Global stocks eased on Friday after Federal Reserve officials hinted U.S. interest rates may not fall any time soon, while commodities rallied on the back of optimism over a series of measures in China to stabilise its beleaguered property sector.
Data on Wednesday showed cooling US consumer price inflation, prompting markets to price in at least two rate cuts this year. But the excitement soon fizzled out as the latest report showed the that U.S. labour market remains tight, while central bankers remain cautious about inflation.
Equities are still heading for a gain this week, but have retreated since the U.S. inflation figures. Oil and gold have benefited from the evidence that price pressures have not worsened, while copper is set for its best weekly performance in two months as a shortage of material for immediate delivery has sent prices soaring.
Traders expect roughly two quarter-point cuts from the Fed this year, with November being the most likely starting point.
“Despite inflation cooling first time this year, the Fed are sticking to that chorus of ‘rates need to stay here for some time’,” City Index strategist Fiona Cincotta said.
“That’s really poured a bit of cold water over the rate cut party.”
The MSCI All-World index was last down 0.1%, but still near this week’s record highs, while in Europe, the STOXX 600, which also hit a record peak this week, was down 0.4%.
This week’s data offered the Fed good news on two fronts, but policymakers have not openly shifted views yet about the timing of rate cuts that investors are convinced will start this year.
Monetary policy is “restrictive” and “is in a good place,” Federal Reserve Bank of New York President John Williams said. “I don’t see any indicators now telling me there’s a reason to change the stance of monetary policy now.”
Data on Thursday showed the number of Americans filing new claims for jobless benefits fell last week, indicating that labour market conditions remain fairly tight even as job growth is cooling.
Overnight, the Dow .DJI rose as high as 40,051.05 while the S&P 500 .SPX and Nasdaq .IXIC also hit record highs before gradually losing steam and finishing slightly lower on the day. U.S. futures were down 0.1% ESc1, NQc1.
‘HISTORIC’ STEPS IN CHINA
In Asia, Chinese blue-chips staged a late rally on Friday, after the government unveiled a series of “historic” steps to underpin the property sector, which has lurched from crisis to crisis and weighed on overall economic growth.
Shanghai’s CSI 300 ended up 1%, while Hong Kong’s Hang Seng Index hit its highest since August 2022, up 0.9%.
In the currency markets, the dollar headed for its largest weekly fall versus the euro in 2/1-2 months. The euro was last down 0.1% at $1.0851, but still set for a weekly gain of 0.7%.
The yen weakened 0.3% to 155.87, giving back some of the gains it made after the mild US CPI report earlier in the week.
The Japanese currency has fallen around 9.5% this year as the Bank of Japan has kept monetary policy loose while higher U.S. interest rates have drawn money towards US bonds and the dollar.
Tokyo is suspected to have intervened on at least two days in late April and early May to support the yen after it tumbled to lows last seen more than three decades ago.
“While the weaker US data should benefit low-yielders like the yen, the recent price action suggests the Japanese authorities may have more to do beyond verbal jawboning if they intend to keep speculators at bay,” Nicholas Chia, Asia macro strategist at Standard Chartered, said.
In commodities, oil prices headed for their first weekly gain in three weeks, thanks to signs of improving global demand.
U.S. crude CLc1 was up 0.2% at $79.44 a barrel, while Brent LCOc1, the global benchmark, was up 0.4% at $83.58.
Copper CMCU3, which hit two-year highs this week, was up 0.7% at $10,500 a tonne. Traders are scrambling to get hold of metal to deliver against large short positions on the U.S. market, creating a vacuum in which New York copper prices have hit record highs above $11,000 a tonne.
Gold, meanwhile, was up 0.3% at $2,384 a ounce, and heading for a second straight weekly increase.
(Reuters)
