The Dow Jones Industrial Average (DJIA) reached the historic 40,000 milestone for the first time ever on Thursday, marking a remarkable achievement for the U.S. stock market. This surge was driven by optimism about potential interest rate cuts by the Federal Reserve and strong corporate earnings reports. However, stocks later turned mostly flat during the afternoon trading session.
As the markets prepare for the release of US PCE price data, it’s crucial to understand its potential impact. This economic indicator holds significant influence over the Federal Reserve’s outlook, which currently anticipates no rate cuts in the near future. However, a persistent inflationary trend may invite questions about a potential July rate hike. While the disinflation narrative remains prevalent, it’s unwise to completely dismiss the possibility of a summer move if the data warrants it. Traders should exercise caution and avoid overextending their expectations based on limited economic data. The upcoming PCE data will provide further insights into the Fed’s stance and the trajectory of monetary policy for the year.
The Australian dollar (AUD) has strengthened after the release of higher-than-expected inflation figures for the January-March quarter, casting doubt on the possibility of interest rate cuts by the Reserve Bank of Australia (RBA) in 2024.
After previously mirroring the U.S. Federal Reserve’s rate hike cycle, the Bank of England has signaled a shift towards a more dovish stance, citing divergent inflation outlooks between the UK and the US. Investors now anticipate two rate cuts in the UK this year, with the first expected in August. This change in market expectations underscores the Bank’s assessment that the UK’s inflation outlook is ‘rather different’ from the US, with disinflationary pressures expected to intensify in the coming months. The Bank’s dovish communication, including a potential downgrade of the forward guidance on keeping rates restrictive for an ‘extended period,’ could further support the case for an imminent policy easing. This divergence from the Fed’s expected rate cuts in September marks a departure from the recent pattern of synchronized rate hikes and highlights the Bank’s independence in policy-making.
Vanguard, a leading asset manager, anticipates less aggressive rate cuts from the Federal Reserve. The firm predicts a “deferred landing” for the US economy, characterized by ongoing growth and persistent inflation above the target. Vanguard also cautions against potential fiscal extravagance.
John Porter, CIO and head of equity at Newton Investment Management, joined CNBC’s ‘The Exchange’ to discuss his views on the market and investment strategies.
