This week saw a surge in U.S. stocks, fueled by a continued rally tied to advanced AI technology. The S&P 500 and NASDAQ experienced increases of 0.7% and 0.9%, respectively. In contrast, the expectation of interest rate hikes led to a decrease in Eurozone stocks, with the Euro Stoxx 50 dropping 0.8%, mirroring similar movements in national markets. The UK's FTSE 100 also fell by 0.7%.
Across Asia, stock indices mostly rose in anticipation of the U.S. Federal Reserve pausing its rate hikes. Signs of positive policy influenced growth in Hong Kong's market, with financial and property sectors leading the rebound. The Japanese market also saw gains, with expectations of the Bank of Japan maintaining its lenient policy in their June meeting. Indian equities experienced modest growth, with the Reserve Bank of India's decision to keep interest rates steady while maintaining a tightening bias.
Investors are now shifting focus to rate hikes as both the Bank of Canada and the Reserve Bank of Australia unexpectedly raised policy rates. This change has led to market volatility ahead of the June FOMC meeting and is likely to impact U.S. Treasury yields and tech equity markets. It's expected that a rate hike of 25bp may occur in July, rather than June.
China's Consumer Price Index (CPI) inflation saw a minor increase to 0.2% y-o-y in May, as food and fuel prices continue to fall. The Producer Price Index (PPI) deflation expanded to -4.6% y-o-y due to a high base effect, global commodity price declines, and weak demand. Despite disinflation pressure, we believe the People's Bank of China (PBOC) will maintain a supportive stance, potentially implementing a further 25bp RRR cut in the near term.
In the U.S., CPI inflation is predicted to drop from 0.4% mom to 0.2% in May. On a yearly basis, this may decrease inflation from 4.9% yoy to 4.1%. The inflation rate is an important consideration for the U.S. Federal Reserve's meeting this week, where policy rates are expected to remain at 5.00-5.25%.
In Europe, this week's data calendar is sparse. The German ZEW economic sentiment index is projected to decline to -13 in June, from -10.7 in May. Euro area industrial output should increase by 1.2% mom in April, partly compensating for the 4.2% drop in March. The European Central Bank is predicted to raise the refinancing rate 25bp to 3.5% on Thursday.
In Asia, the Bank of Japan is likely to keep its current policies, including the yield curve control program. Meanwhile, China's monthly activity indicator may suggest a need for additional policy support, with potentially slowing retail sales and industrial production. The Bank of Japan's policy meeting on June 16, the U.S. CPI release on June 13, and the Federal Open Market Committee's rate decision on June 14, are likely to impact USD-JPY movements significantly.
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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Maiden Capital. The information provided is meant as a general guide only and should not be construed as investment advice. You should always consult your financial, legal and tax advisers regarding private equity and real estate investments
