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A look into the future in U. S. and global markets through Mike Dolan
Wall St stocks held up remarkably well in the face of last week’s renewed interest rate angst, but Wednesday’s inflation figure for March may be decisive from there.
A late bounce in the S
Despite all the considerations about the stubborn “last mile” of the disinflation process, consensus forecasts recommend that calm in the market is warranted for the time being. The annual CPI benchmark rate is expected to have fallen by one-tenth of a percentage point to 3. 7%. Last month, headline rates are very likely to accelerate.
The choppy Treasury market also stabilized on the critical release, despite a poor three-year auction on Tuesday and $39 billion in 10-year notes auctioned later.
Crude oil’s 3% drop this week from Friday’s 2024 helped somewhat.
Inflation figures were also frozen, with the Bank of Canada deciding on interest rates later in the day and the European Central Bank meeting also on Thursday.
Canadian rates are expected to remain unchanged at 5. 0% for now, spot markets are still pricing in an 80% chance of a cut in June, as is the case with the ECB.
While futures on Federal Reserve policy rates are still hesitant about a U. S. rate cut that month, markets seem confident that the ECB, the Bank of Canada, and even the Bank of England will now take precedence over the Federal Reserve when they begin the rate cut cycle. .
New Zealand’s central bank kept its key interest rate on Wednesday as expected, but warned that it would possibly want to remain restrictive for an extended period to bring inflation back to its 1-3% diversity target and that markets do not expect easing. until August.
What’s more, some hawks at the Federal Reserve continue to recommend that rates may not be cut at all this year.
Atlanta Fed President Raphael Bostic said Tuesday that rates may remain unchanged through 2024 if inflation growth stops and the economy continues to outperform.
“I can’t rule out the possibility that rate cuts will be forced to go ahead,” Bostic said in an interview with Yahoo Finance.
The minutes of the Federal Reserve’s March political meeting will also be released on Wednesday.
In addition to inflation concerns, there were signs of tension in the U. S. business scenario on Tuesday, as the NFIB’s Small Business Survey showed confidence fell to an 11-year low, although inflation remains the most sensible concern.
Overseas markets were firmer ahead of the big U. S. release, partly buoyed by hopes that previous lending would ease in Europe and elsewhere.
Technology stocks gained in Europe and Hong Kong on Wednesday after Taiwanese chip giant TSMC reported 16. 5% in first-quarter revenue, beating forecasts, the best end to the company’s diversity of forecasts, as sales soared due to demand for synthetic intelligence applications.
However, the Nikkei indexes of Japan and mainland China underperformed.
Japanese government bond yields hit a four-week high after Bloomberg reported that the Bank of Japan would most likely raise its inflation forecast at a political town hall later this month.
But, despite the Bank of Japan’s intervention, the dollar/yen exchange rate remained just below the 152 yen level.
BoJ leader Kazuo Ueda said the central bank would not respond to currency moves when setting its financial policy, dismissing the market’s hypothesis that the yen’s sharp fall could simply force it to raise interest rates.
“Surely we will not replace financial policy as a reaction to excessive rate movements,” Ueda told parliament.
Chinese markets were also in the shadows on Wednesday after Fitch downgraded its outlook on China’s sovereign rating to negative, posing dangers to public finances as the economy faces growing uncertainty as it transitions to new patterns of expansion.
The downgrade follows a move by Moody’s in December and comes as Beijing steps up efforts to breathe life into a weak post-Covid recovery in the world’s second-largest economy with fiscal and financial support.
Chinese bonds, however, remained stable.
Key pieces on the agenda that may provide direction to U. S. markets later on Wednesday:
* US Consumer Price Index in March
* Bank of Canada decision, press conference
* The World Trade Organization publishes World Trade Outlook
* Federal Open Market Committee releases minutes of March policy meeting
* Federal Reserve Governor Michelle Bowman, Chicago Federal Reserve President Austan Goolsbee and Richmond Federal Reserve Chief Thomas Barkin speak.
U. S. Treasury sells $39 billion in 10-year notes
* U. S. President Joe Biden welcomes Japanese Prime Minister Fumio Kishida on his state visit.
(By Mike Dolan, editing via Christina Fincher, mike. dolan@thomsonreuters. com)