Market Watch:- Dow futures contract slip by 112 points, S&P 500 futures fall 16 points, and Nasdaq 100 futures fall 42 points.
The March inflation report has lowered June rate cut expectations, prompting traders to await producer prices reports, the European Central Bank’s latest rate-setting meeting, and the start of the earnings season.
Inflation data and rate cuts
The March consumer inflation report has shattered Federal Reserve rate cut expectations, with a reduction in June now appearing increasingly unlikely. The annualized reading of the consumer price index increased by 3.5% last month, above the expected 3.4%. The year-on-year core figure remained at an elevated 3.8%, against expectations for a decline. This has led to futures markets pricing in just 40 basis points of cuts this year, compared to 150 basis points at the start of 2024.
Goldman Sachs has pushed back its forecast of the first rate cut from June to July, implying two cuts in 2024 in July and November. UBS is even more pessimistic, looking for the first cut to come in September. The data should be particularly troubling for the Fed, as they have been predicting that it would not be appropriate to cut rates until they gained further confidence that inflation was moving sustainably toward their 2% target.
ECB rate cut
The European Central Bank (ECB) is expected to maintain a record high of borrowing costs during its rate-setting meeting. However, due to rapid inflation and economic weakness, analysts are awaiting President Christine Lagarde’s press conference to confirm a possible June rate cut. Analysts predict the first cut in June.
Bank Earnings soon
The corporate earnings season begins on Friday with major banks releasing their first-quarter numbers. Analysts expect a 5% earnings growth in the first quarter, the lowest since 2023. Delta Air Lines forecasts a strong profit and Wells Fargo lifts the S&P 500 price target to 5535, indicating an upside potential of over 6%. Moderation of Fed expectations is believed to maintain the status quo for large caps, the Growth/Secular AI trade, and Momentum.
Economic Calendar
- 8:30 Initial Jobless Claims
- 8:30 Producer Price Index
- 8:45 Fed’s Williams Speech
- 10:30 EIA Natural Gas Inventory
- 12:00 PM Fed’s Collins Speech
- 1:00 PM Results of $22B, 30-Year Bond Auction
- 1:30 PM Fed’s Bostic Speech
- 4:30 PM Fed Balance Sheet
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MFitch Ratings has downgraded China’s credit rating outlook to “Negative” from “Stable” due to concerns over growing public debt and slowing growth in the world’s second-largest economy. The agency affirmed China’s rating at A+, citing increasing risks to China’s public finance outlook. Concerns over slowing economic growth have grown in recent months, with Fitch expecting gross domestic product growth to fall to 4.5% in 2024.
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U.S. inflation data for February is expected to provide insights into the future direction of Federal Reserve monetary policy. The overall consumer price index (CPI) is expected to match the previous month’s pace of 3.1% annually, with the core CPI expected to slow to 3.7% from 3.9% in January. However, the month-on-month gauge is expected to shed light on price gains momentum.
Fed officials have made cooling inflation the main objective of interest rate hikes, which have brought borrowing costs to over two-decade highs. They suggest cuts may be coming later this year, but need more evidence that price growth is sustainablely easing back down to their 2% annualized target. Analysts at ING believe inflation is likely too hot for comfort.
U.S. inflation data for February is expected to provide insights into the future direction of Federal Reserve monetary policy. The overall consumer price index (CPI) is expected to match the previous month’s pace of 3.1% annually, with the core CPI expected to slow to 3.7% from 3.9% in January. However, the month-on-month gauge is expected to shed light on price gains momentum.
Fed officials have made cooling inflation the main objective of interest rate hikes, which have brought borrowing costs to over two-decade highs. They suggest cuts may be coming later this year, but need more evidence that price growth is sustainablely easing back down to their 2% annualized target. Analysts at ING believe inflation is likely too hot for comfort.