- Fed officials indicated that the US central bank may be approaching the end of its tightening cycle.
- The market is anticipating the start of earnings season.
- China’s producer prices experienced their sharpest decline in over seven years in June.
US equities rebounded on Monday after last week’s losses, buoyed by comments from Federal Reserve officials indicating that the US central bank may be approaching the end of its tightening cycle.
The S&P 500 experienced slight gains throughout the day, although caution prevailed due to the upcoming consumer prices report on Wednesday and the commencement of second-quarter earnings later in the week.
Investors are eager to observe if price pressures continue to ease, as it would provide insight into the future interest rate outlook. Many traders anticipate the Fed’s 25bps interest rate increase this month. Several Fed officials expressed the need for additional rate hikes to counter persistently high inflation. However, the conclusion of the central bank’s current tightening cycle appears imminent.
Furthermore, the market is anticipating the start of earnings season while closely monitoring consumer prices and a series of speeches from Fed representatives this week. This week will commence with reports on earnings from major US banks.
Analysts predict a 6.4% decline in earnings for the second quarter compared to the same period last year, according to IBES data from Refinitiv.
Meanwhile, European equities saw marginal gains on Monday, led by the travel and leisure sector. This helped mitigate the impact of weak inflation data from China, indicating sluggish demand in the world’s second-largest economy.
The pan-European STOXX 600 index finished the day 0.2% higher, recovering from its worst weekly performance in nearly four months.
China inflation (Source: China’s National Bureau of Statistics)
Data released on Monday revealed that China’s producer prices experienced their sharpest decline in over seven years in June. Meanwhile, consumer prices teetered on the brink of deflation, strengthening the case for further stimulus measures to stimulate demand.
Due to hawkish messages from central bank policymakers, European stocks have been under pressure lately. Moreover, concerns have been fueled by resilient US economic data, which suggest that interest rates may remain elevated for an extended period. The US consumer prices data scheduled for Wednesday is expected to indicate a June inflation slowdown.
Elsewhere, the FTSE 100 in the UK closed higher as energy companies recorded gains that outweighed losses in mining stocks. The weak economic data from China reignited concerns about slowing demand, leading to a decline in mining stocks.