PBoC kept the interest rate unchanged. The US stock indices rise despite rising manufacturing inflation

By JustMarkets

At the end of Tuesday, the Dow Jones Index (US30) rose by 0.32%, while the Samp;P 500 Index (US500) gained 0.48%. The NASDAQ Technology Index (US100) closed positive 0.75%. The S&P 500 (US500) hit a 5-week high and the NASDAQ (US100) hit a 1-month high. Stocks rose on lower bond yields due to dovish comments from Fed Chair Powell, who said he did not think it was likely that the Fed’s next move would be a rate hike but likely the rate would be at current levels for longer.

US producer prices rose by 0.5% m/m in April 2024 after a downwardly revised 0.1% decline in March and well above estimates of 0.3%. Services prices rose by 0.6%, the highest since July, after a downwardly revised 0.1% drop in March.

The US will release its April inflation report today. Economists expect consumer inflation to increase by 0.4% monthly, while on an annualized basis, it is expected to decline slightly from 3.5% to 3.4%. Investors will assess the inflation report that price pressures are finally easing after months of sustained inflation. In addition, the year-over-year increase in oil prices has stalled, reinforcing the likelihood of a critical rate cut. Typically, rising oil prices can lead to a new bout of rising inflation; these indicators are directly correlated. Thus, if the data shows that the latest consumer price momentum was temporary and inflation has started to fall again, this could harm Treasury yields and the US dollar, giving risk assets (euro, pound, stock indices) room to rise. But any surprise in the form of increasing inflationary pressures or even higher-than-forecast figures could trigger a rise in the US dollar, hurting indices and precious metals.

Equity markets in Europe were mostly up on Tuesday. Germany’s DAX (DE40) fell by 0.14%, France’s CAC 40 (FR40) closed up 0.20%, Spain’s IBEX 35 (ES35) rose 0.78%, and the UK’s FTSE 100 (UK100) closed positive 0.16%.

Wunsch, an ECB Governing Council member, said the ECB should not be in a hurry to cut interest rates further after a likely first cut in June as “wage pressures persist, keeping service sector inflation at high levels.”

Sweden’s annual inflation rate in April 2024 fell to 3.9% from 4.1% in the previous month, below market predictions of 4.0%. This is the lowest rate since January 2022.

WTI crude prices rose to $79 a barrel on Wednesday, recovering some of the previous session’s losses as wildfires in Canada threatened the country’s oil sands industry, capable of producing 3.3 million barrels daily. Oil prices were also supported by industry data that showed US crude inventories fell by 3.104 million barrels last week, beating prognoses for a 1.35 million barrel decline. Official data from the US EIA will be released later today. Meanwhile, the latest OPEC report showed that OPEC+ members exceeded the agreed limit, pumping 568,000 barrels per day last month. Despite this, OPEC remains optimistic about global oil demand, predicting growth of 2.25 million barrels per day in 2024 and 1.85 million in 2025.

Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) was up 0.46%, China’s FTSE China A50 (CHA50) was down 0.32% for the day, Hong Kong’s Hang Seng (HK50) was 0.22% cheaper, and Australia’s ASX 200 (AU200) was negative 0.30%.

The offshore yuan rose to 7.22 per dollar, rebounding from two-week lows. As expected, the People’s Bank of China (PBoC) kept its one-year medium-term lending rate at 2.5% during its May meeting. The move is part of the Central Bank’s ongoing efforts to stabilize the yuan.

The Australian dollar rose to $0.664, hitting its highest level in two months, as the dollar weakened ahead of the release of crucial US inflation data and markets bet on the Federal Reserve cutting interest rates this year. At the same time, investors reacted to data showing an unexpected slowdown in Australian wage growth in the first quarter, which supported a dovish view of the Reserve Bank of Australia’s monetary policy. Elsewhere, the annual budget was released this week, with the Australian government aiming to reduce core inflation and ease cost-of-living pressures by spending billions to cut energy bills and rents and reducing income taxes.

S&P 500 (US500) 5,246.68 +25.26 (+0.48%)

Dow Jones (US30) 39,558.11 +126.60 (+0.32%)

DAX (DE40) 18,716.42 −25.80 (−0.14%)

FTSE 100 (UK100) 8,428.13 +13.14 (+0.16%)

USD Index 105.01 −0.20 (-0.19%)

• – Australia Wage Price Index (q/q) at 04:30 (GMT+3);
• – Eurozone GDP (q/q) at 12:00 (GMT+3);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
• – US Consumer Price Index (m/m) at 15:30 (GMT+3);
• – US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
• – US Retail Sales (m/m) at 15:30 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – US FOMC Member Bowman Speaks at 22:20 (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.