Global stocks edged higher and the dollar weakened ahead of the release of US inflation data, which could impact the Federal Reserve’s rate hike plans. The anticipation of China’s efforts to support economic growth also lifted oil and other commodities.
On Wall Street, the Dow Jones Industrial Average rose 0.66% to 34,169.77, the S&P 500 gained 0.34% to 4,424.45, and the Nasdaq Composite added 0.17% to 13,709.10. European shares also saw gains, with the STOXX 600 up 0.72%.
Investors reacted to comments from Federal Reserve officials who suggested that inflation levels justified additional rate hikes, but also indicated that the central bank was reaching the end of its monetary policy tightening cycle.
Economists predict that the consumer price index, to be released on Wednesday, will show a rise of 3.1% in June, compared to the 4% increase in May. This would be the lowest reading since March 2021. The core rate is expected to have dropped for a third consecutive month to 5% from 5.3%, though still above the Fed’s 2% target.
Last week’s employment report showed fewer new workers than expected, leading to selling of the US dollar but having little impact on rate expectations.
Investors are closely watching the inflation data release, with OANDA market strategist Craig Erlam suggesting that a weak inflation reading would be necessary to change the hike expected at the Fed’s next policy meeting on July 25-26.
In addition to the inflation data, second-quarter earnings reports from major Wall Street institutions, including JPMorgan, Citigroup, and Wells Fargo, will be closely watched. According to IBES data from Refinitiv, analysts expect a 6.4% decline in earnings for the second quarter year-on-year.
The dollar index, which measures the performance of the US currency against a basket of others, dipped by 0.28% to its lowest level in two months, following a retreat in US Treasury yields.
Furthermore, longer-dated US Treasury yields slid as investors waited for the inflation data release. The yield on the benchmark 10-year note fell by 3.2 basis points to 3.974%, dropping below 4% the day before.
The price of crude oil and other industrial commodities such as copper and iron ore rose due to optimism about China’s economic growth. Chinese regulators extended certain policies to support liquidity in the real estate sector.
Brent crude, struggling to break free from its 18-month lows, reached $79.31, up by 2.09% for the day. Meanwhile, US crude rose by 2.38% to $74.73 per barrel as traders considered supply cuts by major oil exporters and expectations of higher demand in the developing world in the second half of 2023.
Gold prices also climbed to a three-week high, with spot gold adding 0.35% to reach $1,931.75 per ounce.
In conclusion, global stock markets exhibited gains while the dollar weakened ahead of the US inflation data release that could impact the Federal Reserve’s rate hike plans. Expectations of China’s support for economic growth contributed to the rise in oil and other commodities. Investors are closely watching the inflation data and second-quarter earnings reports from major institutions. The dollar index declined, and longer-dated US Treasury yields fell, while crude oil and gold prices increased.
