Chump Profit Afternoon Market Brief:
Tech Mega-caps Lead Stocks Higher as US Yields Drop:
In the afternoon market session, stocks rebounded after back-to-back declines, driven by a rally in big tech companies and the belief that the US economy remains resilient despite the Federal Reserve's tight monetary policy. The Nasdaq 100 outperformed, with Tesla Inc. recovering after a significant slide. Nvidia Corp. halted a four-day downturn, thanks to its products' popularity in data centres powering generative artificial intelligence. Meta Platforms Inc., the parent company of Facebook, saw gains after Citigroup Inc. raised its target for the company's shares. Snowflake Inc. also rallied following an announcement of an AI-related partnership with Nvidia. However, Alphabet Inc., the parent company of Google, experienced a decline due to an analyst downgrade.
Market Model Turns Bullish:
A key market model, the Bloomberg Intelligence Market Regime Index, has shifted from a cautious red zone to a more positive yellow zone. This index, which categorizes market phases into accelerated growth, moderate growth, and decline, indicates brighter prospects for stocks in the near future. This shift in the index suggests a more favourable outlook for the equity market.
Home Prices Continue to Recover:
Home prices in the US have risen for the third consecutive month, driven by strong buyer demand and a limited supply of listings. According to seasonally adjusted data from S&P CoreLogic Case-Shiller, the tight housing market has led to increased competition among buyers. Additionally, orders for business equipment placed with US factories have risen, indicating that companies are making longer-term investments despite high borrowing costs and economic uncertainty.
China Takes Action to Stabilize Yuan:
China's monetary authorities have intervened to support the yuan, taking forceful action against the currency's slide for the first time in nearly eight months. State banks have reportedly sold dollars, while the People's Bank of China (PBOC) set a stronger-than-expected trading band for the yuan. The move signals growing concerns about the weakening yuan's impact on confidence and the need to prevent a further decline. The Chinese economy has faced challenges, with a flagging property market and lower consumer confidence affecting the post-pandemic recovery. Chinese officials have hinted at potential stimulus measures to support growth.
Canada's Inflation Slows, Diminishing Rate Hike Prospects:
Canada's annual inflation rate in May was 3.4%, its slowest pace in two years, according to data from Statistics Canada. This figure weakened the case for another interest rate hike in July. Economists had expected a drop to 3.4% from April's 4.4% rate. The Bank of Canada, which recently raised its overnight rate to 4.75%, will monitor economic data to determine future rate increases. With the labour market loosening in May, the likelihood of a rate hike in July has diminished.
ECB Unlikely to Declare Rate Peak Soon:
European Central Bank (ECB) President Christine Lagarde stated that the ECB is unlikely to declare the end of its interest rate increases in the near future. Lagarde reiterated the plan to raise rates at the July meeting, emphasizing the need for a "more persistent policy" to tackle inflation. The ECB is currently focused on the final stages of its rate hike campaign, as underlying price pressures remain stubborn despite fading headline inflation. While economists anticipate a pause in rate hikes after July, Lagarde stressed the importance of keeping options open and maintaining a cautious approach.
Economic Concerns and Central Bank Actions:
The European economic backdrop has worsened, with recent data indicating a slowdown in activity across the eurozone and a significant drop in Germany's business outlook. Central bankers, such as the Latvian and Lithuanian central bank governors, have left the possibility of further rate hikes beyond July open. Lagarde emphasized the need for clear communication and maintaining restrictive conditions until the "second phase of the inflation process" is resolved. She also highlighted the increasing strength of this phase, with workers seeking wage catch-up to recover lost income. The ECB aims to ensure a persistent policy that tightens conditions appropriately and allows the full impact of previous actions to materialise.