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Wall Street equities rose as traders assessed data showing China’s economy on the cusp of deflation and prepared for US inflation numbers that will feed into the Federal Reserve’s interest rate decision in late July.
The blue-chip S&P 500 closed 0.2 per cent higher in New York on Monday to end a three-session losing streak, having oscillated between gains and losses early in the day. The tech-heavy Nasdaq Composite also added 0.2 per cent.
The KBW Bank index rose 0.2 per cent even as a top US bank regulator proposed tougher capital rules for the country’s biggest lenders.
The US moves came after data on Friday from the Bureau of Labor Statistics showed the world’s largest economy added 209,000 jobs in June.
The employment report undershot expectations for the first time in 15 months but left some traders “confused”, said Mike Zigmont, head of trading and research at Harvest Volatility Management. “Is this strong enough for the [Federal Reserve] to keep hiking? Is this weak enough to keep the Fed on pause? Is it so weak compared to the past strong months that we’re looking at a soon-to-come recession?”
Analysts at JPMorgan said the “still-tight” labour market “clears the way” for another rate rise from the Fed later this month. After that, expect an “extended hold” from the central bank as economic growth slows, reducing the need for further monetary tightening.
Investors’ attention this week will be focused on the US consumer price index, which is expected to have slowed in June, potentially easing pressure on the central bank to resume raising rates at its July meeting.
If year-on-year headline inflation were to fall to 3.1 per cent in June as expected, it would mark the lowest rate since March 2021.
“The US is expected to report a sharp decline in both headline and core inflation measures during the month of June,” said Karl Schamotta, chief market strategist at Corpay. “But with declining used-car prices and seasonal adjustments playing outsized roles, the data isn’t likely to blow the Federal Reserve off course.”
The yield on the policy sensitive two-year US Treasury was down 0.07 percentage points at 4.87 per cent. Its yield, which moves inversely to price, hit a 16-year high of more than 5 per cent last week after strong private payrolls data.
At the other end of the inflation spectrum, Chinese data released on Monday showed the world’s second-biggest economy on the cusp of deflation. The country’s consumer price index dropped 0.2 per cent month on month, while factory gate prices fell at the fastest pace in seven years as demand for consumer and manufactured products waned.
China’s “slide into the world of deflation” increased the need for economic stimulus including tax breaks and investment for strategic sectors, said Michael Every, an analyst at Rabobank. But “due to the current levels of debt and the ongoing real estate crisis, we do not anticipate any significant economic stimulus measures”.
Stagnant price growth will only add to investor concerns over China’s stuttering recovery this year. Many had tipped China to explode back into life after the removal of strict zero-Covid measures in late 2022.
Oil prices slid after the outlook for one of the world’s top energy consumers dimmed. Brent crude, the international benchmark, settled 1 per cent lower on Monday afternoon at $77.69 a barrel while US marker West Texas Intermediate dropped 1.2 per cent to $72.99 a barrel.
Big Asian markets closed in positive territory after the Chinese data, with Hong Kong’s Hang Seng index up 0.6 per cent and China’s CSI 300 gaining 0.5 per cent.
In Europe, the region-wide Stoxx 600 added 0.2 per cent, while France’s Cac 40 rose 0.4 per cent. Germany’s Dax gained 0.4 per cent, having dipped in early trade. London’s FTSE 100 rose 0.2 per cent.
