A look at the day ahead in the US and global markets by Mike Dolan
Wall Street looks set for a sleepy but positive start to a shortened week after the Memorial Day break on Monday, with consumers back at the center of May updates later today.
futures were higher again ahead of Tuesday’s open after the cash index posted its fifth straight weekly gain last week – the longest streak since early February.
US consumer confidence is expected to have cooled slightly this month in the Conference Board’s monthly survey due later today, although the big release of the week is clearly Friday’s PCE inflation gauge.
Even though the Federal Reserve’s interest rate expectations have fallen to just over one cut for the remainder of the year, broader financial conditions captured by the Chicago Fed index are at their easiest since November 2021 – four months before the Fed began its tightening campaign .
This leaves the Fed with an ongoing conundrum over whether its restrictive monetary policy has been enough to sustainably drag inflation back to its 2% target while economic growth continues to hum along. Annual core PCE inflation is expected to have remained at 2.8% in April, even as monthly price increases have moderated slightly to below 0.3%.
Although Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, has been on the hawkish side of the Fed’s policy board, he continued to raise the possibility of another rate hike if necessary on Tuesday.
And if that isn’t necessary, Kashkari says it will take “many months of positive inflation data” before he feels confident enough to ease.
Another hawk, Fed Governor Michelle Bowman, even said she would have been in favor of waiting for a slowdown in the run-off on the US central bank’s balance sheet, or a more moderate tapering process than announced earlier this month.
Despite all that, and in anticipation of another tough week of debt selling, Treasury yields fell slightly on Tuesday. Later in the day, banknotes with a term of two and five years will go under the hammer.
The volatility gauges for both the stock and bond markets remain subdued.
While the US economic surprise index is still negative, it has risen significantly since last week’s tough business surveys and the Atlanta Fed’s real-time economic growth estimate for the quarter is 3.5%.
Oil prices also rose on Tuesday, ahead of Sunday’s online meeting of OPEC+ producers, where traders expect voluntary production cuts of 2.2 million barrels per day to remain in place.
Although U.S. gasoline prices have fallen this month, they are still rising about 15% so far this year.
Inspired by softer government bond yields, the dollar fell for the third session in a row.
The euro rose despite money markets seeing a near 90% chance that the European Central Bank would begin its rate-cutting cycle as early as next week – even as more positive economic polls and wage figures of late have slightly dampened full-year easing expectations. scaled back there too.
“Barring any surprise, the first rate cut in June is a foregone conclusion, but after that we have different degrees of freedom,” French central bank chief Francois Villeroy de Galhau told Germany’s Boersen Zeitung on Monday.
Surveys on Tuesday showed euro zone household inflation expectations for the next 12 months fell below 3% for the first time since 2021.
Foreign equity markets were generally subdued: mixed in Asia and slightly positive in Europe.
Elsewhere, U.S. markets are poised for a new dawn on Tuesday, when the settlement time for U.S. stocks, municipal bonds and other securities will be halved to one day, or T+1, following the approval of a new Securities and Exchange Exchange agreement. Commission rule.
Little disruption was evident as foreign investors adapted to the changes.
In company news, shares of Apple (NASDAQ:) rose 2% before the open. Data shows that iPhone sales in China rose 52% in April from a year earlier, while overall smartphone sales in the country rose more than 25%.
Key agenda items that could provide direction to the US markets later on Tuesday:
* US consumer confidence in May, Dallas Fed manufacturing survey in May, home prices in March; Producer prices Canada April
* German Chancellor Olaf Scholz and French President Emmanuel Macron speak at the French-German summit in Schloss Meseberg, north of Berlin
* Federal Reserve Board Governor Lisa Cook and Minneapolis Fed Chair Neel Kashkari speak; Policymaker Klaas Knot of the European Central Bank and policymaker Catherine Mann of the Bank of England will both speak
* US Treasury sells 2- and 5-year notes, 3- and 6-month notes
(By Mike Dolan, Editing by Ed Osmond, mike.dolan@thomsonreuters.com)
