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Markets mixed ahead of US inflation, Fed decision

Wall Street saw new all-time highs while European and Asian stocks were under pressure on Wednesday and Thursday, respectively, as traders positioned themselves ahead of a data-heavy Wednesday. The Federal Reserve’s thinking should become clearer later in the day with US inflation figures due and a Fed monetary policy announcement set for release late in the day.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
Mixed markets
© Shutterstock

Economists expect just a modest increase of 0.1% in May’s Consumer Price Index (CPI) when compared to the previous month, but that would still amount to an increase of 3.4% when compared to May of 2023. In the evening, the expectations are clearer with the Fed broadly expected to make no changes to interest rates. However, investors will dig through the Fed’s updated economic forecasts and interest rate projections.

All-time highs on Wall Street

Deviations from the market’s CPI expectations and interest rate projections could make for a turbulent trading day on Wednesday, especially considering the success on Wall Street lately. On Tuesday, the tech-heavy Nasdaq-100 and the broad S&P 500 both reached fresh all-time highs. The Nasdaq-100 gained 0.7%, closing at 19,210.19 points. The S&P 500 closed 0.3% higher at 5375.32 points. The Dow Jones Industrial lost 0.3%. Apple stock helped to push stock markets higher, gaining more than 7% to retake a market capitalisation of more than USD 3 trillion. Yields on Treasuries came down slightly on Tuesday with 2-year debt trading around 4.84% and 10-year yields near 4.4%.

Chinese inflation steady, but still weak

The pace of consumer price increases in China remained steady in May while producer prices fell less than in the previous month. CPI increased by 0.3% in May when compared with the year-earlier period, while the Producer Price Index (PPI) fell by 1.4%, a slower rate of deflation than April’s 2.5%. The weak consumer inflation and falling producer prices could put pressure on Beijing to continue with more stimulus measures, which have so far only modestly propped up the Chinese consumer. Hong Kong's Hang Seng Index dropped 1.3%, while the CSI 300 was trading down 0.1%.

Elsewhere in the Asia-Pacific region, the Nikkei 225 was 0.5% lower after Japanese wholesale prices increased 2.4% on the year, which was more than market expectations and the fastest pace in nine months. The Bank of Japan is expected to keep its short-term interest rate target unchanged on Friday. In Australia, the S&P/ASX 200 was trading 0.6% lower and South Korea’s Kospi bucked the trend with a 0.4% gain.

UK labour data unlikely to sway BoE

Unemployment ticked up but wage growth remained strong in the UK, according to data released on Tuesday. Unemployment increased to 4.4% in the three months ending in April, up from 4.3% in the three months ending in March. Wages continued to increase at a rate 5.9% in the three months to April, the same pace as during the three months to March. Wage increases put more money in consumers’ pockets, which can then lead to more spending and inflation. The Bank of England (BoE) publishes its next monetary policy update next Thursday (20 June) and is expected to keep rates at a 16-year high of 5.25%. The major European stock indices were down across the board on Tuesday as investors struggled to interpret the fallout from the weekend’s European Parliament elections, in which far-right parties surged.

US strength bolsters world economic growth forecast

The US economy, which has continued to surprise to the upside throughout 2023 and the first half of 2024, has caused the World Bank to raise its global gross domestic product (GDP) forecast to 2.6% growth for this year. That’s 0.2 percentage points higher than the institution’s last forecast from January. For 2025 and 2026, the World Bank expects 2.7% growth. In the decade prior to the outbreak of the coronavirus in 2020, the global economy averaged 3.1% annual growth.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: German Consumer Price Index, US Consumer Price Index, US Federal Reserve interest rate decision.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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