A Day Ahead View in US and Global Markets by Mike Dolan
Wall Street looks set to end the shortened week a little drunk, with Friday’s May inflation update set to be decisive after a series of conflicting economic data signals and the latest election twist.
The Federal Reserve’s preferred PCE inflation gauge will be released on Friday morning. Consensus forecasts of a 0.3% monthly increase in the core measure and a stagnant annual rate at 2.8% are still probably too high for Fed officials to give the green light to easing interest rates.
Still, a rough week for bonds eased a bit on Thursday following news that first-quarter U.S. GDP and inflation readings were revised down, home sales tumbled in April, and orders unemployment benefits rose.
The latest visit from Fed speakers also seemed more optimistic about hopes for continued disinflation.
Without signaling any urgency in cutting rates, New York Fed chief John Williams said rates would be cut “at some point.” Dallas Fed chief Lorie Logan reiterated that it was still “too early” to think about easing.
However, the better mood of the bond market did little to boost shares. The S&P500 lost 0.6% on Thursday and, dragged down by a nearly 20% drop after earnings in Salesforce shares fell, the Nasdaq lost more than 1%.
Futures remained in the red before Friday’s bell and the VIX volatility index remained elevated at around 14.5.
There was no obvious market reaction to the potentially seismic political news overnight that Donald Trump had become the first US president to be convicted of a crime. A New York jury found him guilty of falsifying documents to cover up a payment to silence a porn star before the 2016 election.
Although polls show that the majority of voters view the conviction as “serious”, markets appear cautious in interpreting any implications for the November presidential election race – not least because they have not yet defined what Trump’s return to the White House would mean for voters. asset markets and the economy. anyway.
And there is still a lot to happen in terms of sentences, appeals and what this means for Trump’s candidacy within the Republican Party. Even in the unlikely event of being arrested, he would still not be constitutionally barred from becoming president.
Foreign markets remained, for the most part, slaves to US inflation and the Fed framework.
The dollar remained stable for the most part, although the euro rose after May inflation in the euro zone was slightly above forecasts – even if still below 3%.
While the update is unlikely to exceed the European Central Bank’s expected quarter-point interest rate cut next week, full-year ECB easing expectations have fallen further to 55 basis points.
Eurozone bond markets are now awaiting revisions to the sovereign credit ratings of Italy, France, Greece and Ireland later on Friday.
China’s industrial activity unexpectedly fell in May, keeping calls for new stimulus alive as a prolonged housing crisis in the world’s second-largest economy continues to weigh on business, consumer and investor confidence.
Elsewhere, South Africa’s rand fell to a five-week low as this week’s election results showed that the African National Congress had failed to secure a majority – setting up an uncertain period of coalition building ahead.
The Mexican peso was also at a disadvantage ahead of that country’s weekend presidential elections.
Oil prices held steady ahead of Sunday’s OPEC+ meeting, with the group of producers working on a complex deal that would allow it to extend some of its deep cuts in oil production until 2025.
In other news, the Wall Street Journal reported that Bill Ackman is considering selling a stake in his company Pershing Square that would value the company at about $10.5 billion.
Top daily items that could guide US markets later on Friday:
* US April personal income and consumption and “core” PCE inflation readings for the month, May Chicago business survey; Canada Q1 GDP Review
* Atlanta Federal Reserve President Raphael Bostic speaks
(Reporting by Mike Dolan, Editing by Gareth Jones mike.dolan@thomsonreuters.com)
