New Nasdaq bull market when rates peak?

Wall Street continues to be generally cautious ahead of next week’s Federal Reserve meeting after a slow week for economic data. A June pause and possible July hike in rates is baked into market expectations. Some commentators are calling for a new bull market in stocks, led by the Nasdaq 100, with good news today from Tesla and Netflix.

TODAY’S MAJOR NEWS

Fed to pause rates in June, raise in July?

Fed fund futures trading is placing 25% odds on a rate hike next Wednesday, with 66% odds of a rate hike at the July meeting. Consensus thinking is that we’ll get a “hawkish pause” from the Fed next week, where the central bank halts its rate hikes for the time being, with the possibility of more rate hikes being indicated in comments made by Fed Chair Jerome Powell after the meeting.

The Fed has made it quite clear in recent months that it would rather err on a policy favoring a bias toward higher and longer in its rate policy than pivoting to cutting rates too soon. It doesn’t want to make the same mistake that it made in 1980 of waiting too long to take rates higher. We believe that there is also pressure on the Fed to raise its 2% inflation mandate in the months ahead, but that’s not currently on the table.

Telsa charging deals powers auto stocks

Auto stocks moved higher as after GM announced Thursday it is joining forces with Tesla to leverage the electric-vehicle maker's Supercharger Network. Telsa was up 5% on today’s news. Ford announced a similar partnership with Tesla to enable access for Ford vehicles to Tesla's charging network 2 weeks ago. Tesla has been the clear winner with these collaborations, up 120% in the year-to-date, reversing a sharp decline in 2022, while Ford and GM are up just 19% and 8% respectively.

Netflix boosts sign-ups after password sharing crackdown

Netflix gained 4% on Friday after new data showed US sign-ups for the streaming service jumped after the streamer's password sharing crackdown launching last month. Netflix average daily sign-ups reached 73,000 from May 25-28, according to analytics platform Antenna, double the prior 60-day average, and the biggest gain in almost five years. Netflix shares are up 45% in the year-to-date, reversing a major collapse in 2021-22.

EV sales a bright spot in the Chinese economy

One of the bright spots in the Chinese economy has been auto sales – especially electric vehicles, which the government is pushing despite significant electrical grid issues. Auto sales totaled 1.76 million units in May, up 7.24% month-on-month and 28.6% year-on-year. EV sales made up a third of the total, although the pace of the EV sales is slowing. Consumers took advantage of aggressive incentive programs to buy EVs this winter, but now that push is slowing, with sales momentum expected to wane into the second half of the year.

Otherwise, economic data remains grim. The consumer price index edged higher to 0.2% year-on-year in May, but the producer price index was down 4.6% year-on-year in May, after being down 3.6% in April, reflecting more deflationary pressures within China’s economy as demand softens both internally and externally.

No surprises in US crop report

Today's US Department of Agriculture (USDA) crop report was expected to report few surprises, and that was the case. USDA cut corn exports by 50 million bushels, while leaving ethanol forecast demand unchanged. Export forecast reductions for corn were partially offset by a 16 million-bushel cut in imports. As for soybeans, USDA cut 15 million bushels in exports, moving those bushels down to the bottom line of ending stocks. That pushes new-crop stocks 15 million bushels higher as well.

Bottom line – risk-hold

Financial markets continue to be on risk-hold ahead of next week’s Fed meeting, expected to be unchanged. Influential commentators are promoting an aggressive risk-on stance once interest rates have finally peaked, presumed to be in July.

TODAY’S MAJOR MARKETS

Equity markets

• The Nasdaq 100 resumed its leadership position, up 0.4% today, with the S&P 500 up 0.2% and the more broadly based Russell 2000 off 0.7%
• The FTSE 100 index and DAX index fell 0.5% and 0.7%, respectively
• The VIX, Wall Street’s fear index, hovered an historically low reading of 14

Currencies and Bonds

• The dollar index edged up 0.2% to 103.5, at the upper end of this year’s narrow trading range
• Euro and sterling x-rates versus the dollar were down 0.3% and up 0.2%, respectively
• Yields on 2- and 10-year Treasuries rose 4.59% and 3.74%, respectively

Commodities

• Gold prices were unchanged at $1,977 per ounce, holding above a key support level
• Crude oil prices fell 0.7% to $70.8 per barrel
• Grain and oilseed sector were mixed on an unsurprising USDA crop report

Analysis by Arlan Suderman, Chief Commodities Economist. Arlan.Sudrman@StoneX.com.

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