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Stock markets cheer for cooled inflation, Fed’s decision awaiting

Fed

Wall Street extended gains on a broad-based rally amid cooler-than-expected US CPI data. Inflation decelerated to 4% year over year in May, a sharp decline from 4.9% in the prior month, and is the slowest yearly increase since April 2021. The consensus called for a 4.1% rise in consumer prices. However, core inflation, excluding food and energy, stayed stubbornly high at 5.3%. The data may secure a pause of rate hikes by the Fed and buoyed broad stock markets, with both European and US markets finishing higher.

A notable move is that the US bond yields jumped following the inflation data, suggesting that the Fed may keep the interest rate at a high level for a considerably long time before commencing a rate cut cycle, though the hiking campaign may have been done. The US dollar weakened against most other major currencies but strengthened against the Japanese Yen and Chinese Yuan due to divergence policy stances among central banks. Gold also slid due to higher rates.

Another catalyst that has boosted broad sentiment is that China’s central bank surprisingly lowered its short-term borrowing rate to stimulate the economy. The action was taken following a slew of disappointing economic data that reflected deteriorating domestic and global consumer demands. Chinese shares cheered for the pro-growth policy, with all the US-listed Chinese rising between 2%-6%. Commodities that are sensitive to China’s economic growth, including copper, crude oil, and Iron ore, rose swiftly.  

Asian markets are set to open higher, with ASX 200 futures up 0.57%, Nikkei 225 advancing 1.18%, and Hang Seng Index futures up 0.10%.

Price movers:

  • 7 out of 11 sectors in the S&P 500 finished higher, with Materials and Industrials leading gains, up 2.33% and 1.16%, respectively, which mirrored optimism toward China’s further stimulus measures to bolster the economy. Utility is the only sector that ended in the red as risk-on sentiment pressed on defensive stocks.
  • Tesla’s shares rose 3.5% to the highest since September 2022, gaining for the 12th consecutive straight trading day and extending the longest winning streak.  
  • AMD’s shares fell 3.6% after the chipmaker revealed a new AI chip, the MI300X, challenging Nvidia’s dominance in the GPU market. However, Nvidia’s shares were not pressured by the announcement, up 3.9% on Tuesday.
  • Crude oil rebounded sharply amid the surprising rate cut by the PBOC. Oil markets widely swung in the last few weeks amid mixed fundamental factors, where China’s economic development played a key role in steering the market move. The near-term pivotal support of the WTI futures is seen around 67 at yesterday’s low. And the potential support for Brent futures is about 72.

ASX and NZX announcements/news:

  • Metro Performance Glass Limited  (ASX: MPP, NZX: MPG) released FY23 full-year results. The Group’s revenue improved 5% year on year on a loss of NZ$10.5 million due to a NZ$10 million impairment of intangible assets and a softer outlook in NZ construction.
  • Winton updated its guidance for Fy23 to the lower end of between NZ$72.4 million and NZ$82.4 million, driven by delivery delay of pre-sold projects attributable to the heavy January rainfall experienced in the North Island.  

Today’s agenda:

  • New Zealand Food Price Index for May m/m. 
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