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Ahead in U.S. and Global Markets
U.S. tech-led Wall Street stocks have reached fresh highs, with expectations of rebounding retail sales and calmer European markets. The performance of U.S. tech giants, driven by the AI theme, has pushed the Nasdaq to nearly 20% gains this year, surpassing the S&P 500 by over 4%. Meanwhile, the equal-weighted S&P index saw a modest 3.3% increase in 2024. This economic buoyancy is likely to be highlighted by upcoming retail and industry updates for May, following a sluggish April.
The New York Fed’s 'Empire State' business survey indicated business improvement in May, with a slow down in prices paid by firms and employment readings. This supports the Federal Reserve's forecast of just one interest rate cut this year, pushing futures markets to adjust their expectations to 44 basis points of easing for the full year. Philadelphia Fed President Patrick Harker echoed this sentiment, suggesting one rate cut might be fitting by year-end. A host of Fed speakers will reveal if others share this view.
As a result, U.S. Treasury yields have risen again, particularly with a 20-year bond auction on Tuesday. Ten-year yields moved back above 4.30%, and the dollar strengthened. Part of this yield reversal is attributed to eased sovereign debt tensions in the euro zone, with French government yield premiums decreasing for the second day as euro zone equities rose. The spread over German bonds widened due to political uncertainties in France, although the overall rise in French debt yields was minimal.
As the French election campaign begins, there is a cautious ‘wait and see’ approach due to varied potential outcomes and the European Central Bank's (ECB) anticipated reaction. Robust euro zone wage growth has prompted caution from the ECB regarding a second rate cut this year. Despite the ECB’s downplay of direct bond market stabilization, there are risks of significant impacts on French banks' stock prices, potentially affecting bank credit growth and increasing pressure for easing measures.
Cautious Central Bank Stances
In Asia, stock markets also benefited from global tech enthusiasm, but displayed caution in central banking. The Reserve Bank of Australia maintained its key interest rate at a 12-year high of 4.35% for the fifth consecutive meeting, emphasizing vigilance on inflation. The Australian dollar remained steady, and a potential rate cut is expected only next year. Meanwhile, the dollar/yen pair continued to rise, with Bank of Japan Governor Kazuo Ueda hinting at possible interest rate hikes, contingent on forthcoming economic data.
Back on Wall Street, tech titans like Apple, Nvidia, and Microsoft continue to vie for the title of the world's most valuable company. In corporate news, Apple announced it will discontinue its "buy now, pay later" service in the U.S., introducing a new loan program linked to Apple Pay. Conversely, U.S. electric vehicle maker Fisker filed for bankruptcy protection, aiming to sell assets and restructure debt due to high cash burn in delivering its "Ocean" SUVs in the U.S. and Europe.
Key Developments To Watch
Key developments to watch later on Tuesday include U.S. May retail sales, May industrial production, April business/retail inventories, April TIC data on Treasury holdings, and multiple speeches from Federal Reserve officials. Additionally, the U.S. Treasury will auction 20-year bonds.
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