A week of suspense in the US markets

By Glenn Dyer | More Articles by Glenn Dyer

A week for going nowhere—that was last week. This week, however, it's a week for being on tenterhooks until 8:30 a.m. Washington time, when the last inflation data release of the month is due.

All that suspense will make for a confusing week where it will pay to do nothing until the data sings on Friday. Unfortunately, that will be too late for Australia for the week.

Friday is when the Fed’s favorite inflation measure—the so-called PCE core (and headline) reading—will be released, along with figures on income and spending.

Markets think there will be a slight slowing in the rate of fall, but will that be enough to shrug off the confusion about Fed rate cutting?

The betting in markets is no, so more confusion, with September still the best, but easing favorite for a cut from the central bank.

This week, though, kicks off with the US Memorial Day holiday Monday—no guidance until tomorrow. It’s also the start of America’s driving season—petrol is a bit cheaper than in past seasons at the start, and it is also when traders go away, and the old market adage, "Sell in May and Go Away," starts being mentioned.

Overnight ASX 200 futures trading ignored that adage on Friday night to bid the market up a solid 47 points ahead of the opening today, but that will fade with no lead from the US tonight or tomorrow.

The enthusiasm of the SPI traders came as US markets had a very odd finish to a week that went nowhere, except for Nvidia shares and Nasdaq.

Nvidia shares were up 2.5% on Friday and more than 13% over the week as its market cap climbed past $US2.62 trillion.

That helped the Nasdaq Composite reach a new record, gaining 1.1% to 16,920.8, while the S&P 500 was up 0.7% to 5,304.7.

The Dow, though, was little changed at 39,069.6. For the week, the Nasdaq jumped 1.4%, while the Dow dropped 2.3%. The S&P 500 was almost flat.

In economic news, orders for tangible items (so-called durable goods) with an average life of at least three years increased 0.7% in April from March, much stronger than the 0.8% slide predicted by market economists and analysts.

The forecast fall showed a misreading of the state of business spending and investment and came after the surge in US business activity in Thursday’s first of two surveys of activity, jumping to a two-year high in the month. The US economy is clearly turning up, with strengthening business investment playing a big part.

"Firmer durable goods orders and shipments suggest US business investment remains sturdy," BMO Capital Markets said in a note. "It was the third straight monthly advance, led by most major components, including general machinery and computing gear."

The US 10-year yield fell one basis point to 4.47% Friday, while the two-year rate rose 1.5 basis points to 4.95%.

On Wednesday, minutes from the Federal Reserve's May monetary policy meeting showed that participants indicated the disinflation process was expected to take longer than previously thought.

The minutes pointed to "a growing conversation" around the neutral rate and the potential need for further increases in interest rates, Stifel said in a Friday note. "Overall, Fed speak has become more hawkish as of late given the lack of improvement in inflationary pressures," the brokerage said.

At the meeting, the central bank's Federal Open Market Committee decided to leave its benchmark lending rate unchanged at 5.25% to 5.50% for the sixth meeting in a row.

…Hong Kong stocks led losses in Asia Pacific on Friday after Wall Street tumbled overnight on rate worries, while investors also digested inflation data from Japan.

Hong Kong’s Hang Seng fell 1.71%, while mainland China’s CSI 300 dropped 1.11% to end at 3,601.48.

Japan’s Nikkei index slid 1.17% to end at 38,646.11. Investors assessed April inflation from Japan for clues on the Bank of Japan’s next monetary policy moves.

Japan’s core inflation—which strips out fresh food and energy—eased to 2.2% from 2.6% in March, in line with expectations. Headline inflation slowed to 2.5%, down from March’s 2.7% figure.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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