Economic Indicators & Central Banks:
- Stocks and bonds gave a big sigh of relief after CPI and retail sales came in below expectations, supporting beliefs the FOMC will be able to cut rates by September.
- The markets had positioned for upside surprises. Wall Street surged with all three major indexes climbing to fresh record highs.
- Technical buying in Treasuries was also supportive after key rate levels were breached, sending yields to the lows since early April.
- Fed policy outlook: there is increasing optimism for a September rate cut, according to Fed funds futures, BUT most officials say they want several months of data to be confident in their actions. Plus, while price pressures are receding, rates are still well above the 2% target, keeping policy on hold. But the market is now showing about 22 bps in cuts by the end of Q3, with some 48 bps priced in for the end of 2024.
- Stagflationary Risk for Japan: GDP contracted much sharper than anticipated, for a 3rd quarter in a row. This is mainly due to consumer spending. The GDP deflator though came in higher than expected but still down from the previous quarter. The sharper than anticipated contraction in activity will complicate the outlook for the BoJ, and dent rate hike bets.
Financial Markets Performance:
- The USDIndex slumped to 103.95, the first time below the 104 level since April 9.
- Yen benefitted significantly, with USDJPY currently at 154.35 as easing US inflation boosted bets on the Fed easing monetary policy this year, weakening USD, boosting the Yen.
- Gold benefited from a weaker Dollar and a rally in bonds and the precious metal is trading at $2389 per ounce. At the same time, the precarious geopolitical situation in the Middle East is underpinning haven demand.
- Oil prices rebounded slightly after the shinking of US stockpiles and the risk-on mood due to declined US Inflation. However USOil is still at the lowest level in 2 months, at 78.57.
Market Trends:
- The NASDAQ popped 1.4% to 16,742. The S&P500 advanced 1.17% to 5308, marking a new handle. And the Dow rose 0.88% to 39,908.
- Treasury yields tumbled sharply too on the increasingly dovish Fed outlook. Additionally, the break of key technical levels extended the gains to the lowest levels since early April before the shocking CPI data on April 10 boosted rates.
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Andria Pichidi
Market Analyst
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