Powell speaks, ASML earnings, UK inflation: what’s moving the markets?


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Federal Reserve Chairman Jerome Powell indicated that interest rates could remain high for a while longer, although stock market futures point to a positive opening on Wall Street. Inflation in the United Kingdom has fallen again, while chipmaker ASML announced strong sales in China.

Federal Reserve Chairman’s speech 

The possibility that the Federal Reserve (Fed) will cut interest rates in June received another major blow as Fed Chairman Jerome Powell signaled that tight monetary policy should be maintained for a while longer.

“Recent data clearly have not given us greater confidence and, instead, indicate that it is likely to take longer than expected to achieve that confidence,” Powell told a forum in Washington on Tuesday.

“Right now, given the strength of the labor market and the progress in inflation so far, it is appropriate to give tightening policy more time to work and let the data and the evolving outlook guide us,” he said.

These comments completely contradict his earlier remarks to the U.S. Senate, where he stated that the Fed was close to having the confidence needed to begin cutting interest rates amid weakening inflation.

This has caused equity and currency market investors, among others, to begin to reduce the likelihood and timing of Fed rate cuts as economic data indicated strong growth and much higher than expected inflation.

Recently, the U.S. central bank was expected to begin its rate-cutting cycle in June, with two further cuts through the end of 2024.

However, the first cut is now expected in September and the projection for a second cut is declining.

Futures are recovering, and United Airlines is reversing its losses

U.S. stock futures gained ground Wednesday, regaining lost ground after recent weakness shown in the still-continuing first-quarter corporate earnings season.

In early U.S. trading, the Dow Jones futures contract was up 0.3%, S&P 500 futures were up 0.2%, and Nasdaq 100 futures were up 0.1%.

Wall Street’s major indexes closed mixed yesterday: the Dow Jones Industrial Average was up 0.2%, snapping a six-day losing streak; the S&P 500 lost 0.2%; and the Nasdaq Composite was down 0.1%.

Escalating tensions in the Middle East and fears that the Federal Reserve will delay interest rate cuts until the second half of the year have hit the risk-on momentum in market trading hard.

In contrast, the DJIA was boosted on Tuesday by positive first-quarter results from UnitedHealth (UNH).

On Wednesday, the market is likely to rise further, fueled by United Airlines (UAL) shares surging before opening due to its smaller-than-expected loss and earnings beat reported after Tuesday’s close.

Results from the likes of US Bancorp (USB) and Travelers (TRV) are also due later in the day.

ASML has a mixed first quarter, with strong sales in China

Chipmaker ASML (ASML) reported mixed first-quarter results, with revenues exceeding forecasts but overall sales falling short, despite strong performance in China.

Despite this, Europe’s largest technology company held unchanged its financial estimates for 2024, in which a stronger push is expected for the second half.

ASML is one of the world’s leading semiconductor companies, a manufacturer of tools called extreme ultraviolet lithography machines, essential for producing the world’s most advanced chips.

In the first quarter, sales of its lithography equipment to China represented a record 49% of total sales. However, ASML has not yet discussed how potential US export restrictions could impact these figures.

UK inflation falls again

UK consumer price inflation slowed to 3.2% y/y in March, the lowest numbers for two and a half years, compared to 3.4% in February.

Core inflation, which excludes energy, food and tobacco, similarly slowed to 4.2% compared to 4.5% in February.

This follows data released earlier in the week that showed underlying wage growth also slowed in the three months to September 2022.

At its meeting last month, the Bank of England decided to keep interest rates at their highest level since 2008, and its governor, Andrew Bailey, subsequently said that the UK economy is approaching the point at which the central bank can now begin to cut interest rates.

Bailey also gave a speech at an International Monetary Fund event in Washington on Tuesday, just hours before the inflation release.

“In the U.K. we are deflating into what I call full employment,” he stated.

“I see, you know, strong signs now that that process is working its way through.”

Traders generally expect the Bank of England to begin cutting interest rates between August and September.

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