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Expectant markets: the key data that investors expect to define their portfolios

Expectant markets: the key data that investors expect to define their portfolios

European stocks were trading subdued as some major markets were closed and investors took a cautious stance ahead of this week’s inflation data. The pan-European STOXX 600 index rose 0.1%.

S&P 500 and Nasdaq futures were steady as the market won’t open until Tuesday. The Nasdaq hit record highs last week after Nvidia will exceed expectations.

In the currency markets, attention was again focused on the yen and the risk of Japanese intervention at the level of 160 units. The dollar was trading at 156.91 yen, after adding 0.9% last week and approaching a recent high of 160.245.

The euro was up 0.2% at $1.0866, close to its recent high of $1.0895.

Gold rose 0.4% to $2,343 an ounce, after falling 3.4% last week and moving away from its all-time high of $2,449.89.

Crude oil prices were trading with slight increases, still close to four-month lows, amid concerns about demand, as the road travel season in the United States begins this week. Investors are waiting to see whether OPEC+ will discuss further production cuts at a virtual meeting on June 2, although analysts doubt there will be consensus for a move.

Expectation due to lower interest rates in Europe

Investors are awaiting May consumer price data in the euro zone, ahead of next week’s European Central Bank (ECB) monetary policy meeting.

The central bank seems ready to start easing interest rates at next meetingwith a 90% probability, and softer inflation data could help seal the June rate cut.

Inflation is approaching the 2% target set by the European Central Bank (ECB), which will allow it to relax monetary policy and start cutting rates in June, Olli Rehn, head of economic policy at the ECB and governor, said on Monday of the Bank of Finland.

“Inflation is converging toward our 2% target on a sustained basis, so in June it will be time to ease monetary policy and start cutting rates,” Rehn said in a speech posted on the central bank’s website. Finnish. “This obviously assumes that the disinflationary trend will continue and that there will be no new setbacks in the geopolitical situation and energy prices,” he added.

The data from US inflationalso scheduled for Friday, could help traders assess the timing and number of potential rate cuts by the Federal Reserve this year.

In the business field, the shares of the salmon producer P/F Bakkafrost led the falls of the STOXX 600 index, with a decrease of 4.5%, after the infectious salmon anemia (ISA) virus was detected ) in two pens on the A-19 Vágur farm.

Dollar and “carry trade”

He dollar The week got off to a solid start on Monday, as investors focused on inflation data from the United States, Europe and Japan to guide the outlook for global interest rates.

In recent months, currency trading has been dominated by the pursuit of carry trades, which has punished currencies with low rates and supported the dollar, while US data has dented the confidence of monetary leaders. in the outlook for rates.

What is carry trade?

The “carry trade” is a strategy to obtain profitability by which an investor sells one currency with a relatively low interest rate and buys a different one with a higher rate. Several major pairs have moved in with little change.

The euro, which gained 0.9% against the dollar last week, was in the middle of a range it has held for more than a year, at $1.0846.

German inflation on Wednesday and Eurozone data on Friday will be the subject of attention in case the cut in European interest rates expected by investors for next week is confirmed. The pound was testing the upper limit of a range it has maintained this year at $1.2735.

The Australian and New Zealand dollars have retreated from their recent highs, leaving the Aussie at $0.6637 and the Kiwi at $0.6122, as markets have lowered expectations for interest rate cut in the US. Friday’s reading of the core personal consumption price index, the Federal Reserve’s preferred measure of inflation, is expected to be stable on a month-on-month basis.

The dollar had retreated after data showed a slowdown in the rise in consumer prices in April and confirmation of the trend could cause it to fall further, but the general picture is that inflation and inflation indicators remain stable. above the Federal Reserve’s 2% target. “Reaching the 2% inflation target seems further away than at the end of last year and several softer inflation readings are needed to restore confidence,” say Société Générale analysts.

While rate uncertainty persists, Investors have been chasing income and selling low-yielding currencies such as the yen, yuan and Swiss franc against the euro and dollar.

The Swiss franc has been falling all year and last week hit its lowest level since April 2023, at 0.9928 francs per euro. The Chinese yuan ended last week weaker than 7.24 per dollar, its lowest level since early May. The yen could seal its first monthly rise of the year this month thanks to the alleged intervention of the Japanese authorities at the end of April and beginning of May, but since then it has been falling.

On Monday it was stable at 156.87 per dollar, but the rise in Japanese government bond yields has not helped it much: 10-year, for example, remains almost 350 basis points below US yields. The Tokyo CPI, due to be published on Friday, is a reliable guide to the national trend and will be closely watched. Friday’s Finance Ministry data will also reveal the extent of Japanese intervention.

The US decision to shorten stock market settlement from two days to one is another factor to watch in currency trading this week, as traders hope it can boost trading in Asia’s quiet early morning hours.

“Asia-based investors will only have a few hours to add funding requirements, process trade-related FX instructions and manage execution,” said Lloyd Rees, head of global custody product for Asia and the Middle East. at BNY Mellon. In cryptocurrency markets, “ether” reached its biggest weekly rise in almost three years after the surprising approval of some exchange-traded fund (ETF) applications in the US.

More approvals are still needed before its launch, but the price of the second-largest cryptocurrency by market value rose 25% against the dollar last week and another 5% to $3,938 in Asian markets on Monday. “A month ago, many people would have considered the likelihood of an ETH ETF to be low or far in the future,” said Justin D’Anethan, head of partnerships at digital asset market maker Keyrock.

Source: Ambito

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