12 Jun

China’s consumer inflation is on the rise. Today, the focus is on the FOMC meeting

June 12, 2024

By JustMarkets

At Tuesday’s close, the Dow Jones Index (US30) decreased by 0.31%, while the S&P 500 Index (US500) added 0.27%. The NASDAQ Technology Index (US100) closed positive 0.88%. Weakness in bank stocks weighed on the Dow Jones Industrials after Pimco said it expects more bank failures of regional banks in the US due to a “very high” concentration of troubled commercial real estate loans on their balance sheets. Stocks also came under some downward pressure due to caution ahead of Wednesday’s CPI report and the outcome of Wednesday’s FOMC meeting.

The US Central Bank will hold its next monetary policy meeting today. The probability that the US Fed will start cutting rates at the current meeting is almost zero. Therefore, traders should focus on the FOMC estimates and the speech of Fed Chief Jerome Powell at the press conference after the meeting. Consumer inflation data for May will be released a few hours before the Fed meeting on Wednesday. Further signs of weakening inflation could increase expectations for a rate cut, especially given signs of economic weakness. As a result, most factors indicate that the statement and speech will have a hawkish bias. This could give confidence to the dollar, which would negatively impact risk assets (euro, pound), metals, and indices. There is only a small chance that the situation will change. For that, inflation data would have to show significant downward progress.

Apple (AAPL) rose more than 7% to a record high and supported gains in tech stocks when D.A. Davidson upgraded the stock to “buy” from “neutral” with a $230 price target on “expectations of an iPhone refresh cycle.” Shares of PayPal Holdings (PYPL) fell more than 3% and topped the Nasdaq 100 losers list after Apple demonstrated a new tap-to-cash feature that allows for quick payments between individuals.

Equity markets in Europe were mostly down on Tuesday. Germany’s DAX (DE40) fell by 0.68%, France’s CAC 40 (FR40) closed down 1.33%, Spain’s IBEX 35 (ES35) lost 1.60%, and the UK’s FTSE 100 (UK100) closed negative 0.98%. ECB Governing Council spokesman Rehn said yesterday that the ECB is not pre-committing to any interest rate path. This confirms what his colleagues have said that the ECB will not cut rates at its next meeting. Swaps estimate the probability of a 25bp ECB rate cut at 8% for the July 18 meeting and 49% for the September 12 meeting.

French President Macron has called for snap legislative elections in response to the far-right’s success in the European Parliament elections. Although Macron will retain the presidency and powers over foreign policy and defense, his ability to push through legislation could be affected by the outcome of the election and the appointment of a new prime minister. There are also concerns that the president could resign if his party performs poorly in the upcoming elections, raising concerns about France’s financial situation.

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WTI crude prices climbed above $78 a barrel on Wednesday, having risen in five of the last six sessions on the back of an improved global demand outlook. The US agency EIA raised its prognosis for global oil demand growth to 1.1 million bpd in 2024 from a previous estimate of 900,000 bpd, with demand in Asian countries, excluding Japan, revised upward. OPEC also maintained its prognosis for solid growth in global oil demand this year due to increased travel and tourism expectations in the second half of the year.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) gained 0.25%, China’s FTSE China A50 (CHA50) declined 1.48%, Hong Kong’s Hang Seng (HK50) fell on -1.04% and Australia’s ASX 200 (AU200) was negative 1.33%.

The offshore yuan rose to 7.26 per dollar as traders reacted to the latest Chinese inflation data. The data showed consumer prices rose steadily in May, and producer price deflation eased slightly. This suggests that the Chinese government’s efforts to stimulate the economy are starting to show positive results. China’s annual inflation rate in May 2024 was 0.3%, holding steady for the second consecutive month and falling short of market estimates of 0.4%. It was the fourth consecutive month of rising consumer inflation. Meanwhile, traders took a cautious stance following a report that the Biden administration may impose further restrictions on China’s access to artificial intelligence technology amid escalating tensions between the US and China.

S&P 500 (US500) 5,375.32 +14.53 (+0.27%)

Dow Jones (US30) 38,747.42 −120.62 (−0.31%)

DAX (DE40) 18,369.94 −124.95 (−0.68%)

FTSE 100 (UK100) 8,147.81 −80.67 (−0.98%)

USD Index 105.26 +0.03 (+0.03%)

Important events today:
  • – Japan Producer Price Index (m/m) at 02:50 (GMT+3);
  • – China Consumer Price Index (q/q) at 04:30 (GMT+3);
  • – China Producer Price Index (q/q) at 04:30 (GMT+3);
  • – UK GDP (m/m) at 09:00 (GMT+3);
  • – UK Industrial Production (m/m) at 09:00 (GMT+3);
  • – UK Trade Balance (m/m) at 09:00 (GMT+3);
  • – German Consumer Price Index (m/m) at 09:00 (GMT+3);
  • – US Consumer Price Index (m/m) at 15:30 (GMT+3);
  • – US Crude Oil Inventories (w/w) at 17:30 (GMT+3);
  • – US Fed Interest Rate Decision at 21:00 (GMT+3);
  • – US FOMC Monetary Policy Statement at 21:00 (GMT+3);
  • – US FOMC Press Conference at 21:30 (GMT+3);
  • – Canada BoC Gov Macklem Speaks at 22:15 (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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