Moving markets today: Asian stocks mixed despite US market surge; oil prices decline, New Zealand central bank keeps rates steady, BOE’s Bailey expects significant drop in April inflation; all eyes on UK CPI, Fed minutes, and Nvidia earnings
US stocks soared to new heights while market volatility hit its lowest point this year. In Asia, stock markets struggled without significant local drivers following the S&P 500’s climb and awaited earnings reports from Nvidia Corp. Oil prices declined for the third consecutive session amid expectations that the Federal Reserve might keep US interest rates elevated due to ongoing inflation, potentially impacting fuel consumption. Gold prices remained steady above $2,400, buoyed by safe-haven demand and anticipation of future interest rate cuts by the US Federal Reserve. Bank of England Governor Andrew Bailey anticipated a substantial drop in April’s inflation data, while the Reserve Bank of New Zealand maintained its cash rate but extended the timeline for potential rate cuts. Federal Reserve officials advised patience regarding the timing of an initial rate reduction. Investors awaited fresh inflation figures from the UK, which could sway the possibility of a rate cut by the Bank of England. The release of minutes from the Federal Reserve’s previous meeting is expected to shed light on future monetary policy decisions. Concerns persisted among economists about potential slowdowns indicated by forward-looking US Purchasing Managers’ Index (PMI) data. Additionally, investors closely monitored Nvidia’s earnings for insights into its continued growth and competitive strength in the AI chip market. Here are five key takeaways for your day.
Bank of England’s Bailey anticipates significant decline in April inflation figures
The Governor of the Bank of England, Andrew Bailey, predicts a notable decline in inflation for April, bringing it closer to the bank’s 2 per cent target. Bailey highlighted his anticipation of a future interest rate cut as the next policy move. He pointed out that the fall in energy prices should contribute to lowering consumer price inflation when the Office for National Statistics releases its April data. Both the Bank of England and economists surveyed by Reuters expect the headline CPI inflation rate to decrease to 2.1 per cent in April, down from 3.2 per cent in March.
New Zealand central bank maintains cash rate at 5.5 per cent
New Zealand’s central bank opted to keep its cash rate unchanged at 5.5 per cent on Wednesday. They emphasized that prior rate hikes had played a role in moderating economic growth and bringing down inflation, though there were concerns about the pace of inflation decline. This decision was in line with what economists expected. Additionally, the central bank postponed the anticipated timeframe for beginning rate cuts until the third quarter of 2025 due to ongoing inflationary trends.
Federal Reserve stresses patience before considering initial rate cut
Federal Reserve officials suggested on Tuesday that the US central bank should hold off for several more months before cutting interest rates to ensure inflation is truly returning to the 2 per cent target. Fed Governor Christopher Waller emphasized the need for several additional months of favorable inflation data before he would support loosening monetary policy. Cleveland Fed President Loretta Mester echoed this cautious approach.
Boston Fed President Susan Collins also stressed the importance of patience during this period. Speaking at the same event, she noted, “The data has been quite mixed, and it will take longer than I previously expected.” She highlighted the need for more consistent and positive data to make informed decisions about future rate cuts. This cautious stance reflects the Fed’s commitment to carefully monitoring economic indicators before making policy changes.
What’s coming up
Market attention will centre on upcoming consumer and producer price data from the UK. The Office for National Statistics is expected to report that the annual growth rate of consumer prices slowed to 2.1 per cent in May, compared to 3.2 per cent in April. However, core CPI is projected to show a smaller decline, from 4.2 per cent to 3.6 per cent.
Later, the US Federal Reserve will publish the minutes from its latest policy meeting. Additionally, data on US existing home sales for April will be released, and traders will watch the results of the latest 20-year US Treasury auction.
Investors will also pay close attention to Nvidia’s earnings to see if the AI chip leader can continue its strong growth and stay ahead of the competition.
Asian equities struggle amid new US market peaks
The Dow Jones Industrial Average edged up by 0.17 per cent, closing at 39,872.99. Meanwhile, the S&P 500 rose by 0.25 per cent to 5,321.41, and the tech-heavy Nasdaq Composite saw a 0.22 per cent increase, finishing at 16,832.62.
These gains came as the Chicago Board Options Exchange’s volatility index (Vix) dropped over 2 per cent during afternoon trading to a low of 11.84, its lowest intraday level. The Vix’s closing value of 11.86 was the lowest it had been since November 2019.
Additionally, US government bond prices slightly increased, causing yields to fall.
In Asia, Japan’s Nikkei 225 dipped by 0.6 per cent. Both S&P 500 and Nasdaq futures showed minor gains. Hong Kong’s stock market saw a boost on Wednesday morning, driven by gains in tech companies listed there. The city’s main index rose by 0.5 per cent, making it the top performer in Asia on a generally quiet day.
Hong Kong’s Hang Seng Tech index went up by 1 per cent, with significant gains from Chinese electric vehicle maker Xpeng, up 13.4 per cent, and computer manufacturer Lenovo, up 11.4 per cent. Small-cap Chinese stocks also improved, with the CSI 2000 index rising by 0.5 per cent after a sluggish start to the year.
The dollar remained steady against the yen at 156.20, due to the potential for Japanese intervention halting its rise.
Gold held steady at $2,424 an ounce after hitting a record high of $2,449.89 earlier in the week.
Oil prices fell amid concerns about the peak US driving season, with demand at its lowest since 2020 and retail prices dropping for four weeks straight. Brent crude decreased by 50 cents to $82.38 a barrel, and the gap over futures narrowed, while US crude fell by 54 cents to $78.12 a barrel.