Fed officials signal rate-hike cycle nearing its end

The major US equity indices edged modestly higher on Monday as investors prepared for updated inflation data and the first batch of quarterly earnings reports.  The Dow Jones closed more than 209 points higher, while the S&P 500 and the Nasdaq added 0.2% each.  Healthcare shares were among the top performers of the session while mega-cap shares underperformed.  In Europe, shares also ended higher on Monday, recovering from their worst week in almost four months, as gains in energy firms outpaced losses in mining shares. 

Summary for 11.07.2023 

• Most Asian equities rose sharply this morning amid expectations that the Federal Reserve was close to concluding its rate hike cycle for the year, while the prospect of more stimulus measures from China also aided sentiment.  Technology-heavy indices were the best performers for the day, with the Hang Seng index rallying 1.6% on strength in heavyweights Baidu, Alibaba Group and Tencent Holdings.   
• Oil prices edged higher on Tuesday, recouping some of the losses from yesterday’s session, as traders focused on supply cuts by the world’s biggest oil exporters Saudi Arabia and Russia and a weaker dollar. 
• European equity futures edged higher this morning while futures contracts tied to the three major US indices were all trading near breakeven. 

• Fed Vice Chair for Supervision Michael Barr brought some cheer to inflation-weary investors yesterday when he told a think-tank panel that the central bank had “made a lot of progress” slowing historically high price gains, though he added, “we still have a bit of work to do.”  Separately, Atlanta Fed President Raphael Bostic told a business group in Georgia that although inflation was too high, he could see a case for it falling closer to the Fed’s 2% long-term target without further rate hikes.  Meanwhile, Federal Reserve Bank of San Francisco President Mary Daly took a more hawkish stance, suggesting “a couple more” rate hikes may be necessary this year. 
• China signalled more economic support measures are imminent after authorities took a small step toward supporting the ailing property market by extending loan relief for developers.  Top state-run financial newspapers ran reports flagging the likely adoption of more supportive policies, along with measures to boost business confidence.  Financial regulators also stepped up pressure on banks to ease terms for property companies by encouraging negotiations to extend outstanding loans. 
• US consumer inflation expectations for the year ahead fell for a third consecutive month to 3.8% in June, the lowest since April 2021, from 4.1% in May.  The measure has now fallen by 3 percentage points from its series high of 6.8% a year ago.   
• Retail sales in the UK rose 4.2% on a like-for-like basis in June from a year ago, accelerating from a 3.7% gain in May as warm weather prompted consumers to buy summer goods despite persistent pressure from inflation and higher interest rates.  Still, much of the increase was driven by upward pressure on overall spending from inflation, masking a drop in sales volumes. 
• There was media speculation yesterday that Bayer’s CEO Bill Anderson may be working on plans to spin off the German company’s agrochemical business and bring it to the equity market.  A potential sale of the unit to a strategic or financial investor, however, is not being considered.  Reportedly, Bayer is likely to retain a significant stake in the business to possibly monetise it later through the equity market.