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    Strong data raise rate hike prospect

    US stocks ended mostly lower on Tuesday as positive economic data provided more evidence in support of a June rate hike by Federal Reserve. The dollar strengthened hitting 18 month high against the yen: live dollar index data indicate the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, ended 0.3% higher at 95.826 with a monthly gain of 3%. The Dow Jones Industrial Average lost 0.5% settling at 17787.13 led by Du Pont and Boeing. The blue chip index gained 0.1% in May. The S&P 500 closed 0.1% lower at 2096.95. Six of ten main sectors finished in negative territory led by energy and materials stocks as oil prices dropped. The broad market index rose 1.5% over month. Data indicated personal spending jumped 1% in April, the biggest increase in more than six years, and the personal consumption expenditure index, the Federal Reserve’s preferred inflation gauge, rose in April 1.1% over year from 0.8% in the prior month. And the 0.9% jump in US house prices in March was bigger than expected. However the Chicago PMI fell below 50 to 49.3 indicating contraction in Chicago area economic activity. The data suggest US economic growth accelerated in the second quarter, and a strong jobs report due this Friday will significantly boost the likelihood of a rate hike at coming Fed meeting in June: currently fed fund futures traders are pricing in 22% probability of a rate hike in June according to CME’s FedWatch tool.

    Today at 13:00 CET Mortgage applications will be released by the Mortgage Bankers’ Associations in US. At 15:45 CET final May Manufacturing PMI will be published. The tentative outlook is neutral. At 16:00 CET May ISM Manufacturing PMI, Prices Paid and Construction Spending for April will be released. The tentative outlook is negative. And at 20:00 CET Federal Reserve Beige Book will be released.

    European stocks ended lower on Tuesday led by automaker stocks. The euro edged lower against the dollar trading at $1.1138 late Tuesday compared with $1.1144 late Monday in New York. The Stoxx Europe 600 fell 0.8% but recorded 1.8% gain in May, the best monthly gain since November. Carmakers retreated after Volkswagen missed forecasts reporting a 20% drop in profit for the first quarter. Volkswagen shares fell 2.6%, Peugeot lost 1%. Germany’s DAX 30 index fell 0.7% to 10262.74, while France’s CAC 40 index lost 0.5%. UK’s FTSE 100 index dropped 0.6%. In economic data euro-zone inflation rose to negative 0.1% in May from negative 0.2% in April with the core reading, which excludes energy and food prices, rising to 0.8% from 0.7%. Euro-zone unemployment remained unchanged at 10.2% in April while unemployment in Germany in May fell to 6.1% . The slight improvement in euro-zone inflation was in line with forecasts, and the European Central Bank is not expected to further ease monetary policy at its Thursday meeting. Today at 10:30 CET May Manufacturing PMI will be released in UK. The tentative outlook is positive.

    Asian stocks are retreating today with materials stocks following oil’s lead. Nikkei ended 1.6% lower today after advancing for five straight sessions. Exporter shares fell as yen strengthened against the dollar, the stronger currency making their products less competitive in overseas markets. Toyota shares lost 0.5%, Honda lost 2.2%. Prime Minister Shinzo Abe told lawmakers today he has decided to delay a scheduled sales tax hike from 8% to 10% by two-and-a-half years amid data showing manufacturing activity in May contracted by the most in more than three years as new orders slumped.

    Oil futures prices are extending losses today on the prospect of rising output from the Organization of the Petroleum Exporting Countries (OPEC). Prices fell below $50 per barrel yesterday with July Brent crude closing 0.1% lower at $49.69 a barrel on London’s ICE Futures exchange on the contract’s expiration day. Analysts don’t expect major oil producers reaching any formal agreement on output cut at OPECs biannual meeting this Thursday in Vienna on the backdrop of rising supplies to Asia by several Middle East producers as they compete for market share.

    Gold is steady today following an 0.8% gain in spot gold on Tuesday even as the dollar strengthened and strong economic data supported the case for a Federal Reserve rate hike in coming months. The safe haven metal ended May with 6% decline on higher expectations of a rate hike after the release of surprisingly hawkish minutes of FOMC April meeting.

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