Moving markets today: Asian markets slide on inflation fears; oil prices climb, IMF boosts China growth forecast, Australia inflation surge; investors eye Fedspeak and Beige Book
US stocks closed higher on Tuesday, marking a positive start to the shortened holiday week. However, the mood shifted in most Asian markets on Wednesday as concerns over persistent inflation weighed heavily. There’s apprehension that central banks might need to maintain high interest rates for an extended period to curb inflation. On the other hand, oil prices climbed as expectations grew that major producers would uphold their output cuts. Conversely, gold prices dipped slightly as speculation waned regarding potential rate cuts by the US. The International Monetary Fund (IMF) upgraded its growth forecast for China, indicating optimism about its economic prospects. The recent surge in April’s inflation figures may lead the Reserve Bank of Australia (RBA) to extend its pause on rate adjustments. Throughout the week, investors will closely monitor speeches by top Federal Reserve officials, while anticipation builds for the release of the PCE price index on Friday, a key event influencing market sentiment. Here are five key takeaways for your day.
IMF upgrades China growth forecast
The International Monetary Fund (IMF) has boosted its outlook for China’s economic growth for this year, signalling a positive trend. However, it cautioned that China should reconsider certain industrial policies that could have implications for its trading partners and focus more on bolstering domestic demand.
Following its regular assessment of China’s economic health, IMF experts announced an upward revision in the forecast for gross domestic product (GDP) growth in 2024 to 5 per cent, up from the previous estimate of 4.6 per cent. Additionally, the IMF raised its projection for 2025 to 4.5 per cent, compared to the earlier forecast of 4.1 per cent.
This change in forecast was attributed to robust growth in the first quarter and recent policy initiatives by Beijing aimed at stimulating the economy, particularly in response to the lingering impacts of a significant property market downturn.
Australia’s April inflation surge may prompt RBA to extend rate pause
Australia faced a challenge in its efforts to control inflation, as April’s consumer price index (CPI) rose more than expected. The CPI hit 3.6 per cent, exceeding the 3.4 per cent forecast by economists and up from March’s 3.5 per cent. The increase was driven by higher costs for rent, alcohol, and transportation.
Given this stubborn inflation, the Reserve Bank of Australia is unlikely to cut interest rates this year. In fact, some economists now believe the central bank may need to raise rates. Additionally, the recently released Australian budget includes relief measures for energy and rent, which could potentially add to inflation pressures.
Oil prices surge on hopes of sustained production cuts by OPEC+
Oil prices saw an uptick as traders anticipated that leading producers would continue their production cuts at a meeting this Sunday, just as the peak summer season is expected to drive up fuel demand. Brent crude futures for July went up by 0.23 per cent, reaching $84.41 per barrel, while US West Texas Intermediate futures for July increased by 0.39 per cent, hitting $80.14 per barrel.
Market analysts and traders expect OPEC and its allies, including Russia, collectively known as OPEC+, to maintain their voluntary production cuts, which amount to about 2.2 million barrels per day.
What’s coming up
This week promises a steady stream of economic data releases. Highlights include the revised first-quarter GDP figures for the US on Thursday and the fourth-quarter GDP figures for India on Friday. Additionally, the core personal consumption expenditure (PCE) price index for April, the US Fed’s preferred measure of inflation, will be released on Friday, May 31.
Christopher Williams, the New York Fed president, will be giving a speech, which will be followed by a talk from Raphael Bostic, his counterpart at the Atlanta Fed. Between their speeches, the Federal Reserve will release its latest Beige Book, a collection of anecdotal reports on the economy published about two weeks before each policy meeting.
In Europe, the consultancy GfK will publish its consumer confidence survey results for Germany for June, and the euro area’s M3 money supply figures for April will be announced.
No significant economic reports are expected from the UK this week.
Asian markets drop amid inflation concerns
US stock markets experienced mixed movements, with the Dow Jones Industrial Average dipping by 0.55 per cent while the S&P 500 saw a slight uptick of 0.02 per cent, and the Nasdaq Composite gained 0.59 per cent. Tech stocks in the S&P 500 led the gains, while healthcare and industrials sectors faced declines.
In Asia, US stock index futures remained stable. Most tech groups, except Tesla, ended the day on a positive note. Nvidia’s strong performance boosted chip stocks, pushing the semiconductor index up by 1.9 per cent.
Apple initially saw a rise in shares due to a surge in iPhone sales in China, but gains were later pared. GameStop’s shares surged after the company announced a significant capital raise. Hess shareholders approved a merger with Chevron, leading to positive movements in their respective shares.
Australia’s ASX 200 index dropped by 1.2 per cent following inflation data release. Japanese stocks were impacted by mixed signals from the Bank of Japan, resulting in declines for the Nikkei 225 and TOPIX indexes. South Korea’s KOSPI also fell, while Indian markets indicated a negative start.
Hong Kong’s Hang Seng index declined due to profit-taking in tech stocks, offsetting gains in the property sector. Conversely, Chinese stocks rose with additional support for the property market, reflected in gains for the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes.
Gold prices decreased as investors adjusted their expectations for US Federal Reserve rate cuts. Traders awaited key US inflation data later in the week.