WTI oil declines on rising inventories and negotiations between Israel and Hamas. Rising unemployment in New Zealand may force RBNZ to start cutting rates earlier :: InvestMacro

By JustMarkets

At the end of Tuesday, the Dow Jones Index (US30) decreased by 1.49%, while the S&P 500 index (US500) was down 1.57%. The NASDAQ Technology Index (US100) closed negative 2.04% yesterday. Rising labor costs pushed bond yields higher and pressured stocks. The US Employment Cost Index for the first quarter rose more than expected, which is hawkish for Fed policy.

The US Federal Reserve will hold its next monetary policy meeting today. The rate is expected to be kept at 5.5% at this meeting, so traders will focus on the FOMC statement and Jerome Powell’s press conference. Higher inflation and strong activity and employment figures have led to a shift in market expectations regarding the timing of the first interest rate cut. Markets now forecast a rate cut of 3 bps by June, 20 bps by September, and 36 bps by December. This is a striking change considering that just three months ago the market was fully discounting 150 bps of rate cuts this year from the March FOMC meeting. So if Jerome Powell announces that the rate cuts have been pushed to late summer or fall/winter, that would be a major support for the US dollar and a negative for indices and precious metals.

Amazon (AMZN) reported strong first-quarter results Tuesday, led by growth in its cloud computing division and new advertising dollars from its Prime Video streaming service. Shares of Amazon.com Inc. rose about 2% in after-hours trading.

Equity markets in Europe were mostly down on Tuesday. The German DAX (DE40) fell by 1.03%, the French CAC 40 (FR40) closed down 0.99% yesterday, the Spanish IBEX 35 (ES35) decreased by 2.22%, and the British FTSE 100 (UK100) closed negative 0.04%.

The Eurozone inflation report showed a decline in the core index (excluding volatile food and energy prices) for April to a 2-year low of 2.7% y/y, which is dovish for ECB policy. ECB Governing Council spokesman Villeroy de Galhau said that Eurozone inflation data for April gives the ECB the confidence to start cutting interest rates in June. Eurozone Q1 GDP grew by 0.3% QoQ and 0.4% YoY, stronger than expectations of 0.1% QoQ and 0.2% YoY. Swaps estimate the odds of a 25 bps ECB rate cut at the next meeting on June 6 at 87%.

WTI crude oil prices fell towards $81/bbl on Wednesday, declining for the third consecutive session as an industry report pointed to a sharp rise in US crude inventories, while hopes of a ceasefire agreement in the Middle East continued to weigh on oil prices. API data showed that US crude inventories rose by 4.906 million barrels last week after declining by 3.23 million barrels the previous week, the biggest increase since mid-March. On Tuesday, the US EIA also reported that US oil production rose to 13.15 million barrels per day in February from 12.58 barrels per day in January, the biggest monthly increase in 3.5 years.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) rose by 1.24%, China’s FTSE China A50 (CHA50) was down 0.18%, Hong Kong’s Hang Seng (HK50) was up 0.09% for Tuesday, and Australia’s ASX 200 (AU200) was positive 0.35%.

New Zealand’s unemployment rate rose to 4.3% in the first quarter, exceeding forecasts and the highest in three years, while employment unexpectedly fell by 0.2%, putting the Reserve Bank of New Zealand (RBNZ) on track to cut interest rates ahead of the US Federal Reserve. Investors are betting on a fourth-quarter RBNZ rate cut, although some expect the official money rate to remain unchanged until 2025.

Judo Bank Flash Australian manufacturing PMI rose to 49.6 in April from 47.3 a month earlier, according to the final estimate. This was the third consecutive monthly deterioration in conditions in the manufacturing sector, albeit slight. New orders for goods continued to fall, attributed to subdued market conditions and the impact of higher interest rates.

S&P 500 (US500) 5,035.69 −80.48 (−1.57%)

Dow Jones (US30) 37,815.92 −570.17 (−1.49%)

DAX (DE40) 17,932.17 −186.15 (−1.03%)

FTSE 100 (UK100) 8,144.13 −2.90 (−0.04%)

USD Index 106.26 +0.68 (+0.64%)

Important events today:

• – New Zealand RBNZ Financial Stability Report at 00:00 (GMT+3);
• – New Zealand Unemployment Rate (m/m) at 01:45 (GMT+3);
• – New Zealand RBNZ Gov Orr Speaks at 04:00 (GMT+3);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• – US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
• – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
• – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3);
• – US JOLTs Job Openings (m/m) at 17:00 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – US FOMC Statement at 21:00 (GMT+3);
• – US Fed Interest Rate Decision at 21:00 (GMT+3);
• – US FOMC Press Conference at 21:30 (GMT+3);
• – Canada BoC Gov Macklem Speaks at 23:15 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.