World and U.S. stocks reached record highs on Wednesday, boosting market sentiment. The minutes of the Federal Reserve's June policy meeting echoed Fed Chair Jerome Powell's remarks that price pressures are cooling. However, the majority of participants believe that U.S. economic activity is also cooling, supported by disappointing service sector data and a downward revision to the Atlanta Fed's GDP growth tracker. The global backdrop looks positive as stocks rose, the USD weakened, and Treasury yields fell. Asian markets, however, may experience higher volatility and outsized moves due to lighter trading volumes caused by the July 4 U.S. holiday. Currency traders will be closely monitoring the yen for sharp moves and potential intervention by Japan to prevent further depreciation. The yen hit a fresh 38-year low against the dollar on Wednesday. Japanese bonds are also selling off, with the 10-year JGB yield reaching 1.10% and the spread over the two-year JGB yield widening to 75 basis points. Thursday's economic calendar is light, with only Hong Kong PMI and Australian trade data scheduled for release. On Friday, there will be several important economic releases, including inflation data from Taiwan, Thailand, and the Philippines, current account data from South Korea, retail sales figures from Singapore, and household spending numbers from Japan. The tone was set by the softer than expected economic data coming out of the US, which supports the case for rate cuts in coming months. European central bank officials also signaled that two more cuts this year seemed “reasonable”. US and European markets finished firmly in the green, with the S&P 500 notching up a fresh record high. The Aussie appreciated, climbing to its highest level since early January this year. US bond yields were lower, while the US dollar also lost ground. The prices of key commodities were generally higher, with oil and gold both lower. Retail sales rose 0.6% in May, coming in better than the consensus and Westpac forecast of a 0.3% lift. The total number of dwellings approved rose 5.5% in May, after an upwardly revised 1.9% rise in April. Producer prices declined 4.2% in May in the Eurozone. The Caixin China Services PMI declined to 51.2 points in June from 54.0 points in May. The ISM non-manufacturing index declined 5 points to 53.8 points in June from 48.8 points in May. Factory orders declined 0.5% in May. The minutes from the Fed’s FOMC June meeting were released, with most officials viewing the economy as “gradually cooling” [fc27a5dc].
Investor sentiment about the short-term outlook for the stock market improved this week, as recent economic data stoked hopes of interest rate cuts. According to the American Association of Individual Investors (AAII) Sentiment survey, 26.1% of respondents think the market will trend down in the next six months, compared to 28.3% last week. Neutral sentiment also increased, with 32.2% of investors seeing no change in the market direction. The May personal consumption expenditures (PCE) price index, considered the Federal Reserve's preferred inflation gauge, provided some relief to market participants. Fed Chair Jerome Powell's statement on inflation also calmed sentiments. However, weak earnings by some heavyweight stocks led to a decrease in the number of investors feeling optimistic about the short-term outlook for the stock market. 41.7% of respondents showed optimism about where the market is headed in the next six months, compared to 44.5% last week. Both bullish and neutral figures were above the historical averages [46556ae4]. Share markets mostly rose over the last week, with US shares buoyed by increasing confidence in Fed rate cuts this year and strength in tech stocks, Eurozone shares boosted by reduced fears about the outcome of the French election and Japanese shares rebounding to a new high after a consolidation since March. Chinese shares fell though. Reflecting the positive global lead Australian shares rose around 0.6% driven by resources and property shares but other sectors fell. Bond yields were mixed – down in the US and much of Europe, but up in Germany, Japan and Australia. Oil, metal and iron ore prices rose as did the $A and the $US fell. Expect a rougher more constrained ride from shares, but with a still rising trend over the next 12 months. The bad news is that shares are offering a low risk premium over bonds, investor sentiment is elevated (but at least not euphoric), US shares are increasingly relying on a narrow group of AI/tech stocks, the key US economy seems to be slowing rapidly (the Atlanta Fed’s GDPNow estimate for June quarter growth has plunged from 4.2% annualised to just 1.5% since mid-May) risking recession which would be bad for earnings expectations and geopolitical uncertainty is on the rise again with the French election, the US election and ongoing issues in the Middle East and Ukraine. This risks a deeper correction in the seasonally weak August/September period and more volatility. The good news though is that central banks are getting back on track for more rate cuts which should boost growth expectations for 2025-26 and lower bond yields ultimately supporting share returns. [e4e1570c]
Wall Street reached new record highs this week as weaker US economic data pointed towards slowing US growth prospects, increasing the likelihood of a September rate cut by the Federal Reserve. The US 2Q earnings season will kick off next week with major banks' results in focus. Australia's consumer confidence, China's inflation rate, and the US consumer price index (CPI) will also be important indicators to watch. The preliminary expectation is for headline inflation to fall to 3.1% YoY from 3.3% prior, and core inflation is expected to remain stable at 3.4% YoY. The rates market is currently pricing in 19 bp of rate cuts for September and 48 bp of Fed rate cuts before year-end. U.S. inflation data for June will be closely watched as investors look for signs of whether the Federal Reserve will start cutting interest rates. In Europe, attention will be on the aftermath of elections in France and the U.K., as well as inflation figures from various eurozone countries. Central bank decisions and Chinese economic activity data will be in the spotlight in Asia markets. Other key releases include Mexico and Brazil inflation figures, German and French inflation data, and New Zealand's Reserve Bank policy meeting. [8cb089ad]