Inflationary pressures are easing in Europe. Investors awaiting approval of debt ceiling bill

June 1, 2023

At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.41%, and the S&P 500 Index (US500) closed lower by 0.61%. The NASDAQ Technology Index (US100) was down by 0.63% on Wednesday. Yesterday the indices were under pressure from declines in consumer and technology stocks. There is also continued uncertainty in the vote on the debt ceiling bill. Most analysts anticipate approval of the bill, but the deadline is close. The US House of Representatives voted for a bill to suspend the debt ceiling late Wednesday night.

The Federal Reserve’s interest rate hike on June 14 may depend on Friday’s jobs report (Nonfarm Payrolls). The Fed tightening by reducing the balance sheet could cause liquidity after the debt ceiling deal, and higher rates could deprive the current rally in the S&P 500 (US500) of energy. On the other hand, confirmation that the labor market is exhaling could lower long-term market interest rates, helping to offset the Fed’s quantitative tightening and provide short-term support for the S&P 500 (US500) and growth stocks.

Shares of HP Inc (HPQ) fell more than 5% after posting mixed quarterly results as revenue fell short of expectations due to lower demand for PCs. NVIDIA Corporation (NVDA) fell more than 5%, while Intel Corporation (INTC) resisted the trend, rising nearly 5% as the chipmaker talked up prospects and received a vote of confidence from Nvidia. Nvidia’s CEO said yesterday that the company could buy chips from Intel. IBM plans to replace nearly 8,000 employees with AI. Most of it will be faced by office support workers, especially in the human resources sector. IBM also announced earlier this year that it would cut 3,900 jobs for more automation and cost-cutting measures.

Stock markets in Europe were mostly down Wednesday. Germany’s DAX (DE30) fell by 1.54% yesterday, France’s CAC 40 (FR40) lost 1.54%, Spain’s IBEX 35 (ES35) decreased by 1.54%, and the British FTSE 100 (UK100) ended the day down by 1.01%.

The latest inflation data showed that consumer prices in France fell from 5.9% to 5.1% y/y, in Italy, inflation fell from 8.2% to 7.6% y/y, and in Germany, CPI fell from 7.2% to 6.1% y/y. Today, the overall Eurozone figure will be released. The Eurozone inflation figure is expected to fall from 7.0% to 6.3% y/y, and the core indicator (which excludes food and energy prices) is expected to fall slightly from 5.6% to 5.5%. But that won’t stop the European Central Bank from raising rates in June.

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Oil prices hit a one-month low on Wednesday after weak production data from China, the world’s largest oil importer, raised concerns about demand growth in the second half of the year. Oil prices have fallen more than 16% since the beginning of the year as China’s sluggish economic recovery and the Federal Reserve’s tightening of monetary policy weigh on demand prospects. At the same time, rising demand ahead of summer is not currently supporting prices in any way. Crude oil inventories will be released today, and there will be an OPEC+ meeting on June 4, where there may be surprises in the form of production cuts to support prices.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) shed by 1.41% over the day, China’s FTSE China A50 (CHA50) fell by 1.72%, Hong Kong’s Hang Seng (HK50) ended Wednesday down by 1.94%, India’s NIFTY 50 (IND50) lost 0.53%, and Australia’s S&P/ASX 200 (AU200) closed negative yesterday by 1.64%.

Australian stocks were supported today by stronger-than-expected first-quarter capital spending data. The reading underscores some strength in the Australian economy as it struggles with high inflation, rising rates and slowing growth. Strong economic data also encouraged Japanese stocks as capital spending rose more than expected in the first quarter, indicating a potentially higher revision to first-quarter economic growth data.

S&P 500 (F) (US500) 4,179.83 −25.69 (−0.61%)

Dow Jones (US30)32,908.27 −134.51 (−0.41%)

DAX (DE40) 15,664.02 −244.89 (−1.54%)

FTSE 100 (UK100) 7,446.14 −75.93 (−1.01%)

USD Index 104.23 +0.06 (+0.06%)

Important events for today:

– Japan Manufacturing PMI (m/m) at 02:50 (GMT+3);
– Australia Retail Sales (m/m) at 04:30 (GMT+3);
– Switzerland Manufacturing PMI (m/m) at 10:30 (GMT+3);
– German Manufacturing PMI (m/m) at 10:55 (GMT+3);
– Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
– UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
– Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
– Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
– Eurozone ECB President Lagarde Speaks at 12:30 (GMT+3);
– Eurozone ECB Monetary Policy Meeting Accounts at 14:30 (GMT+3);
– US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
– US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3);
– US Crude Oil Reserves (w/w) at 18:00 (GMT+3);
– US FOMC Member Harker Speaks at 20:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Inflationary pressures are easing in Europe. Investors awaiting approval of debt ceiling bill