Investor Sentiment Mixed as US Stock Market Awaits Fed Meeting and Inflation Data | Daily Market Analysis

Key events:

• USA - Initial Jobless Claims    

Investor sentiment was mixed in the US stock market as market participants awaited the upcoming Federal Reserve meeting and new information regarding inflation. The Dow Jones Industrial Average edged up by 27 points or 0.1%, while the S&P 500 declined by 0.1%, and the NASDAQ Composite dropped by 0.5%.

As earnings season winds down, investors are now focusing on the Federal Reserve's upcoming interest rate decision scheduled for the following week. In terms of economic data, the trade deficit increased in April, although the rise was not as substantial as anticipated.

Treasury Secretary Janet Yellen, in an interview with CNBC, stated that she would not be surprised to witness more bank mergers. Additionally, the Federal Reserve is expected to announce the results of its latest stress test on the 23 largest banks. Simultaneously, there are expectations that regulatory bodies will tighten capital standards for banks.

The Federal Reserve's meeting is approaching, and futures traders are predicting that the central bank will temporarily halt further interest rate increases as it assesses the effectiveness of the ten consecutive rate hikes implemented since last year in curbing inflation.

Ahead of the Fed's decision, the consumer price index for May is scheduled to be released on Tuesday, providing further insights into inflation trends.
 

Bank of Canada policymakers surprised market participants in their latest monetary policy announcement by raising the policy interest rate by 25 basis points to 4.75%. The accompanying statement included some hawkish signals, particularly regarding concerns that consumer price index (CPI) inflation may persist above the target of 2% and that the economy could continue to experience excess demand. In light of these developments, we have revised our forecast for the Bank of Canada and now anticipate another 25 basis point rate hike, bringing the rate to 5.00%, to be implemented in July. Furthermore, we believe that monetary easing measures will be initiated at a later stage, with Bank of Canada policymakers potentially considering rate cuts starting in the second quarter of 2024.

The Canadian dollar (CAD) experienced a rally following the unexpected decision by the Bank of Canada to raise policy rates. Meanwhile, the EUR/USD currency pair maintained stability around the 1.07 level, with market participants keeping an eye on the upcoming tightening of USD liquidity conditions as a potential catalyst for a downward movement.
 

Thursday is expected to see European stock markets opening slightly lower as investors search for direction ahead of the release of eurozone growth data and the upcoming central bank meetings scheduled for the following week.

In Germany, DAX futures contracts traded 0.3% lower, while in France, CAC 40 futures dropped 0.2%. Similarly, the FTSE 100 futures contract in the UK fell by 0.1%.
 

European stock markets appear to be in a holding pattern as market participants await the policy-setting meetings of both the European Central Bank (ECB) and the US Federal Reserve in the coming week.

The ECB is widely anticipated to raise interest rates by an additional 25 basis points during their meeting. ECB President Christine Lagarde stated earlier this week that inflation pressures remain significant, and borrowing costs will be increased further to address them.

Investors in Europe are likely to focus on eurozone unemployment figures for the first quarter and revised gross domestic product (GDP) data for the same period. The initial GDP release indicated no growth in the region during the first three months of the year, with a year-on-year increase of 1.2%, representing a notable slowdown compared to the 1.8% growth in the previous quarter.

Meanwhile, gold prices have been hovering just above two-month lows, exhibiting a tight trading range for nearly three weeks. The precious metal has faced pressure from a resurgent dollar and rising treasury yields as markets speculate on the Federal Reserve's stance regarding future interest rate hikes. The upcoming Federal Reserve meeting is eagerly anticipated by market participants for further insights.

As for economic data, the day is expected to be relatively quiet. The focus will be on the release of the weekly jobless claims figures in the United States.