Marketmind: Wall St ‘bull’, China deflation

A look at the day ahead in U.S. and global markets from Mike Dolan

As stocks clock their highest close of the year, marking a technical 20% ‘bull market’ from October’s low, disinflation signals around the world may help calm G3 central bankers meeting next week.

Much like the winter euro zone recession that appears to come and go with each data revision, fondly-charted technical definitions may not mean a great deal in a still-distorted post-pandemic economic and financial landscape.

But there’s little doubt a combination of the AI-infused tech sector boom, impressive resilience in aggregate the earnings and employment, and the prospect of peaking central bank interest rates are drawing underweight investors back to equity.

While above-target inflation in most Western countries means some more rate hikes are likely, there were signs this week of global price pressures abating further and super-tight labor markets loosening enough to see borrowing rates top out in 2023.

On Friday, China said annual factory gate prices fell a whopping 4.6% in May – the fastest pace in seven years and quicker than forecasts. Its annual consumer price inflation rate was just 0.2% – also below forecast.

That followed Thursday’s news that U.S. weekly jobless claims jumped 28,000 to their highest level in 18 months, albeit with some caution about possible calendar effects and outlier states. U.S. May CPI inflation numbers are due on Tuesday – a day before the Federal Reserve’s latest policy decision.

But along with easing supply chain pressures and annual price deflation still near 40%, there was enough to restore hopes that central bank tightening is gaining traction and further extreme moves unnecessary.

Futures only put a one-in-four chance the Fed will raise rates again next week, preferring the final hike to come in July. The Bank of Japan is expected to retain its super-easy money policy and the European Central Bank is due to nudge up rates another quarter point.

On the hawkish side, the International Monetary Fund on Thursday urged global central banks to “stay the course” on monetary policy and remain vigilant.

The conflict in Ukraine, and this week’s dam burst there, as well as expectations of an ‘El Nino’ extreme weather development later this year create some concerns about food prices as governments urged producers and shops to ease the pressure on households.

Bond markets have calmed again, however, with U.S. 2-year Treasury yields flat just above 3.7% on Friday.

And after the S&500’s new closing high for the year, futures held the bulk of those gains on Friday too. The of implied stock market volatility fell to another post-pandemic low on Thursday – its lowest since February 2020.

The dollar was a touch higher.

Elsewhere, in the intensifying battle between U.S. regulators and crypto exchanges, Binance.US said it is stopping dollar deposits and users will soon not be able to withdraw dollars from the exchange – all after regulators said they supported freezing Binance’s assets.

In politics, former U.S. President Donald Trump faces charges for illegally retaining classified documents and other crimes expected to be filed next week in federal court in Miami.

Events to watch for later on Friday:

* Canada May employment report

(By Mike Dolan, editing by Susan Fenton mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

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