Solid jobs and manufacturing data are prompting bets on a so-called ‘Goldilocks’ outcome for U.S. stocks as the Fed looks to tame inflation without choking-off growth.
U.S. equity futures moved higher Monday, while the dollar eased modestly against its global peers, as investors headed into a week bereft of earnings and economic data focused firm on inflation prospects in the world’s biggest economy.
Surging crude, alongside ongoing supply-chain disruptions and higher food prices, continues to add upward pressure to global inflation readings, with G-7 average now sitting at a record high of 9.2%.
In the U.S., however, broader economic growth continues to surprise to the upside even in the face of the fastest inflation in forty years, with last week’s May jobs report showing a small moderation in monthly wage gains amid a bigger-than-expected 390,000 increase in headline employment. ISM data also noted a faster-than-forecast pace for manufacturing activity last month.
Those readings have given rise to bets that the Federal Reserve can ‘thread the needle’ in terms of lifting rates high enough to snuff out inflation, but not so high as to choke-off economic growth.
With the Fed set for its June policy meeting beginning on June 12, the Commerce Department’s May CPI reading offers policymakers a final look at inflation momentum as they ponder the impact of successive rate hikes on both consumer price dynamics and the broader economy.
Analysts are looking for a headline reading of 8.3%, essentially unchanged from April, with modestly moderating core prices on both a monthly and annual basis.
The CME Group’s FedWatch tool still suggests a 94.2% chance of a 50 basis point rate hike next week, which would take the Fed’s target rate to a range of 1.25% to 1.5%, with traders then wondering if inflation will pressures will accelerate — leading to bigger hikes in the near-term — or moderate, giving rise to the prospect of a ‘pause’ in Fed move later this fall.
Weekend comments from Commerce Secretary Gina Raimondo, who suggested President Joe Biden could remove some Trump-era tariffs on China-made imports, added a tailwind to sentiment, although a much weaker-than-expected reading for services sector growth in the world’s second largest economy, which is still suffering the effects of Beijing’s ‘Zero Covid’ lockdown policies.
China shares got a boost, however, on renewed bets of fresh stimulus from Beijing, helping the region-wide MSCI ex-Japan benchmark to a 0.77% gain heading into the close of trading. Japan’s Nikkei 225 closed 0.56% higher, paced by the energy sector, at 27,985.89 points.
In Europe, the region-wide Stoxx 600 gained 0.86% by mid-day trading in Frankfurt while Britain’s FTSE 100 was marked 0.98% higher despite news of a ‘no-confidence’ vote on the leadership of Prime Minister Boris Johnson.
Johnson, who represents Britain’s Conservative Party, was told today that more than 54 Parliamentary colleagues had signed a letter seeking his removal, a level which tops the threshold needed for a vote of ‘no-confidence’ from elected party members.
In order to remain in office, Johnson needs the support of at least 50% of Conservative lawmakers, plus one, setting a threshold of 180 votes. If he gains those votes, he cannot be challenged for at least another year, if he loses, he could be removed from office following a leadership contest.
In the U.S., benchmark 10-year Treasury notes yields crept higher, to 2.961%, during European trading hours while the dollar index, which tracks the greenback against a basket of its global peers, was marked 0.28% lower at 101.855 points.
On Wall Street, futures contracts tied to the Dow Jones Industrial Average are indicating a 280 point opening bell advance while those linked the S&P 500, which is down 13.8% for the year, are priced for a 45 point move to the upside. Futures linked to the Nasdaq are looking at 185 point opening bell gain.
Tesla (TSLA) – Get Tesla Inc Report shares were active once again in pre-market trading, rising 3.8%, after CEO Elon Musk appeared to reverse course over the weekend on her earlier warning of job cuts at the clean-energy carmaker.
Amazon (AMZN) – Get Amazon.com, Inc. Report shares were also in the green, rising 1.4% ahead of their first day of trading following last week’s stock 20-for-1 stock split, which will likely see an opening bell price of $124.17 each.
Eli Lilly (LLY) – Get Eli Lilly and Company Report shares also moved higher after the drugmaker published final data from a major clinical trial that showed a reduction in heart failure risk for patients with type-2 diabetes.