentiment was shaped by excitement for a new big tech initial public offering. We had almost forgotten about those! It was the first noteworthy IPO since 2021. Given that the current market environment is not especially IPO-friendly, the new listing was widely seen as a barometer for the health of capital markets. It needed to do well. And it did. The new kid on the block is SoftBank's “Arm” company, a major phone chip maker. It was oversubscribed and garnered enthusiasm when it was released later in the week. The market hasn’t lost its appetite; that’s a good sign.

But excitement didn’t last long in the tech sector, as is often the case. This was partly because of disappointment over Apple’s new iPhone pricing and because of Oracle, whose poor earnings drove the stock lower by 13.5%.

The energy sector was once again the market's darling this week. Oil prices climbed to new year-to-date peaks, spurred by OPEC warnings of a potential supply crunch. The Canadian dollar surged throughout the week on the back of this strength in energy; an omen of the possible resumption of the currently broken relationship between USD/CAD and oil? These days, high crude prices and a strong U.S. dollar are a very profitable combo for Canadian oil players.

The much-anticipated Consumer Price Index (CPI) report was released on Wednesday, but its impact was mixed. While the report showed inflation ticked higher than expected, the market's knee-jerk hawkish response was short-lived. Investors seemed to conclude that the data lacked the punch to persuade the U.S. Federal Reserve to change its current course. The numbers look high with a headline at 0.6% monthly, but the drive was mostly caused by energy costs. Officials view this as transient and aren’t too concerned, thus the calm market reaction to what, on the surface, appears to be a hot print.

Next was the European Central Bank (ECB) decision. Markets expected a pause and were surprised by a hike. Good news though: the ECB signaled it was the last one and that current rates were sufficient to fight inflation over time. ECB President Lagarde said there was a majority but no unanimity for the current hike, so it may truly be the last. In fact, markets were so convinced that the rate-raising cycle is over that the euro actually fell on the news, defying the typical rise in currency value that usually accompanies rate hikes.

Strong U.S. retail sales data also gave investors reasons to cheer. Although the headline figures were upbeat, a sharp rise in gasoline sales skewed the numbers, so we’ll take it with a grain of salt.

What's the takeaway from this week? The market is clearly navigating through a labyrinth of conflicting signals — be it the renewed inflationary pressures from energy, unconvincing corporate earnings or central bank policy surprises. While risk factors like labour shocks in the U.S. auto sector linger, the general atmosphere seems cautiously optimistic. However, as the week showed, any single data point or news item can tilt the scales. In today's volatile markets, diversification is not just an advantage, but a necessity.

Listen to this week’s podcast for further insights.