Amidst a turbulent stock-market subsequent to Federal Reserve’s interest-rate hikes, U.S Dow closed after 8-day consecutive period of high’s which has rejuvenated investor confidence, all hoping the same thing – “interest rate cuts”
The Dow Jones Industrial Average closed after a record eight straight daily advance for the benchmark, as all major U.S indexes gained after weekly reports offered fresh hopes for interest-rate cuts. The investor community looking for fresh inflation data this week, is met with renewed optimism, fantasizing rates cuts from Federal Reserve.
The inflation report which is the main determinant of interest rate pointers is what Federal Reserve optimizes before releasing its monthly data. Investors will be looking for material information in April’s consumer price index (CPI) report due on Wednesday. While U.S inflation data will take center-stage, reports on Chinese retail-sales and industrial output could also impact investor sentiments.
“U.S equity traders, along with bond, gold and, dollar traders, will be looking most forward to data releases ahead of U.S. PPI, and CPI and retail sales.” Results so far have helped stocks remain resilient despite inflation hangover. Dow Jones Industrial Average was up 56 points, or 0.3%. The Dow stock is coming off its 8-straight winning streaks on Friday as well as its best week of the year.
At the backdrop of DJI’s 8-day winning streak is upcoming CPI report
Next week’s consumer and producer readings are regarded as the next key signpost, after other data dashed investor interest-cut hopes. Investors will be watching next week for a reading on inflation in April from the consumer-price index, due on May 15. A strong CPI would reveal robust economic growth which implies positive consumer sentiments thus reducing pressure off Federal Reserve to hike interest rates.
In a press conference Federal Reserve Chair, Jerome Powell at the start of May, rejected the proposal of cutting interest rates, which was maintained by investors was a “dovish” decision. It led to a sea of global economic turbulations, devaluing Japanese Yen to a 34-year low; at 160 against a dollar. But the stubborn inflation has not completely eroded, and the intensifying war in middle east doesn’t do any better.
Two key reports due Wednesday, on consumer prices and retail sales, will give an indication of how real the threat is. Payroll and wage growth slowed in April, and without a corresponding cooldown in price increases, families’ budgets will come under further strain. “If inflation remains sticky, that actually introduces significant downside look to the growth outlook because labor markets aren’t in the same place.” The Dow saw a weekly gain of 2.2%, its best since December. The S&P 500 climbed 1.9% for the week, while the technology-heavy Nasdaq composite saw a 1.1% weekly rise. Next week investors will get a highly anticipated reading on inflation in April from the consumer-price index.
DJI’s 8-day straight win is not enough
Consumer prices excluding food and energy rose at a 4.5% annualized pace in the first three months of 2024, a step up from the 3.3% annualized increase in the fourth quarter, Retail sales meanwhile, were up just 0.4% in the first quarter after adjusting for inflation, compared with the 2.9% increase that closed up 2023. In April, economists expect monthly inflation to step back down to a pace more in line with the end of 2023, while they forecast growth in retail sales, which aren’t adjusted for inflation, slowing.
These growth parameters has what has led to Dow’s 8-day straight winning streak. And that is why so much is riding on the data due this week, especially amid signs of cooling labor market. A month employment report published on May 9 showed average hourly earnings rose just 2.9% annualized in the three month through April, the least since the first quarter of 2021. And a widely followed leading indicator of wages – the quits rate – points to more deceleration ahead.
