Investors are now pricing in one cut before the year’s end – compared with as many as six tipped in January
Most equities dropped on Wednesday on lingering concerns about the outlook for US interest rates, while oil prices extended their rally after an attack on a ship in the Red Sea stoked fresh concerns about supplies from the Middle East.
With crucial inflation data out of the US due at the end of the week, investors are largely playing a waiting game, with many inclined to sell following a recent run-up.
Nonetheless, a forecast-beating figure on consumer confidence in the US dampened hopes that the Fed will have room to reduce borrowing costs this year, while the mood was also soured by a weak Treasury sale that saw yields rise.
Wall Street’s three main indexes closed mixed on their first day following a long weekend, with sentiment clouded by the government bond sale and the Conference Board gauge of May consumer confidence.
The reading is still weak, being much closer to the bottom than the top of its last 10 years range. Nonetheless, this data point is the second consecutive upside surprises in the releases, according to Ray Attrill of National Australia Bank.
Investors are now pricing in one cut before the year’s end – compared with as many as six tipped in January.
Chris Low, of FHN Financial, said policymakers were “looking for multiple good inflation reports, and by good, people like governor Christopher Waller imply they should be mostly better even than April, let alone any of the months of the first quarter.”
He expected the reduction to come in November or December.
All eyes are now on the release of the PCE index – the Fed’s preferred gauge of inflation. That comes after figures showed consumer prices eased in April after three consecutive forecast-topping figures.
The next policy decision is due next month.
Asian investors shifted nervously on Wednesday, with Hong Kong, Tokyo, Sydney, Seoul, Singapore, Taipei, Manila and Jakarta all dropping.
Shanghai and Wellington rose.
There was little major reaction to news that the International Monetary Fund (IMF) had lifted its forecast for Chinese economic growth to 5% in light of recent policy announcements. That is up from its previous estimate of 4.6%.
