US equities extended recent gains on Monday as investors await key data on Tuesday in the form of inflation data for May, as well as an interest rate decision by the Federal Reserve overnight on Wednesday.
United States
The US markets continued their bull market run, suggesting current trader sentiment is that the Fed would not raise the cash rate according to Oanda’s Edward Moya who noted, “The bull market rally looks like it doesn’t want to stop, which means Wall Street appears confident that the Fed will not be delivering its 11th straight rate hike this week”. Financial markets are pricing in a 25% chance of a rate increase at this week’s meeting, with expectations for a pause as the central bank assesses incoming data. However, rate futures are pricing in the 60% likelihood of a further 0.25% in July.
Renaissance Macro Research Neil Dutta shared his views on the possibility of a “hawkish skip” by the Fed stating, “If the Fed decides to skip the June meeting, as I anticipate, I don’t think they have a choice but to sound hawkish given their data-dependent pledge”. Traders on the other hand are keeping one eye on the CPI data set to be released prior to the Fed’s meeting. Economists forecast a decline in the inflation rate from 4.9% in April to 4.1% in May, with core inflation expected to decline from 5.5% to 5.3% for the same period. On an annualized basis, monthly inflation is expected to come in at 1.2% and 4.8% respectively. Ahead of the inflation data, one-year consumer inflation expectations by the New York Federal Reserve declines to their lowest levels since May 2021 sitting at 4.1% while three-year expectations were little changed at 3.0%.
The S&P 500 index closed 0.93% higher on Monday. The index was boosted by the technology sector gaining 2.07%, consumer discretionary rising 1.74% while communications added 1.20%. Gains in the tech sector included names such as Oracle (5.99%), Tesla (5.43%), Amazon (2.5%), Apple (1.56%) and Microsoft (1.55%). Energy was the biggest underperformer, losing -0.97%, followed by utilities which receded -0.17% and financials sliding -0.09%. The Dow was up 0.56%, the Nasdaq gained 1.53%, while the Russell 200 Index firmed 0.93 while the VIX climbed 8.53% to 15.01.
Europe
The Euro Stoxx 600 Index rose on Monday to close 0.36% higher boosted by sentiment that the Federal Reserve will pause its hiking cycle this week. Eight out of the eleven sectors closed in the green to boost the index. Consumer discretionary was the star performer rising by 1.57%, information technology was up by 1.09%, while industrials gained 0.82%. The energy sector declined by -1.36%, real estate was down -1.13% and communications lost -0.75%. The CAC edged up 0.52%, the DAX firmed 0.93%, while the FTSE edged up 0.11%.
Ahead this week, UK unemployment data for April is in focus tonight along with the Eurozone ZEW economic sentiment index for June. UK GDP data will follow on Wednesday, along with the IEA oil market report. An ECB rate decision on Thursday is the highlight, where the central bank is widely forecast to increase rates by 0.25% to 4%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX 200 index was closed on Monday due to a public holiday, with expectations of the market opening flat this morning as ASX200 futures are 25 points higher, reversing a similar decline on Monday. In terms of economic data this week, the Westpac consumer confidence survey for June is released at 10:30 AEDT this morning with the highlight of the week employment data for May released on Thursday. Expectations are for 15k jobs to have been added with the unemployment rate remaining unchanged at 3.7%.
Commodities
The price of oil plummeted after Goldman Sachs cut its price forecast for the third time in six months. WTI and Brent Crude fell by -4.30% and -3.89% to $67.15 and $71.88 respectively. Spot gold was down by -0.17% to $1,957, while spot silver slid by -0.99% to $24.05. In industrial metals, copper fell by -0.98% to $375 and SGX Iron Ore sank by -3.3% to $108.87.
Economic Calendar
13th June 2023
Australia Westpac Consumer Confidence (MoM Jun) 10:30
UK Unemployment Rate (YoY April) 16:00
US Inflation Rate (YoY May) 22:30
UK BoE Gov Bailey Speech 00:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
