A look at the day ahead in the US and global markets by Mike Dolan
Wall Street appears to be ending the shortened week somewhat drunk, with Friday May’s inflation update set to be decisive after a slew of conflicting signals from economic data and the latest election twist.
The Federal Reserve’s preferred PCE inflation gauge will be released early Friday. Consensus forecasts for a 0.3% monthly increase in the core measure and an annual interest rate of 2.8% are still likely too high for Fed officials to greenlight a rate cut.
Still, the tough week for bonds eased on Thursday after news that US GDP and inflation were revised down slightly in the first quarter, home sales tumbled in April and jobless claims rose.
The Fed’s latest speakers also sounded more optimistic about hopes for continued disinflation.
Without signaling any urgency in cutting rates, New York Fed Chief John Williams said rates would be cut “at some point.” Lorie Logan, head of the Dallas Fed, reiterated that it was “too early” to consider easing.
However, the better mood on the bond market did not lead to a positive increase in share prices. The S&P500 lost 0.6% on Thursday and, after the earnings slide in Salesforce shares dragged down nearly 20%, the Nasdaq lost more than 1%.
Futures remained in the red before the bell on Friday and the VIX volatility index remained high at around 14.5.
There was no apparent market reaction to the potentially seismic political news that Donald Trump became the first US president to be convicted of a crime. A jury in New York found him guilty of falsifying documents to cover up a payment to silence a porn star ahead of the 2016 election.
Although polls show that most voters view the conviction as ‘serious’, markets appear reluctant to read any implications for the November election race – not least because they have yet to ponder what a Trump return to White House would mean for the asset markets and the economy. anyway.
And there is still a lot to be done in terms of convictions, appeals and what this means for Trump’s candidacy within the Republican Party. Even in the unlikely event that he ends up in prison, he would not be constitutionally barred from becoming president.
Overseas markets remained largely captivated by US inflation and the Fed picture.
The dollar was largely stable, although the euro gave a boost after May inflation in the euro zone came in slightly above expectations – although still below 3%.
While the update is unlikely to break the European Central Bank’s expected quarter-point rate cut next week, the ECB’s full-year easing expectations have fallen further to 55 basis points.
Eurozone bond markets are now looking ahead to the government bond revisions of Italy, France, Greece and Ireland later on Friday.
Chinese manufacturing activity fell unexpectedly in May, keeping calls for new stimulus alive as an ongoing real estate crisis in the world’s second-largest economy continues to weigh on business, consumer and investor confidence.
Elsewhere, South Africa’s rand fell to a five-week low as results from this week’s elections showed the African National Congress had fallen short of a majority, leaving an uncertain period of coalition building ahead.
The Mexican peso also fell ahead of last weekend’s presidential elections.
Oil prices held steady ahead of Sunday’s OPEC+ meeting, with the producer group working on a complex deal that would allow the country to extend some of its deep oil production cuts until 2025.
In other news, the Wall Street Journal reported that Bill Ackman is considering selling a stake in his firm Pershing Square, which would value the company at about $10.5 billion.
Key agenda items that could provide direction to the US markets later on Friday:
* US personal income and consumption in April and ‘core’ PCE inflation figures for the month, Chicago business survey in May; Revision of Canada’s first quarter GDP
* Raphael Bostic, President of the Atlanta Federal Reserve, speaks
(By Mike Dolan, Editing by Gareth Jones mike.dolan@thomsonreuters.com)
