China’s rate cuts offset hawkish Fed stance

The Dow Jones closed 0.7% lower on Wednesday, while the S&P 500 and the Nasdaq ended almost 0.1% and 0.4% higher after the Federal Reserve kept rates unchanged for the first time since March 2022 as expected.  Fed officials need time to assess policy stance on how it has affected inflation and the economy while hinted two more rate hikes by the end of the year, dashing hopes that the central bank would hold rates steady for longer, or even cut in the near future.  Also, during the regular press conference, Fed Chair Powell said no decision for July has been made yet and the conditions needed to get inflation down are coming into place.   Elsewhere, European equities rose on Wednesday, with the Euro Stoxx 50 index up 0.6%, helped by gains in the mining sector on expectations of demand revival in top consumer China. 

Summary for 15.06.2023 

• Most Asian equities rose on Thursday, buoyed by the prospect of increased stimulus in China following more rate cuts in the country.  The rate cuts largely offset a raft of weak Chinese economic indicators on Thursday, as data showed industrial production, retail sales and fixed asset investment all grew at a slower-than-expected pace in May. 
• European equities are poised for a cautious start as traders brace for the ECB’s rate decision.   
• Oil prices were steady this morning as traders assessed the impact of China’s interest rate cuts and the US Federal Reserve’s hawkish pause on demand.  Elsewhere, the IEA said in its monthly report that global oil demand will rise by 6% between 2022 and 2028. 

• China’s central bank ramped up its monetary stimulus earlier today by lowering the rate on its one-year loans — or medium-term lending facility — by 10 basis points to 2.65%, the first reduction since August. That’s likely to prompt banks to lower their lending rates next week. The central bank has shifted to an easing mode after the economy lost momentum since the first quarter’s post-pandemic surge. 
• China’s industrial output and retail sales growth missed forecasts in May, adding to expectations that Beijing will need to do more to shore up shaky post-pandemic recovery.  Industrial output grew 3.5% in May from a year earlier, slower than the 5.6% expansion in April and slightly below a 3.6% increase expected by analysts.  Meantime, retail sales rose 12.7%, also missing forecasts of 13.6% growth and slowing from April’s 18.4%.    
• Federal Reserve officials paused on Wednesday following 15 months of interest-rate hikes but signalled they would likely resume tightening at some point to cool inflation. Chair Jerome Powell said nearly all Fed officials expect it will be appropriate to raise interest rates “somewhat further” in 2023 to bring down inflation. He declined to say whether another hike could come as soon as July but emphasized that it would be a “live meeting.”   
• The European Central Bank is poised to deliver what could be the penultimate increase in its unprecedented campaign of interest-rate hikes. Economists and markets overwhelmingly expect the deposit rate to be lifted by a quarter-point to 3.5% on Thursday, leaving them focused on guidance for how much further officials expect to raise borrowing costs with inflation still three times the 2% target. ECB President Christine Lagarde will probably reiterate that future steps hinge on the price outlook, underlying inflation and how the economy digests action to date. 
• Producer prices for final demand in the US decreased 0.3% month-over-month in May, following a 0.2% rise in April, and compared to market forecasts of a 0.1% drop.  Goods prices went down 1.6%, the largest decrease since July 2022, mainly due to a 13.8% drop in gasoline prices and a 1.3% fall in food.  Year-on-year, producer prices rose 1.1%, the least since December 2020. 

• Shares of United Health fell more than 6% yesterday after the company said that a recent increase in surgeries and other medical care might push costs higher than anticipated.