The major U.S. index futures indicate a positive opening on Monday, suggesting that stocks may rebound after the previous session's downturn.
Optimism regarding interest rates could drive renewed buying interest on Wall Street, spurred by last Friday's highly anticipated inflation data. The report indicated a deceleration in the annual rate of consumer price growth, fueling speculation that the Federal Reserve might reduce interest rates at least once this year.
However, overall trading activity may be somewhat muted as traders await the Labor Department's crucial monthly jobs report, set for release on Friday. This report, anticipated to show a deceleration in job growth for June, could significantly influence interest rate expectations.
Traders might also remain on the sidelines ahead of Fed Chair Jerome Powell’s remarks on Tuesday and the Independence Day holiday on Thursday.
In early trading last Friday, stocks initially moved higher but experienced a significant pullback as the session progressed. The major averages fell sharply from their early highs, moving into negative territory. The Nasdaq dropped 126.08 points, or 0.7%, to 17,732.60, while the S&P 500 declined by 22.39 points, or 0.4%, to 5,460.48. The Dow experienced a more modest loss, decreasing by 45.20 points, or 0.1%, to 39,118.86.
For the week, the Nasdaq inched up by 0.2%, but both the Dow and the S&P 500 edged down by 0.1%. Nonetheless, the Nasdaq and the S&P 500 recorded notable gains for the first half of the year.
Friday morning’s initial market strength was attributed to the Commerce Department’s report on consumer price inflation for May, which aligned with economists' estimates. According to the report, the personal consumption expenditures (PCE) price index remained unchanged in May after a 0.3% rise in April, and the annual growth rate slowed to 2.6% from 2.7%. The core PCE price index, excluding food and energy prices, rose by 0.1% in May after a revised increase of 0.3% in April, with its annual growth rate also slowing to 2.6% from 2.8%, meeting economists’ expectations.
While this data initially sparked renewed optimism about interest rates, buying interest diminished over time. The market’s subsequent pullback may have been influenced by a negative reaction to an unexpected rebound in treasury yields. Despite initially moving lower following the data release, treasury yields bounced back into positive territory, as some analysts highlighted that the pace of consumer price growth remains above the Federal Reserve's 2.0% target. This indicated that the latest data might not prompt the Fed to expedite rate cuts.
"While an improvement from earlier this year, the elevated inflation readings in yesterday's revised GDP data indicate persistent pricing pressures," noted John Lynch, Chief Investment Officer for Comerica Wealth Management. He added, "The expected number of rate cuts for this year has steadily declined, but traders continue to ignore the Fed's stance of maintaining higher rates for a longer period. Given that the fed funds rate remains higher than nominal GDP growth, we believe the Fed may need to cut rates 1 to 2 times over the next six months. Any hope for further accommodation without a recession is likely misguided."
Despite the broader market pullback, networking stocks saw substantial gains, with the NYSE Arca Networking Index surging by 2.4% to a four-month closing high. Infinera (INFN) led the sector, soaring by 15.8% following its acquisition by Noka (NOK) for $2.3 billion. Banking stocks also displayed considerable strength, evidenced by a 2.3% jump in the KBW Bank Index. Additionally, steel, transportation, and semiconductor stocks enjoyed notable gains, while utilities and computer hardware stocks moved lower.
### Commodity and Currency Markets
Crude oil futures are rising by $0.52 to $82.06 a barrel, following a slight dip of $0.20 to $81.54 a barrel last Friday. Meanwhile, after a modest gain of $3 to $2,339.60 an ounce in the previous session, gold futures are up by $6.10 to $2,345.40 an ounce.
In currency markets, the U.S. dollar is trading at 161.21 yen, compared to 160.88 yen at last Friday's close in New York. Against the euro, the dollar is valued at $1.0740, up from $1.0713 last Friday.Asian stocks saw modest gains on Monday as investors reacted to mixed signals: U.S. inflation data aligned with expectations, Chinese economic indicators delivered a mix of results, and the initial round of voting for the French National Assembly concluded.
The yen hovered near 38-year lows following Japan's downward revision of its GDP numbers for the March quarter. Oil prices rose in Asian trading, while gold prices saw a small decline.
The euro strengthened against the dollar due to the French election results, which indicated that Le Pen's National Rally fell short of securing a parliamentary majority.
China's Shanghai Composite Index increased by 0.9%, reaching 2,994.73 points. This rise followed the unexpected growth in the Caixin Manufacturing Purchasing Managers' Index (PMI), which went up from 51.7 to 51.8 in June, marking a three-year high driven by robust production and stabilizing employment. Nonetheless, investors largely disregarded official manufacturing data showing a contraction for the second consecutive month.
Japanese markets experienced slight gains as a survey highlighted improved sentiment among large manufacturers over the past three months. However, the government's downward revision of Q1 GDP growth to -2.9% from -1.8% posed challenges to economic recovery. The Nikkei 225 Index closed 0.1% higher at 39,631.06, and the broader Topix Index ended up 0.52% at 2,824.88. Notably, J.Front Retailing and Takashimaya saw significant stock price increases after raising their annual profit forecasts.
In South Korea, the Kospi rose 0.2% to 2,804.31, marking the second day of gains, buoyed by the fastest factory activity growth in 26 months. Market heavyweight Samsung Electronics was up 0.4% ahead of its second-quarter earnings guidance.
Australian markets ended slightly lower despite recovering some early losses. The S&P/ASX 200 Index dipped 0.2% to 7,750.70 amid concerns over interest rates and European political tensions. The All Ordinaries Index declined by 0.3%, closing at 7,992.30, with financials and tech stocks leading the losses. However, mining stocks gained as iron ore prices rose on optimism regarding Chinese economic stimulus.
New Zealand's benchmark S&P/NZX-50 Index gained 0.6%, finishing at 11,789.39.
**Europe**
European stocks climbed higher on Monday, with the euro reaching its strongest level since mid-June. Investor sentiment improved due to the prospect of political gridlock in France, which alleviated concerns about the country's public finances. A survey indicated that the downturn in the eurozone's manufacturing sector for June was less severe than initially feared. The HCOB's final eurozone manufacturing PMI, compiled by S&P Global, was 45.8, up from a preliminary estimate of 45.6.
The French CAC 40 Index surged by 1.5%, while Germany's DAX Index and the UK's FTSE 100 Index rose by 0.4% and 0.3%, respectively. French banks such as BNP Paribas, Credit Agricole, and Societe Generale saw significant gains due to the election results.
Valneva's stock spiked following the European Commission's approval of its chikungunya vaccine IXCHIQ for individuals aged 18 and older. Airbus also saw gains after signing a term sheet agreement with Spirit AeroSystems for a potential acquisition. Nestle's stock moved upwards based on reports of anticipated stable growth. Meanwhile, Petrofac's shares rose after extending an existing forbearance agreement with its noteholders.
Conversely, mining giant Anglo American experienced a near-tumble in London after suspending production at its Queensland coal mine due to an underground gas ignition incident.
**U.S. Economic News**
In the United States, the Institute for Supply Management (ISM) is set to release its manufacturing activity report for June at 10 am ET. Expectations are for the manufacturing PMI to rise to 49.1 in June from 48.7 in May, although a reading below 50 would signal continued contraction. Simultaneously, the Commerce Department will report on May's construction spending, which is anticipated to inch up by 0.1% following a 0.1% decline in April.
