U.S. Indexes Meander Ahead of Inflation Reports, Global Markets Face Headwinds

Alexander Garcia
08 Jul, 2024
Miami

Inflation takes center stage this week, as the latest updates are likely to show waning price pressures across the economy. 

The S&P 500 index and the Nasdaq Composite traded up after closing at record highs in Friday's trading and extending weekly gains for the fifth week in a row.

Benchmark indexes gained in Monday's trading, and the two widely popular indexes advanced following the gains in the previous sessions. 

The S&P 500 index and the Nasdaq Composite traded up after closing at record highs in Friday's trading and extending weekly gains for the fifth week in a row. 

The two benchmark indexes have barreled through 34 highs this year amid better-than-expected earnings, a supportive economic backdrop, and interest rate-cut expectations. 

Bond traders are still estimating as many as two interest rate cuts of 25 basis points this year, starting as early as September. 

Investors are looking forward to the release of consumer price index and producer price index data for June on Thursday and Friday, respectively. 

Both inflation indexes are expected to rise by 0.1% from the previous month and show waning inflationary pressures, supporting the case for rate cuts. 

Consumer price inflation may be slowing, but prices are still rising, and consumers are fed up with high prices, smaller sizes or portions, and deteriorating quality. 

Moreover, rents and home prices in the top 20 urban areas are up between 60% and 130% from pre-pandemic 2019 levels, and food prices are at least up between 50% and 100% at most grocery stores. 

Fed Chair Powell is scheduled to deliver his semiannual testimony on monetary policy before the U.S. Senate Banking Committee on Tuesday. 

Earnings season kicks off this week with earnings from PepsiCo, and leading banks including JP Morgan, Citigroup, Wells Fargo, and Bank of New York Mellon are set to report.

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.1% to 5,570.92, and the Nasdaq Composite rose 0.3% to 18,411.12.

The yield on 2-year Treasury notes edged lower to 4.63%, 10-year Treasury notes decreased to 4.28%, and 30-year Treasury bonds edged lower to 4.47%.

WTI crude oil decreased $1.15 to $82.22 a barrel, and natural gas prices edged up 2 cents to $2.35 a thermal unit.

Gold decreased by $33.52 to $2,354.55 an ounce, and silver fell 62 cents to $30.58. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 104.93.

 

U.S. Stock Movers 

Boeing Company rose 2.2% to $190.13 after the aviation company agreed to plead guilty to criminal fraud charges and pay a $243.6 million fine. 

In addition, the company agreed to have an independent compliance monitor for three years and invest at least $455 million in compliance and safety programs. 

After several months of negotiations with lawmakers and government regulators, the aviation company agreed it violated its previous agreement reached in the 2021 fatal 747 Max crashes. 

Paramount Global jumped 4.7% to $21.44 after the company agreed to merge with Skydance Media following contentious and protracted merger negotiations over several months. 

 

France Faces Political Gridlock After Left Alliance Wins Big But Lacks Majority 

European markets advanced despite France heading for months of political gridlock after neither party came close to winning a majority seat to form a government after the second phase of the snap election this Sunday. 

The recently formed alliance of left-leaning parties, the New Popular Front, won the largest bloc of seats, winning 182 seats in France's 577-member parliament. 

President Emmanuel Macron's coalition, Ensemble, the centrist alliance, won the second largest bloc with 163 seats, followed by the far-right National Rally Party with 143 seats. 

Any governing party needs at least 289 seats to form the next government. 

France is in uncharted territory as the country has always had a dominant party to form the government, avoiding the need for coalitions among leading parties with different views. 

Two weeks ago, the European Commission said it intends to initiate an excessive deficit procedure against France after the nation failed to keep its deficit under 3% of its gross domestic product limit as required by the European Union. 

Currently, seven of the twelve countries in the European Union that  have breached the 3% limit, including France, Italy, Slovakia, Hungary, Poland, Malta, and Belgium, are likely to face closer scrutiny from the European Commission, which could lead to the European Central Bank suspending countries from its bond buying program. 

 

German Exports and Trade Surplus Expanded In May

On the economic front, Germany's exports declined for the first time in three months in May, data from the Federal Statistical Office, Destatis, showed on Monday. 

Exports declined 3.6% from the previous month to €131.6 billion, and imports fell 6.6% to €106.7 billion, resulting in a trade surplus of €24.9 billion. 

The trade surplus in May jumped to €24.9 billion from €19 billion a year ago. 

Exports to the member states of the European Union decreased by 2.5% to €72.3 billion, and imports from the region fell by 8.9% to €55.7 billion. 

Exports to the U.S., the largest market for German goods, declined 2.9% to €13.8 billion, and to the People's Republic of China, they decreased 10.2% to €7.6 billion. 

Imports from the People's Republic of China, the largest source of imports, rose 1.7% to €13.0 billion, followed by imports from the United States worth 7.9 billion, an increase of 4.6%. 

 

Europe Indexes and Yields

The DAX index increased by 0.1% to 18,488.68; the CAC-40 index fell by 0.6% to 7,627.45; and the FTSE 100 index decreased by 0.1% to 8,193.49. 

The yield on 10-year German bonds edged lower to 2.54%. French bonds inched lower to 3.15%; the UK gilts inched lower to 4.13%; and Italian bonds decreased to 3.92%.

The euro edged lower to $1.08; the British pound inched higher to $1.28; and the U.S. dollar weakened to 89.62 Swiss cents.

Brent crude increased $1.10 to $85.76 a barrel, and the Dutch TTF natural gas fell by €0.83 to €32.18 per MWh.

 

Europe Stock Movers

The French banks rallied after the far-right National Rally Party failed to win a majority in the second round of the snap election on Sunday. 

Credit Agricole, Societe Generale, and BNP Paribas advanced between 1% and 2%. 

Britvic Plc increased 4.6% to 1,265.0 pence after the Danish brewer agreed to acquire the British soft drink maker for £3.3 billion. 

Carlsberg jumped 4.4% to DKK 873.20. 

Marston's PLC jumped 15% to 35.29 pence after the pub and hotel group agreed to sell its 40% stake in the brewing joint venture with Carlsberg. 

HgCapital Trust increased by 0.1% to 485.62 pence after the private equity company sold its remaining stake in the business software company TeamSystem. 

Delivery Hero decreased 5.2% to €19.93 after the German food delivery company said it may face a fine of more than €400 million from the European Union for violating antitrust rules. 

 

Japan's Current Account Surplus Widened and Real Wages Continue to Decline In May

Benchmark indexes in Tokyo turned lower for the second day in a row after real wages declined in May for the 26th month in a row. 

The Nikkei declined 0.3% and the broader Topix dropped more than 0.5% amid interest rate uncertainty and weak consumer sentiment. 

Japan's average nominal wages for full-time workers increased 2.1% to 378,803 yen, and part-time workers rose 3.2% to 108,511 yen. 

Excluding bonuses and incentive pays, average wages increased 2.5% to 263,539 yen, and overtime and other allowances advanced 2.3% to 19441 yen. 

The 5.1% rise in negotiated pay by the workers union at the largest companies during the annual wage negotiation this spring supported the wage gains, but smaller and medium-sized companies raised wages between 2% and 3%, closer to the long-term average over the last decade. 

Cash earnings for an average worker, including base and overtime, increased 1.9% to 297,151 yen or $1,850.

Despite the nominal wage gains, real wages, after adjusting for inflation, decreased 1.4% in May following the revised decline of 1.2% in April, according to the monthly report released on Monday by the Ministry of Health, Labor, and Welfare. 

Meanwhile, Japan's current account surplus rose more than expected in May. 

Current account surplus increased to 2,849.9 billion yen from 2,010.1 billion in the same month a year earlier, the Ministry of Finance reported Monday. 

The current account generated surplus for the 16th month in a row as primary income surplus expanded to 4,211.1 billion yen from 3,726.7 billion in the previous year. 

The goods trade deficit narrowed to 1,108.9 billion yen from 1,199.8 billion yen after exports rose 12.1% and imports advanced 9.3%. 

 

Japan Stock Movers 

The Nikkei 225 stock average decreased 0.3% to 40,780.70, and the Topix Index dropped 0.6% to 2,867.61. 

Tech stocks traded volatile, but artificial intelligence-linked stocks struggled after advancing in the morning session. 

Tokyo Electron, Screen Holdings, Advantest, and SoftBank edged down a fraction. 

Banks were also among the leading decliners in Monday's trading. 

Sumitomo Mitsui, Mizuho Financial, and Mitsubishi UFJ declined between 0.3% and 1.2%. 

Export-linked companies declined for the second week in a row on the looming market intervention to support the yen. 

Kawasaki Kisen Kaisha, Omron, Canon, Hitachi Zosen declined more than 3%. 

Retail stocks declined after advancing for two weeks in a row. 

J. Front Retail, Seven & I, Isetan Mitsukoshi, Takashimaya, and Fast Retailing  traded in a tight range between  a decline of 0.3% and a rise of 1.2%.

 

China Stocks Face Renewed Downward Pressure

Stocks in Hong Kong and Shanghai traded down on Monday after a week of choppy trading. 

The Hang Seng index dropped nearly 2%, and the CSI 300 index declined close to 1% due to persistent economic growth worries. 

The market rally powered by the state-controlled bank intervention lost steam as investors shifted their focus to the upcoming earnings season and a gathering of policymakers. 

Investors are hoping that policymakers may announce significant reforms at the end of the third four-day plenary session of 300 communist party policymakers this week. 

However, hopes are receding for deep and broad reforms because of the central government's lack of financial headroom and weak consumer sentiment. 

The growth in exports has contributed to the economic growth in the current year, but the growth is expected to slow down in the second half as the economies in the U.S. and the European Union are expected to face further headwinds. 

Moreover, rising trade tensions with the European Union are also weighing on market sentiment, and the commerce ministry said it plans to hold an anti-dumping hearing next week for the import of brandy from the region. 

In Europe, the euro edged slightly lower after France's second round of parliamentary elections showed a hung parliament with three major blocks but no clear majority. 

France's newly formed New Popular Front won 182 seats, President Emmanuel Macron's coalition ensemble clinched 168, and the far-right National Rally Party won 143 seats. 

 

China Stock Movers 

The Hang Seng index decreased 1.7% to 17,499.27, and the CSI 300 index dropped 0.7% to 3,408.55. 

Shipping stocks remained under pressure for the second week in a row. 

COSCO Shipping declined 7.2% to HK $12.46, and Orient Overseas dropped 6.4% to HK $120.20. 

Ganfeng Lithium fell 4.7% to HK $15.30 after the mining company said the mainland financial regulator fined the company for insider trading. 

Property developers continued to slide for the second week in a row amid worries of a lack of demand outside the top-tier cities. 

Longfor Group decreased 3.5% to HK $10.74, China Vanke fell 4.5% to HK $4.49, and China Resources Land decreased 3% to HK $26.60.