Global markets are following Wall Street's lead, climbing higher ahead of a crucial inflation update.
World stocks were mostly on the upswing on Wednesday, after a rally on Wall Street that saw the Nasdaq composite index reach an all-time high. A report released on Tuesday revealed that prices at the wholesale level in the United States remain stubbornly high, before these price changes trickle down to consumers.
The producer price index reading for April hit 0.5%, which was higher than anticipated. Inflation has been steadily increasing in 2024, sparking worries that the Federal Reserve may struggle to rein in inflation to its target of 2%. However, investors found solace in remarks made by Fed Chair Jerome Powell. Speaking at a panel discussion in Amsterdam on Tuesday, he reiterated that the US central bank is unlikely to hike its key interest rate in response to persistent inflation.
But he also admitted that his confidence in inflation cooling down is "not as high as it was", given the consistently high price increases in the first quarter of this year. Markets face a more significant test later today, when the US will release its monthly update on consumer prices, or the inflation experienced by households.
Economists predict the consumer price index to drop to 3.4% in April on a year-over-year basis. In the European market, Britain's FTSE 100 surged ahead by 0.5% to reach another record high of 8,747.41 in early trading hours today, while Germany's DAX rose by a modest 0.2% taking it to 18,755.96, together with Paris' CAC 40 which saw a slight increase of 0.1%, lifting it to 8,229.78.
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However, both the S&P 500 and Dow Jones Industrial Average futures experienced slight drops of less than 0.1%. Meanwhile, over in Asia, Tokyo's Nikkei 225 index witnessed an increase of 0.1%, hiking to 38,385.73 and Australia's S&P/ASX 200 jumped 0.4% to stand at 7,753.70.
The Shanghai Composite index dropped by 0.8% down to 3,119.90 after Chinas central bank on Wednesday decided to maintain its key lending rate, indicating Beijing's current concentration is firmly on upholding monetary stability. Moving around the globe, Taiwan's Taiex jumped by 0.8%, but Bangkok's SET lost ground, falling by 0.6%.
Markets in South Korea and Hong Kong were closed due to holidays. On Tuesday, the S&P 500 saw a 0.5% rise, while the Dow Jones Industrial Average climbed by 0.3%. The Nasdaq composite leapt a significant 0.8% to 16,511.18, achieving its highest ever close. Technology companies have indeed been driving much of the broader markets gains this year.
Notably, several "meme" stocks such as GameStop and AMC Entertainment gained traction, harking back to the social-media-driven frenzy from three years prior. GameStop skyrocketed by 60.1% while AMC saw a 32% rise. But both stocks later lost much of their earlier gains. Lastly, bond yields edged lower with the yield on the 10-year Treasury slipping from 4.49% late Monday down to 4.43% on Wednesday.
Investors are scaling back their expectations for the pace and number of interest rate cuts this year as inflation continues to run hotter than anticipated. Market players are now wagering on just one or two reductions in rates in 2023, with CME Group data reflecting this more cautious outlook.
Over on Wall Street, there's still optimism that the Federal Reserve will manage a "soft landing," successfully reining in inflation with higher interest rates without dragging the economy into a recession. The economy is holding up well, but there are hints that consumers may be starting to feel the strain from persistent inflation.
A retail sales report due out on Wednesday is expected to indicate a dip in consumer spending for April, continuing a trend seen over recent months. In commodities trading, US benchmark crude oil was up 46 cents at $78.48 per barrel in electronic trading on the New York Mercantile Exchange. Meanwhile, Brent crude, used as the international benchmark, climbed 38 cents to reach $82.76 per barrel.
In currency markets, the US dollar weakened against the Japanese yen, dropping to 156.10 from 156.42 yen. The euro saw a slight increase, trading at $1.0827 compared to the previous $1.0820.
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