Nasdaq 100 moves higher as rate hike fears diminish

The Nasdaq 100 resumed its upward trend after recent pullbacks. Wall Street worries about Fed rate hikes are moderating and were reinforced by this morning’s rise in first-time jobless claims. If we see a pause in US rate hikes no one will be surprised, and market’s would be unlikely to react. On the other hand, a rate hike would be a negative surprise.  China cut interest rates on domestic deposits – 1-year deposits to 1.65%, 2-year rate falling to 2.05% – to encourage spending in the local economy, struggling to grow, and the yuan drifted lower versus the dollar.

TODAY’S MAJOR NEWS

US jobless data shows near-term softening

Within June’s rising jobless claims data released today showing a tick-up,  continuing claims number suggests that to the contrary the job market remains tight. Wall Street chose to focus on the rise in the weekly claims number, which is a more current indicator. Traders saw the past week’s increase in jobless claims as indication of a softening jobs market that would give the Federal Reserve room to pause in its rate hikes. Of course, traders are hoping for a pivot to rate cuts, but based on comments made by Fed members in recent weeks and months, that’s not likely any time soon.

Market leans towards no rate rise

The CME Group’s FedWatch Tool shows nearly a 75% chance of unchanged interest rates from the Fed next week, and of course stocks traders are confident about the Fed path turning around later this year, even though Fed language as of late says otherwise. Fed officials have spoken on both sides of the argument. James Bullard of the St. Louis Fed said the Fed should do two more rate hikes, while President Lorie Logan of the Dallas Fed said a pause was not in order, but her view would be data-driven.

China cuts rates to boost growth

China’s commercial banks lowered their rates on 1-year and 2-year deposits to ease margin pressure on their loan books. Bank margins are being squeezed by a lack of residential and commercial loans. Rate cuts eases Bank’s margin pressure, while encouraging depositors to put more of their money at work in the economy. Analysts continue to hope for a big stimulus package from the Chinese government, but nothing yet, and another rate cut might be needed in the second half of this year.

Bottom line – risk-hold

Financial markets are still risk-hold as we look forward to next week’s Fed meeting, but the most surprising market stats are the 75% probability of unchanged interest rates and a new low in the VIX, Wall Street’s fear index. Little or no risk is priced into market prices.

TODAY’S MAJOR MARKETS

Equity markets

• The Nasdaq 100 led markets this morning, up 0.8%, with the S&P 500 up 0.5% and the more broadly based Russell 2000 off 0.6%
• The DAX index rose 1.0%, while the FTSE 100 index fell 0.3%
• The VIX, Wall Street’s fear index, fell to 13.6 in what is becoming a trend, and a 3 year low

Currencies and Bonds

• The dollar index was weaker this morning, at 103.3, down 0.8%
• Euro and sterling x-rates versus the dollar were up 0.8% and 0.9%, respectively
• Yields on 2- and 10-year Treasuries moved lower to 4.54% and 3.73%, respectively

Commodities

• Gold prices rallied 1.2% to $1,983 per ounce, showing signs of reversing a month-long weakness
• Crude oil prices fell 2.7% to $70.6 per barrel, removing most of the price premium which followed the OPEC+ news of further supply cuts
• Oil futures fall on reports that the US and Iran may be nearing a deal on Tehran's uranium enrichment and oil exports, potentially offsetting OPEC+ cuts
• Grain and oilseed sector were mixed, with wheat prices bouncing back from yesterday’s big losses
• New-crop corn and soybean prices remain under pressure as rains continue to move forward in this week’s forecast

Jobless claims

• First-time jobless claims rose to 261,000 in the week ending June 3, above an expected 235,000, up from 233,000 the previous week
• The four-week moving average rose to 237,250 claims, up from 229,750 the previous week.
• Continuing claims for the week ending May 27 fell 37,00 to 1.757 million, with the four-week moving average dropping 12,500 to 1.785 million

Inventories trending lower

• Inventory readings have been trending lower for a year or more, and are 3.4% down from last April
• Wholesale Inventories fell 0.1% month-over-month in April, a shade better than expected
• The inventory-to-sales ratio was pretty much unchanged at 1.41, above the 1.27 reading in April 2022 and is a sign that it's taking companies a bit longer to sell their goods

Guest Commentary by Matt Zeller, Senior Market Intelligence Analyst. Matt.Zeller@StoneX.com.

Market outlook by Paul Walton, Financial Writer. Paul.Walton@Stonex.com.