- There was a 0.7% increase in Nvidia shares after a stock split.
- Markets fell slightly on Friday after a massive increase in US jobs.
- Forecasts show that economists expect US price pressures to ease from 0.3% to 0.1% in May.
Equities closed slightly higher on Monday amid caution ahead of the US consumer inflation report and the Fed policy meeting on Wednesday. This follows a drop on Friday as investors scaled back expectations for a September Fed cut after a positive employment report.
The bullish momentum on Monday for the S&P 500 and the Nasdaq came from a 0.7% increase in Nvidia shares after a stock split. Other than that, investors held back from taking big positions ahead of the Consumer Price Index report and the FOMC meeting.
Before these events, markets fell slightly on Friday after a massive increase in US employment. The economy added 272,000 jobs, far more significant than the forecast of 185,000. Although the unemployment rate increased from 3.9% to 4.0%, the overall picture was that of a robust labor market.
Such good news should have led to a rally in equities, as it showed economic health. However, it also meant that the Fed would likely push back the timing for the first rate cut. Notably, rate cut expectations dropped after the report, with the likelihood of a cut in September falling from 70% to 50%. As long as the Fed keeps borrowing costs high, businesses will suffer, weighing on equities. Therefore, investors cheer any signs of weakness in the economy that would prompt the Fed to lower interest rates.
Consequently, market participants are awaiting the CPI report with the view that demand remains high. Therefore, there is a chance inflation will disappoint and lead to a further decline in rate cut expectations. The forecasts show that economists expect price pressures to ease from 0.3% to 0.1% in May. Meanwhile, the annual figure will likely hold at 3.4%.
If the actual figures align with expectations, it would be the second month of softer inflation, increasing policymakers’ confidence that inflation will reach 2%. However, if the numbers beat forecasts, the chances of a cut in September will fall below 50%, and there will be a higher likelihood of the Fed cutting in November.
Fed forecasts (Source: Bloomberg)
Meanwhile, at the FOMC policy meeting, the central bank will likely keep rates unchanged, and forecast continued economic growth. However, the focus will be on the message regarding rate cuts, shaping the outlook for monetary policy.
