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Mixed Market Reaction as Investors Await Key Inflation Data and Banking Sector Stability


Make informed decisions with the most up-to-date and reliable financial data, exclusively provided by vtmarkets.com.

Stocks closed lower on Tuesday as investors prepared for upcoming inflation reports and monitored progress on the U.S. debt limit. The S&P 500 and the Nasdaq Composite experienced declines of 0.46% and 0.6% respectively, while the Dow Jones Industrial Average remained relatively flat with a 0.17% decline. President Joe Biden and House Speaker Kevin McCarthy held a meeting to discuss the debt limit, but no definitive progress was expected as the two remain divided on tying the debt ceiling increase to spending cuts. Treasury Secretary Janet Yellen warned of the economic catastrophe that could result from failing to raise the debt ceiling, and concerns over inflation and the banking sector also weighed on investor sentiment.

In the market, PacWest shares experienced volatility but closed up 2.4%, while the SPDR S&P Regional Banking ETF ended the day down slightly. Lucid, PayPal, and Skyworks saw declines following the release of their quarterly reports, while Palantir saw a significant jump of 23% after reporting strong earnings and positive guidance. Traders are now eagerly awaiting the consumer price index report for April and the producer price index report for the newest data on inflation. Economists anticipate a 0.4% month-over-month increase in inflation for April and a 5% year-over-year increase, with core prices expected to have risen by 0.4%, excluding food and energy components.

Data by Bloomberg

On Tuesday, the overall stock market experienced a decline of 0.46%. Among the sectors, there were mixed performances. Industrials showed a slight increase of 0.17%, while energy and consumer discretionary sectors saw minor gains of 0.03% and 0.02% respectively. Utilities and consumer staples sectors experienced modest declines of 0.20% and 0.30%. Financials, real estate, communication services, health care, information technology, and materials sectors all faced greater declines ranging from 0.37% to 0.93%.

Major Pair Movement

The dollar index saw a 0.2% increase as the euro weakened due to concerns over Chinese trade data. Despite tightening credit, New York Fed President John Williams expressed reluctance towards policy easing, suggesting that the worst phase of stress in the banking sector may be over. The eurozone and German data have taken a negative turn recently, causing the EUR/USD to fall by 0.3% and reach last week’s lows. The yield spreads between two-year bonds and Treasuries have become 21 basis points more damaging compared to April’s peak.

Although the market still anticipates 66 basis points of Federal Reserve rate cuts by the end of the year, 6-month Treasury yields increased by 5 basis points on Tuesday, reflecting the ongoing refunding and the risk associated with the unresolved debt ceiling issue. The recent reports from the Fed on lending standards and financial stability provided some relief as they indicated less tightening of lending standards than expected and lower loan demand despite recent regional bank failures. The April NFIB report revealed the weakest conditions in over a decade but attributed the restraint not to tighter credit but rather to a persistent shortage of workers. The performance of U.S. regional bank stock indexes and Wednesday’s inflation data will be influential in determining the direction of Treasury yields and the dollar.

The safe-haven yen remained steady against the euro and the Australian dollar, which was negatively impacted by declining Chinese imports and de-risking. Japan’s unexpected decrease in household spending and real wage decline had minimal impact, as the focus remained on the Bank of Japan’s policy review. The British pound recovered slightly after a brief setback from Monday’s one-year peak in anticipation of U.S. CPI data and the upcoming Bank of England meeting on Thursday.

Make informed decisions with the most up-to-date and reliable financial data, exclusively provided by vtmarkets.com.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDConsumer Price Index (Monthly)20:300.4%
USDConsumer Price Index (Yearly)20:305.0%
USDCore Consumer Price Index (Monthly)20:300.3%