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Powell speech, ASML earnings, UK inflation - what's moving markets

Published 17/04/2024, 09:28
© Reuters.
- -- Fed chief Jerome Powell suggested that interest rates may need to stay higher for longer, but stock futures indicate a positive open on Wall Street. U.K. inflation falls again, while chipmaker ASML reports strong sales to China. 

1. Powell hints at rate cut delay

The likelihood of the Federal Reserve cutting interest rates in June took a further hit, after Fed Chair Jerome Powell stated that monetary policy needs to be restrictive for longer.

"The recent data have clearly not given us greater confidence and instead indicate that it's 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 progress on inflation so far, it's appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us," he said.

This view contrasts with his comments to a U.S. Senate panel, just over five weeks ago, that the Fed was "not far" from gaining the confidence in falling inflation needed to cut interest rates.

Investors have been steadily marking down the likelihood and timing of Fed rate cuts as economic data have pointed to stronger growth and stickier inflation than previously expected.

Until recently, the U.S. central bank had been widely expected to start its rate-cutting cycle in June, with two more cuts happening by the end of 2024.

However, now the first cut is generally expected in September and the odds of a second cut are dwindling.

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2. Futures attempt to bounce; United Airlines narrows its loss

U.S. stock futures edged higher Wednesday, rebounding after recent weakness as the corporate earnings season continues apace.

By 04:20 ET (08:20 GMT), the Dow futures contract was 105 points, or 0.3%, higher, S&P 500 futures climbed 10 points, or 0.2%, and Nasdaq 100 futures rose by 10 points, or 0.1%.

The main indices closed in a mixed fashion Tuesday, with the Dow Jones Industrial Average gaining 0.2%, breaking a six-day losing streak, while the S&P 500 dropped 0.2% and the Nasdaq Composite fell 0.1%.

Raised tensions in the Middle East and concerns that the Federal Reserve will delay cutting interest rates until much later in the year have weighed heavily on risk appetite of late. 

However, the blue-chip DJIA received a boost on Tuesday by strong gains from UnitedHealth (NYSE:UNH), after the health insurer posted strong results for the first quarter.

More positive earnings are expected to drive the market higher Wednesday, with United Airlines (NASDAQ:UAL) stock climbing strongly premarket after the carrier posted a narrower-than-expected loss and a beat on revenue after the close on Tuesday.

More earnings from the likes of US Bancorp (NYSE:USB) and Travelers (NYSE:TRV) are scheduled to arrive before the opening bell.

3. ASML reports mixed Q1; Chinese sales strong

Chipmaker ASML (AS:ASML) offered up a mixed first-quarter report earlier Wednesday, with its first-quarter profit beating expectations while sales missed forecasts, even with strong sales to China.

That said, Europe's biggest tech firm kept its full-year financial forecasts unchanged, expecting a boost in the second half of the year.

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ASML is one of the most important semiconductor firms in the world, producing tools known as extreme ultraviolet lithography machines, which are required to manufacture the most advanced chips globally.

Sales of its lithography systems to customers in China made up a record 49% percent of the total in the first quarter, with ASML yet to address any impact from U.S. export restrictions to the Asian economic giant in the first quarter.

“We see 2024 as a transition year with continued investments in both capacity ramp and technology, to be ready for the turn in the cycle,” said ASML CEO Peter Wennink, in a statement.

4. U.K. inflation slows again; interest rate cuts coming?

U.K. consumer price inflation slowed to 3.2% in annual terms in March, the weakest level for two-and-a-half years, down from a 3.4% increase in February.

"Once again, food prices were the main reason for the fall, with prices rising by less than we saw a year ago, according to ONS chief economist Grant Fitzner.

"Similarly to last month, we saw a partial offset from rising fuel prices."

Core inflation, which excludes energy, food and tobacco prices, also slowed to 4.2% from 4.5% in February. 

This followed the release earlier in the week of data showing core wage growth slowed again in the three months to February, posting its weakest rise since the three months to September 2022.

The Bank of England maintained its interest rates at the highest level since 2008 at its meeting last month, with Governor Andrew Bailey subsequently stating that Britain's economy was moving towards the point where the central bank can start cutting interest rates.

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

"In the UK we're disinflating at what I call full employment.

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

Traders are generally expecting the Bank of England to start cutting interest rates in either August of September.

5. Crude falls as US inventories grow

Crude prices retreated Wednesday as lackluster Chinese growth and a rise in U.S. commercial stockpiles created concerns about global demand, outweighing Middle East supply fears.

By 04:20 ET, the U.S. crude futures traded 0.6% lower at $84.89 a barrel, while the Brent contract dropped 0.5% to $89.59 per barrel.

The Chinese economy grew by more than expected in the first quarter, data showed earlier this week, but several indicators pointed to slowing momentum in the world’s second largest economy in March.

Additionally, the American Petroleum Institute suggested that U.S crude inventories rose just over 4 million barrels last week, much more than expectations for a build of 600,000 barrels.

The build, released on Tuesday, came after a 3 million barrel rise in the prior week, and was largely driven by U.S. production remaining at record highs above 13 million barrels per day. 

The official U.S. inventory data, from the Energy Information Administration, is due later in the day. 

Oil prices soared last week to the highest levels since October, as the prospect of a bigger conflict in the Middle East, especially between Iran and Israel, sparked bets of supply disruptions in the region. 

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