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US Markets Soar on Falling Inflation
UK Economy Stalls Amid Wet Weather Woes
Federal Reserve Holds Rates, Plans Single Cut in 2024
Energy Commodities Surge, Cotton Dips on Supply Outlook
Market Recap.
As US inflation fell, the US markets made big gains as the Nasdaq 100 ETF (+3.23%) and S&P 500 ETF (+1.70%) showed. The Dow Jones ETF (-0.20%) was muted and the FTSE 100 ETF fell (-0.94%) as traders saw greater upside in more richly priced markets.
News.
The UK economy failed to grow in April after particularly wet weather put off shoppers and slowed down construction. The official data is what most economists had expected and comes after the fastest growth in two years from January to March, ending the recession from the final half of last year.
The economy is a key battleground in the run-up to the general election on 4th July, with the main parties debating whether the latest numbers point to a continued recovery or stagnation.
Geopolitics.
Russian President Vladimir Putin will visit Hanoi this week, highlighting Communist-ruled Vietnam’s loyalty to Russia and triggering a U.S. rebuke. The visit follows Hanoi avoiding a Ukraine peace summit in Switzerland last weekend, while sending its deputy foreign minister to a BRICS meeting in Russia earlier last week.
The United States, which upgraded relations with Hanoi last year and is Vietnam’s top trading partner, reacted harshly. “No country should give Putin a platform to promote his war of aggression and otherwise allow him to normalise his atrocities,” a spokesperson for the U.S. embassy in Hanoi said.
Inflation.
US consumer price inflation (CPI) came in lower than expected in May at 3.30%, raising hopes for an early interest rate cut by the Federal Reserve.
This was lower than the flatline growth economists had predicted. Meanwhile, core inflation, which excludes volatile prices for food and energy, sat at 3.40%, also slightly below the expected 3.50%.
Central Banks.
The Federal Reserve held interest rates steady at their current range of 5.25% to 5.50%, but revised its outlook for rate cuts to just one in 2024. Central bank policymakers noted that there has been “modest further progress” toward its 2.00% inflation objective. Federal Reserve Chair Jerome Powell noted at the press conference that the central bank does not yet have the confidence to cut rates, even as inflation has eased from its peak levels.
Commodities.
The Energy contracts led for the week with Ethanol (+4.77%), Heating Oil (+2.28%) and Brent Crude Oil (+1.41%) out in front as markets gained optimism that the economy would grow thanks to pending rate cuts. The latest EIA report indicated a drop of 656 thousand barrels in heating oil inventories, reversing the previous week’s build.
Cotton fell by 4.42% reflecting a higher supply outlook. In 2024, there was a significant uptick in cotton planting in the US, with an expected 500,000 acres allocated to cultivation, up from 390,000 acres for 2023.
ESG.
Australia-based telecommunications and information services company Telstra has announced that it will no longer be using carbon credits to offset its operational carbon emissions. Instead it will shift to investments in decarbonisation projects to reduce its direct emissions footprint.
In addition to moving away from offsetting, Telstra also announced an increase in its decarbonization goals, raising its scope 1 and 2 carbon emission reduction target to 70% by 2030, from its prior 50% goal, while keeping its 2030 target to reduce Scope 3 emissions by 50% in place.
Week Ahead.
The EU announces its inflation figures on Tuesday, with year-on-year CPI (Consumer Price Index) expected to increase from 2.40% to 2.60%. It’s the turn of the UK on Wednesday, with UK inflation expected to decrease to 2.00% from 2.30%.
On Thursday the Bank of England will announce its interest rate decision with the market expecting rates to be held at 5.25%. And on Friday, the US Federal Reserve will publish its Monetary Policy report, to guide markets on it’s latest train of thought.
