US equities climbed on Wednesday while bond yields fell as inflation in May cooled more than expected, offsetting more hawkish forecasts from Fed officials.
United States
For the month of May, headline prices were unchanged versus expectations of a 0.1% gain while core prices rose 0.2%, also below the 0.3% forecast. Over the year, headline prices rose 3.3% moderating from 3.4% while core prices eased to 3.4% from 3.6%. Investors welcomed the data, with bond yields tumbling before paring back their declines after Fed officials kept interest rates unchanged while signalling they expect fewer rate cuts.
US Inflation (YoY %)
While swaps still point to two rate cuts in November and December, Fed officials are less optimistic, forecasting just one rate cut in 2024, down from two previously. In the post meeting press conference, Fed chair Jerome Powell noted “The most-recent inflation readings have been more favorable than earlier in the year, however, and there has been modest further progress toward our inflation objective”.
The S&P5000 advanced 0.85% along with the Nasdaq Composite 1.53% and Russell 2000 1.62% while the Dow Jones was -0.09% lower along with the VIX -6.3% to 12.04. The 2-yyear bond yield declined -8.2 basis points to 4.752% paring back a larger decline of as much as 16.8 basis points in reaction to the inflation data. Both the 10 and 30-year rates were -8.8 and -6.1 basis points lower respectively.
Europe
European equities also rose, with sentiment boosted by the US inflation data. The Euro Stoxx 600 climbed 1.08% along with the DAX 1.42%, CAC 0.97% and FTSE100 0.83%. In economic data, UK GDP for the 3 months to April rose 0.7% as forecast, up from 0.6% previously, while expanding 0.6% over the 12 months.
Australia
The ASX is expected to rise this morning, with ASX200 futures up 52 points or 0.67% to 7,782. The index declined -0.51% on Wednesday with all sectors but energy (1.01%) lower. Woodside Energy was a notable performer, benefiting from both a broker upgrade and higher oil prices, with shares rising 2.6%. Bapcor rose 1%, extending a 14% gain from Tuesday amid a takeover offer from Bain Capital. In focus for investors today are the latest employment figures for May, expected to show 40k jobs were added in the month, and the unemployment rate moderate to 4% from 4.1% previously.
Commodities
Oil prices rose overnight with both WTI and Brent crude up 0.77% and 0.74% respectively to US$78.50 and US$82.53 a barrel. Iron ore futures in Singapore rebounded 0.89% on Wednesday and are up a further 1.45% this morning at US$106.15 with copper also 1.26% higher. Gold is 0.34% higher at US$2,324 an oz benefiting from a decline in bond yields, silver advanced 1.53% along with Bitcoin 1.19%.
Economic Calendar
Australian Consumer Confidence (MoM Jun) 10:30
Australian Employment (MoM May) 11:30
US Producer Prices (MoM May) 22:30
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.
