WALL Street stocks finished mostly higher Tuesday (Apr 9) ahead of key US inflation data as markets grapple with a shifting outlook for monetary policy.
Investors will be poring over US consumer price data to be released Wednesday after the last two inflation reports came in hotter than expected, leading many market watchers to push back their expectations for Federal Reserve interest rate cuts.
After a down day on European bourses, both the S&P 500 and Nasdaq mustered narrow gains.
But the Dow was flat after Boeing dropped nearly two percent as the Federal Aviation Administration confirmed it is investigating the complaints of a whistleblower who alleges that the company retaliated against him for raising safety concerns that point to vulnerabilities in nearly 1,500 planes in service.
The March consumer price index (CPI) data may provide an indication whether or not the sticky inflation readings at the start of the year were due to seasonal factors, and how much possibility there is the US central bank could begin to cut rates starting in June.
“The Fed to some extent indicated seasonal factors might have kept inflation sticky in January and February, but that excuse might not fly much longer,” said analysts at Charles Schwab.
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With US consumer prices picking up in January and February, the jobs market still strong and the US economy in rude health, traders have regularly rolled back their forecasts for monetary policy easing this year, and some are even contemplating no cuts before 2025.
“At the beginning of this year markets were pricing in six 25 basis point cuts: Now it’s nearer to two or three,” said Trade Nation’s David Morrison.
“There have been some FOMC members who feel that the recent stalling of the decline in inflation, together with robust economic data releases, means that it’s far too early to consider cutting rates,” he said, referring to members of the Fed’s monetary policy-setting committee.
But Schwab analysts said investors may now be okay with that.
“Wall Street’s bullish reaction to last week’s blowout March jobs report reflects the idea that investors could be getting comfortable with one, two or even no rate cuts this year as long as there’s no sign of recession and earnings growth continues,” Schwab analysts said in a note to clients.
Following Wednesday’s data, focus will shift to Thursday’s European Central Bank meeting.
And the end of the week sees the start of the US earnings season, with JPMorgan, Wells Fargo and Citigroup up first. Next week will see some European luxury groups report, including LVMH, Richemont, Burberry and EssilorLuxottica.
In Asia, the Tokyo market was boosted by a weaker yen, which helps exports but which is approaching the 152-per-dollar level which many think could spark an intervention by Japanese authorities. AFP
