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Wall Street finishes lower on Fed’s recession forecast, sticky inflation

Fed

US stocks finished lower after the Fed meeting minutes showed that staff members forecasted a possible economic recession from the repercussion of the SVB’s collapse later this year. And the March CPI data did not offer a positive clue to the US inflation trajectory as the core CPI rose 0.4% monthly and 5.6% from a year ago, which is still sticky, despite a cooled headline CPI of 5%. This will most likely promote the Fed to raise interest rates for another time in May. However, with risks of tilting the economy into a recession, the central bank may have to keep its terminal rate around 5%, which means it may finish the rate hike cycle in the mid of the year and start cutting rates in the second half of the year. Bond yields slipped back and pressed on the US dollar as markets priced in a sooner Fed pivot on rate hikes, boosting commodity prices, with crude oil up more than 2%.

For the rest of the week, investors will shift their focus to the US earnings season, with big banks reporting their results on Friday. Here is the preview.

Asian markets are set to open lower. The ASX 200 futures slipped 0.03%, the Hang Seng Index futures fell 1.46%, and Nikkei 225 futures were down 0.57%.

Click to enlarge the table

 

Price movers:

  • 7 out of the 11 sectors in the S&P 500 finished lower, with consumer discretionary leading losses, down 1.54%. While growth sectors, such as technology and communication services, ended in the red, energy, industrial, and materials outperformed due to rising commodity prices. Banking stocks were also lower ahead of major banks’ earnings results.
  • Bank of Canada held its interest rate at 4.5% for the second time as expected, seeing inflation coming down to 3% by mid-2023. The bank raised its interest rates for eight consecutive times since March 2020. But it left the door open for more rate hikes if inflation ticks up again.
  • Crude oil rose to a 5-month high amid a softened US dollar and hints for a potential rate hike pause by the Fed in the mid-year. The oil market bulls picked up momentum after OPEC+ said it would cut production further in early April, and this could push the crude prices to go above $90 per barrel, the highest seen in early November 2022.
  • Gold futures rose for the second straight trading day due to a weakened US dollar. However, the precious metal price may be seen losing momentum close to its all-time high level, with a technical correction needed in the near term.  
  • Bitcoin was hanging around 30,000 after a two-day rally. While fundamental factors are supportive of the upside movements, caution is needed for a potential pullback at such a level. Watch the trending video here.

ASX and NZX announcements/news:

  • Corporate Travel Management (ASX: CTD)  announces that it has won a contract worth about £1.6bn (A$3 billion)  with the United Kingdom Home Office. The contract commenced in March. 
  • The software company X2M Connect (ASX: X2M) entered into a trading halt and is expected to resume trading on Monday. 

Today’s agenda:

  • Australian Melbourne Institute inflation expectations for March. The data fell for the third consecutive month to 5% in February; a further cool in inflation expectations may promote the RBA to hold rates again.
  • Australian employment change for March. The unemployment rate is expected to rise to 3.6% from 3.5% in the prior month.
  • China’s trade balance for March. The trade surplus is expected to fall from last month as imports may tick up amid a recovery of consumer demands after the county lifted strict Covid curbs.


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