Title: Understanding the Impact of Economic Data on the Stock Market
Introduction:
The stock market is an integral part of the global economy, and various factors affect its performance. Economic data is one such factor that can significantly impact the stock market. In this article, we will explore the recent rise in Wall Street stocks and understand how economic data affects investor behavior. We will also delve deeper into the topic by discussing China’s recent monetary policy easing and its impact on the global economy.
Impact of Economic Data on the Stock Market:
Economic data can influence investor behavior, which, in turn, impacts the stock market’s performance. The recent rise in Wall Street stocks is a result of the US producer price index’s lower-than-expected year-on-year increase in May. This decline in inflationary pressure has reinforced investor bets that the Federal Reserve will refrain from raising rates later in the day. Markets were pricing in a 92% chance that the Fed would keep interest rates steady at the conclusion of its monetary policy meeting on Wednesday, according to data compiled by Refinitiv and based on the prices of interest rate derivatives. This data suggests that investors are optimistic about the stock market’s future performance and are willing to invest in it.
However, despite the positive performance of the stock market, policymakers are cautious about the economic recovery’s sustainability. While the Fed may leave rates unchanged, policymakers may send a clear message to markets that at least one more rate hike is likely at a subsequent meeting. This cautionary message indicates that any negative economic data could still impact the stock market’s performance and investor behavior.
Monetary Policy Easing in China:
China’s recent monetary policy easing is another significant economic event that could impact the global economy. On Tuesday, the People’s Bank of China lowered its short-term lending rate for the first time in nine months, raising hopes of political support in China. This move may hint at the start of further monetary policy easing, and many analysts at Goldman Sachs expect the PBOC to cut the one-year medium-term lending rate by 0.1 percentage point on Thursday. This rate serves as the basis for China’s main benchmark lending rate.
The potential further monetary policy easing in China could be beneficial for the global economy. Lower borrowing costs could encourage businesses and consumers to spend more, which could boost economic growth. This rise in economic growth could, in turn, lead to increased investor confidence and a positive impact on the stock market.
Summary:
The recent rise in Wall Street stocks can be attributed to lower-than-expected inflationary pressure in May. This data has reinforced investor bets that the Federal Reserve will refrain from raising rates later in the day. However, policymakers are still cautious about the economic recovery’s sustainability and may send a clear message to markets that at least one more rate hike is likely at a subsequent meeting.
China’s recent monetary policy easing, with further expected rate cuts, can be beneficial for the global economy, leading to lower borrowing costs, increased economic growth, and positive investor confidence. These economic events remind us of the intricate connections between economic data, investor behavior, and the stock market. As investors, we need to closely monitor these events and adjust our investment strategies accordingly.
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Wall Street stocks rose Wednesday as economic data pointed to an easing of price pressures in the US, reinforcing investor bets that the Federal Reserve will refrain from raising rates later in the day.
The benchmark S&P 500 rose 0.1%, extending the previous session’s rally, while the tech-heavy Nasdaq Composite gained 0.8% early on.
The moves came after the US producer price index climbed 1.1% year on year in May, lower than consensus forecasts and the 2.3% increase recorded the previous month .
“Wednesday’s PPI confirms that inflation continues to decelerate and puts even more pressure on the Federal Reserve to halt its interest rate hikes,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management.
Markets were pricing in a 92% chance that the Fed would keep interest rates steady at the conclusion of its monetary policy meeting on Wednesday, according to data compiled by Refinitiv and based on the prices of interest rate derivatives.
“Our expectation is that the Fed will leave rates unchanged, in line with market prices,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management. “However, we also expect policymakers to send a clear message to markets that at least one more rate hike is likely at a subsequent meeting.”
A day earlier, US consumer price data showed that headline inflation had also slowed, reaching a 4% year-on-year increase in May, down from nearly 5% in April.
“The Fed wants to pause and would need a meaningful reason to change that view,” said Mohit Kumar, chief financial economist for Europe at Jefferies, noting that the inflation report “didn’t provide that reason.”
The two-year US Treasury yield, which is the most sensitive to monetary policy expectations, fell 0.08 percentage points to 4.62%, while the 10-year yield fell 0.05 percentage points to 3, 79%. Bond yields decrease as prices rise.
Meanwhile, Europe’s Stoxx 600 rose 0.4%, France’s Cac 40 gained 0.6%, while Germany’s Dax and London’s FTSE 100 both gained 0.3%.
The pound rose to its highest level against the dollar since April 2022 after strong UK GDP and jobs data this week raised the chances that the Bank of England will continue to raise interest rates. The pound sterling gained 0.6%, climbing to $1.2691, according to Refinitiv data.
Asian equities were mixed, with Japan’s benchmark Topix index rising 1.3%, while China’s CSI 300 index was flat and Hong Kong’s Hang Seng index lost 0.6% .
Stocks in China were buoyant at the start of the day growing hopes of political support by the People’s Bank of China after the central bank on Tuesday lowered its short-term lending rate for the first time in nine months.
Analysts at Goldman Sachs said the move “may hint at the start of further monetary policy easing” and expect the PBoC to cut the one-year medium-term lending rate by 0.1 percentage point on Thursday. The rate serves as the basis for China’s main benchmark lending rate.
https://www.ft.com/content/391e605c-73de-42b0-8871-77690d67fe38
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