Monday's trade witnessed a surge in US share markets, with the Dow Jones and the S&P 500 both rising to their highest levels since April 2022, at 0.6% and 0.9% respectively. The Nasdaq index notably marked up by 203 points or 1.5%.
The rally was partially driven by optimism around a potential pause in interest rates, following one of the US Federal Reserve's most vigorous monetary tightening strategies in recent memory.
Investors were also responding to changes in US economic data, specifically a dip in consumer inflation expectations for the upcoming year from 4.4% to 4.1%, the lowest since March 2021.
Tech stocks enjoyed large gains across the board, with Apple (NASDAQ:AAPL) hitting a new all-time high after a recent 1.6% bump, Tesla (NASDAQ:TSLA) on a 12-day positive streak after a 2.2% lift, and Oracle (NYSE:ORCL) and Broadcom (NASDAQ:AVGO) both achieving record highs.
Oracle rose by 6% on the back of a revised price target by JPMorgan (NYSE:JPM) while Broadcom saw a 6.3% increase on reports of a potential EU antitrust approval for its proposed US$61 billion acquisition of cloud computing firm VMware.
Missing out on the windfall, Nasdaq Inc fell 11.8% after announcing a US$10.5 billion purchase of software firm Adenza.
European share markets also saw a smaller rise on Monday, with consumer products and services shares improving by 1.6%.
Highlights included Adidas (ETR:ADSGN), which shot up 5.5% following Bernstein's upgrade to "outperform". Luxury brands LVMH and Hermes also posted gains of 1.8% and 3% respectively.
The healthcare sector also saw growth with Novartis gaining 0.7% on the news of their agreement to acquire Seattle-based biotech firm Chinook Therapeutics for US$3.5 billion.
Overall, the FTSEurofirst 300 and the UK FTSE 100 indexes both crept up by 0.1%.
Fed hits interest rate target; can it stay the course?
MFS Investment Management chief economist and portfolio manager Erik Weisman says greater transparency may be required from the US Federal Reserve, concerned inconsistency of messaging may undo what the regulator has achieved so far.
The Fed is right where it should be right now,” Wiesman said, “Congratulations are in order, as the central bank has managed to increase interest rates to its desired target and largely price out cuts for the rest of the year without toppling the US economy, at least not yet.
“While market pain in 2022 was difficult for both equity and fixed income investors broadly, it was necessary to restore rates to a more normal level.
“And of course, this is exactly the moment when the policy mistake can happen.
“Continued policy rate increases run the risk of driving up costs throughout the economy and making an inevitable slowdown worse while ignoring any further need to keep hiking could also allow inflation to persist at higher rates and see the economy overheat instead of slowing down.
“In short, the market is pricing in about an 80% chance the Fed raises rates by 25 basis points (bps) in July.
“This is reasonable and barring unforeseen upside risks in inflation and labor markets, it would likely to be the last hike.
“Inflation continues to come down and we expect year-on-year percentage (YoY%) core CPI inflation to be below 4% by the end of the year, with headline inflation potentially falling into the high 2s or low 3s as well.
“When it comes to unemployment, it continues to be near record lows, and while starting to bump up, it is still not yet signalling any immediate concerns.
“Furthermore, we don’t think the recent rate increases in Canada and Australia will spook the Fed, nor do we anticipate the release of CPI just prior to the Fed meeting to impact the June pause either.
“We would like to hear a more definitive Fed chair speak with conviction, offering remarks that are less about what could happen and instead be more in line with where we are today.
“Furthermore, the Fed would be well-served to remind the market to not get ahead of itself regarding eventual rate cuts.
“An inconsistent message from the Fed next week runs the risk of undoing what it has achieved since the rate hiking regime began in January 2022.
“If the central bank allows the market to think rate cuts are just around the corner, it will send the wrong signal to the equity market before we ever get an anticipated economic slowdown or recession in the US.”
Currencies and commodities
Monday saw a mixed performance in the currency market against the greenback.
The Euro experienced a slight decline from US$1.0788 to US$1.0742, holding steady near US$1.0760 at the US close.
Meanwhile, the Aussie dollar rose from US67.41 cents to US67.73 cents, hovering around US67.50 cents at the US wrap-up.
The Japanese yen also softened from 139.06 yen per US dollar to JPY139.74, nearing JPY139.60 by the close of the US market.
In the commodities market, oil prices globally took a hit of around US$3 a barrel on Monday following Goldman Sachs (NYSE:NYSE:GS)' adjustment of its oil price forecasts.
In part, this was due to anticipation of increased supplies later this year and through 2024.
As a result, the bank’s crude price prediction for December is now US$86 a barrel for Brent, down from US$95, and US$81 a barrel for US Nymex crude, down from US$89.
Brent crude ended down by US$2.95 or 3.9% to US$71.84 a barrel, while US Nymex crude slid by US$3.05 or 4.3% to US$67.12 a barrel.
Base metals also slumped on concerns over Chinese demand. Copper and aluminium futures slipped by 1% and 1.9%, respectively.
Gold, too, followed the downward trend, with the futures price dropping by US$7.50 or 0.4% to US$1,969.70 an ounce.
Spot gold was near US$1,956 an ounce at the US close.
In line with this, iron ore futures dipped US$1.82 or 1.6% to US$111.14 a tonne, after Goldman Sachs issued a warning about persistent softness in China's property market.