The RBA Keeps Interest Rates Steady with a Hawkish Tone as Oil Prices Climb on Improved Global Demand Outlook
In recent financial updates, the Dow Jones Index (US30) experienced a gain of 0.49%, while the S&P 500 Index (US500) saw a rise of 0.77%. Simultaneously, the NASDAQ Technology Index (US100) ended the day up by 0.95%. Notably, the S&P 500 Index reached a record high on Monday, defying the upward trend in Treasury yields and benefiting from the continued strength in technology stocks amid persistent Federal Reserve commentary.
Philadelphia Federal Reserve President Patrick Harker expressed on Monday his anticipation of a singular rate cut if economic performance aligns with expectations. This is underpinned by the belief that the current interest rate levels are instrumental in tempering inflation and averting the risks of escalating inflation rates. The market’s expectations for an interest rate adjustment are currently weighted towards a 25 basis point cut, with probabilities standing at 8% for the FOMC meeting slated for late July and 59% for the mid-September meeting.
US equities also received a boost as Citigroup adjusted its stance on US equities to “overweight”, deviating from its prior “neutral” position. Conversely, it downgraded European equities to “neutral” from “overweight”, citing a stark contrast in pro-growth bias between the US and Europe. Meanwhile, Moderna (MRNA) observed a decrease of over 1% in its stock value amidst insider selling activities, with a notable transaction by director Afeyan. Conversely, Tesla (TSLA) enjoyed a surge of more than 5% following reports of the company gaining approval to test its advanced driver assistance system in China.
European stock markets generally saw upward movements with Germany’s DAX (DE40) and France’s CAC 40 (FR40) recording gains, albeit the UK’s FTSE 100 (UK100) and Spain’s IBEX 35 (ES35) faced slight declines. The easing of French political risks contributed to this trend, with Marine Le Pen indicating a willingness to collaborate with President Macron in the event of an electoral victory.
WTI crude oil prices consistently stayed above the $80 per barrel mark, propelled by an optimistic global demand outlook and the anticipation of restrained supply by major oil producers. Reports from prominent organizations like OPEC, the International Energy Agency, and the US Energy Information Administration have all pointed towards a robust demand increase in oil for the latter half of the year.
In Asia, market sentiments were largely bearish with major indices like Japan’s Nikkei 225 (JP225) and China’s FTSE China A50 (CHA50) recording declines. The Reserve Bank of Australia (RBA) maintained the cash rate at 4.35% during its June meeting, marking the fifth consecutive hold. Despite this, the RBA cautioned about the persistently high inflation rates, above their target range of 2-3%, driven chiefly by the soaring cost of services. Although the board has kept its options open, dependent on incoming data, there are observable signs of dampened economic activities.
Elsewhere in Japan, Bank of Japan Governor Kazuo Ueda disclosed the possibility of a rate hike in the upcoming July meeting, contingent upon the forthcoming economic data. He also highlighted the potential strain on household spending due to rising import costs attributed to the weakening yen, though this might be mitigated by increases in wages which could, in turn, stimulate consumption. This presents a viable basis for a potential reversal in yen trends.
In summary, as markets navigate through these changing dynamics, from central bank decisions to commodity price fluctuations, investors are closely monitoring the implications on global economic outlooks and financial markets.
