European Stocks Rebound Before US Inflation
European stocks experienced a rebound after days of political uncertainty in France, as traders braced for potential market disruption ahead of crucial US inflation data and the Federal Reserve's interest rate decision.
Market Movement:
The Stoxx 600 saw a 0.5% increase, led by banks, marking a turnaround from three consecutive sessions of losses. Meanwhile, the euro remained stable, and Treasury bonds showed minimal movement after a successful $39 billion sale. Additionally, French 10-year bonds halted a four-day decline.
US Market Outlook:
The dollar maintained its strength after four consecutive days of gains, while US stock futures showed a slight increase following the S&P 500's recent record-setting close.
Subsiding Volatility:
Volatility in European assets appears to be calming down after investors were off guard by the far-right's gains in the European Parliament elections. However, this tranquility may be short-lived, given the impending release of US CPI data and Fed rate forecasts.
Anticipation for Fed Announcement:
Analysts highlight the significance of the day, with US economic data and the Federal Reserve's decision likely to set the tone for global markets in the coming weeks and months. The focus is particularly on the Fed's quarterly rate projections, known as the "dot plot."
Market Expectations:
Expectations for the Fed's decision vary, with analysts suggesting that the new dot plot may indicate fewer rate cuts than previously anticipated. Bloomberg Economics forecasts two 25-basis-point cuts this year, compared to three in the March version, citing potential reassurance from the May CPI data indicating a slowdown in inflation.
Global Concerns:
In Asia, Hong Kong's equity benchmark experienced a decline of over 1%, while China's consumer price gains remained above zero in May. However, concerns persist over factory-gate prices remaining stuck in deflation, signaling ongoing challenges with weak demand. Additionally, the Biden administration is reportedly considering further restrictions on China's access to chip technology for artificial intelligence.
