Although these critical data inputs likely set the tone for the public rather than the other way around, the backdrop on household inflation expectations has not been great.
The New York Federal Reserve’s April survey showed Americans project inflation a year from now at 3.3% – up from the 3% level seen in all the first three months of this year – and gloomier jobs outlook and it reinforced similar readings from University of Michigan on Friday.
Fed vice-chair Phillip Jefferson was not giving much away but did say that “the decline in inflation has attenuated in the first quarter of this year and that, for me, is a source of concern.”
Still, with so much riding on this week’s data blockbusters, U.S. Treasury yields edged lower and the S&P500 was caught in a narrow range. Stock futures weren’t inclined to challenge that pattern early on Tuesday.
Optimism that rate cuts are coming this year persists. Bank of America’s monthly survey of global fund managers found 82% expect the first Fed cut in the second half and they identified “long U.S. dollar” as the second ‘most-crowded trade’ in May.
Nevertheless, the dollar was firmer on Tuesday.
It got another lift against Japan’s yen even as speculation swirled about a possible Bank of Japan pullback from its yield-capping bond-buying program – talk that’s lifted 10-year government bond yields there to six-month highs just under 1%. Some market participants believe the yen’s excessive weakness may be forcing the BOJ’s hand into allowing interest rates and yields to rise more rapidly.
The dollar also gained against sterling even after Britain’s latest wage inflation data came in above forecasts. Bank of England chief economist Huw Pill remained cautious but said it was “not unreasonable” to expect rate cuts this summer.
Much of the rest of the big market moves in Europe were earnings related.
Germany’s Delivery Hero shares soared 20% after Uber announced a $1.25 billion deal to take over its foodpanda business in Taiwan and buy new shares in the German firm.
Chinese stocks were subdued as U.S. President Joe Biden unveiled a bundle of steep tariff increases on an array of Chinese imports including electric vehicles, computer chips and medical products – suggesting an election-year standoff with Beijing.
Back on Wall St, much of the buzz was on the revival of the ‘meme stock’ craze.
Shares of videogame retailer GameStop surged nearly 75% on Monday after “Roaring Kitty”, an account associated with a social media influencer Keith Gill and credited with sparking the 2021 meme stock rally, returned to X after a three-year hiatus from the platform.
The rally was replicated in other meme stocks, such as Theater group AMC, and extended further ahead of Tuesday’s bell.
