Market Update: Stocks Decline on Revised Fed Rate Cut Expectations
US stocks are poised for their first weekly decline in more than a month as traders adjust their expectations for the Federal Reserve's first interest rate cut, now anticipated in December rather than November. This shift, prompted by stronger-than-expected US business activity data, has negatively impacted global equities, while also boosting the dollar and Treasury yields.
Key Points:
- US Business Activity Data: Stronger-than-expected figures released on Thursday have led traders to push back their expectations for the first Fed rate cut.
- Fed Comments: Federal Reserve Bank of Atlanta President Raphael Bostic noted that monetary policy has been less effective in slowing growth than in previous cycles, adding to the sentiment that rates may stay higher for longer.
- Swaps Market: Currently, swaps indicate the first Fed rate cut in December, reflecting the latest data and Fed commentary.
UK Markets React to Early Election Announcement
In the UK, news of an early election has received a cautious welcome from traders. The announcement is seen as potentially boosting sterling and the FTSE 100.
Key Points:
- Sterling's Rally: The prospect of a July vote eliminates any chance of a June rate cut from the Bank of England, supporting sterling's recent rally.
- FTSE 100: Stock bulls are optimistic that the election could help lift the FTSE 100 by reducing the "Brexit premium" that has affected UK assets since 2016.
- Market Sentiment: City of London executives express minimal concern about a possible Labour victory, suggesting markets are generally relaxed about the political shift.
Other Market Highlights
- FTSE 100 Performance: The FTSE 100 heads for its longest losing streak since February.
- UK Retail Sales: Poor weather has led to a significant drop in retail sales.
- Archegos Capital: Goldman Sachs mistakenly received $470 million from Archegos during its collapse.
- Corporate Moves: Abrdn CEO steps down after a turbulent period, while Citi, HSBC, and Barclays push for a return to five days in the office.
Looking Ahead
Traders will be closely monitoring today's release of US durable goods and sentiment data, as well as comments from Federal Reserve Governor Christopher Waller, for further insights into the economic outlook and potential policy shifts.
Summary:
US stocks are set for their first weekly decline in over a month due to revised expectations for a delayed Federal Reserve interest rate cut. The outlook for higher-for-longer rates, influenced by stronger-than-expected business activity data and comments from Fed officials, has driven the dollar and Treasury yields higher. Meanwhile, UK markets react to news of an early election, with potential impacts on sterling and the FTSE 100. Here's a detailed breakdown of the key market movements and events.
Stay tuned for more updates and insights on the latest market movements and economic developments.