A look at the day ahead in U.S. and global markets from Mike Dolan
However the Federal Reserve spins it later, there’s some relief in other G7 economies at least that the disinflation process hasn’t completely stalled yet – offering some encouragement to badly bruised bond markets.
As the Fed gets set to announce its latest policy decision and quarterly economic and rate projections on Wednesday, markets seem fairly comfortable with the state of play.
After weeks of back and forth, futures are now priced for a first cut by July and 75 basis points of easing through the full year – with eyes on chair Jerome Powell’s press briefing for any discussion on the Fed’s balance sheet runoff and also on policymakers’ “dot plot” on projected future rates.
With the S&P500 eking out another record closing high on Tuesday, that’s clearly not a terrible vista for stock investors at least.
But ailing bond markets got a shot in the arm over the past 24 hours too – despite the Bank of Japan ending negative interest rates for the first time in 8 years and news of a punchy 11% surge in U.S. housing starts last month.
The cheer came from the inflation updates from Britain and Canada, both of which came in below forecast for February and suggested the stickiness seen in equivalent in U.S. price readings so far this year may not be as pervasive as feared.
Canada’s inflation cooled to its slowest pace since June at 2.8% and closely-watched core inflation measures eased to more than two-year lows, prompting markets to up bets on a June rate cut there. Canada’s dollar eased back afterwards.
And there was good news too heading into Thursday’s Bank of England policy meeting as data showed British inflation easing by more than economists and the BoE itself had expected, falling to a more than 2-year low at 3.4%.
While a first BoE rate cut is fully priced in by its August 1 meeting, markets now see a 50% chance of a move as soon as June. Gilt yields and sterling fell after the news.
There were other encouraging signs too. A downward revision to the Swiss government’s 2024 inflation forecast to just 1.5% has spurred talk the Swiss National Bank could be the first to ease policy as soon as Thursday – knocking back the Swiss franc to its weakest level of the year so far.
On the flipside of all the rate cut speculation was the BOJ’s move to finally tighten its super-loose stance on Tuesday. But even though Tokyo markets were closed for a holiday, indications of continued BOJ bond buying pushed the yen through 151 per dollar to its weakest of the year.
The upshot of all those moves is the dollar’s index is at its highest in almost three weeks going into the Fed decision.
And aided by good demand at Tuesday’s 20-year Treasury bond auction, the global picture has allowed Treasury yields to fall back a bit too.
Wall St stock futures held steady overnight near the new highs.
China’s stocks edged higher after the People’s Bank of China left benchmark lending rates unchanged at a monthly fixing, in line with market expectations.
In company news, Nvidia’s shares nudged higher after the chipmaker said its new flagship AI processor is expected to ship later this year and CEO Jensen Huang said he is chasing a data center market potentially greater than $250 billion.
AI server maker Super Micro Computer shares tumbled almost 9% on Tuesday, however, after it announced it will sell 2 million shares that could fetch about $2 billion.
Micron Technology reports earnings later on Wednesday.
In Europe, stocks edged lower on a blow to the luxury sector there as Kering shares tumbled 14.8% – and on course for its biggest one-day loss on record – after the French luxury goods group warned its first-quarter sales at its star label Gucci could drop by around 20% due to weakness in Chinese demand.
Key diary items that may provide direction to U.S. markets later on Wednesday:
* U.S. Federal Reserve’s policy decision, quarterly projections and press conference
* European Central Bank President Christine Lagarde, ECB chief economist Philip Lane and ECB board member Isabel Schnabel all speak in Frankfurt
* U.S. corporate earnings: Micron Technology, General Mills
(By Mike Dolan; editing by Ros Russell; mike.dolan@thomsonreuters.com)