Global stocks are poised for a subdued end to the week after a seven-week streak of gains, reacting to higher-than-expected U.S. inflation figures that temper expectations for Federal Reserve interest rate cuts.
The MSCI’s global equity index remains flat, reflecting the market’s cautious stance following a robust performance in the first quarter. The dollar strengthened slightly, with the dollar index rising to 103.45, bolstered by Thursday’s rally, marking its best week since January.
This uptick follows concerns over inflationary pressures fueled by a significant rise in producer prices, heightening apprehensions about future Fed policy actions.
Traders have adjusted their expectations, lowering the probability of Fed rate cuts in June from 67% to 60%, according to LSEG’s rate probability app. Furthermore, market projections for rate cuts throughout 2024 have dwindled, signaling a shift in sentiment from earlier anticipations of more aggressive monetary easing.
The upward trend in U.S. benchmark bond yields, hovering near 4.3%, exerts pressure on technology shares, leading to declines in European and Asian tech indexes.
Investors perceive higher bond yields as potentially hampering the growth prospects of tech companies by increasing borrowing costs and reducing the appeal of speculative equities.
Kyle Rodda notes the persistence of price pressures, prolonging disinflation and casting doubts on the sustainability of the tech-driven market rally.
This sentiment contributes to declines in global markets, with Hong Kong’s Hang Seng Index and South Korea‘s Kospi experiencing significant losses.
Attention shifts to Japan, where speculation mounts regarding a potential shift in the Bank of Japan’s ultra-dovish monetary policies. Reports suggest the central bank may consider ending its negative interest rate policy, with Finance Minister Shunichi Suzuki indicating that Japan is no longer in a deflationary environment.
Amidst market uncertainties, oil prices undergo profit-taking after recent gains, influenced by declines in U.S. crude and fuel inventories, drone strikes on Russian refineries, and revised energy demand forecasts. Meanwhile, Bitcoin retraces from its all-time high as risk sentiment wavers.