Thursday brought slight declines in Wall Street indices after previously setting new record levels. The main currency pair, after reaching a local high close to 1.09, corrected itself. U.S. bond yields increased. Many Fed representatives reiterated that the Fed will need to be patient and keep interest rates higher for a longer period. Today’s macroeconomic calendar is moderately filled. From Europe, we will learn the final HICP index, and from the United States, the Conference Board Leading Economic Index.
The inflation revision for the Eurozone is not expected to bring much surprise. The increase is likely to be 2.4% year-on-year, while the core measure, excluding energy and food prices, is estimated to have decreased in April to 2.7% from 2.9%. If the data does not surprise with higher readings, the June rate cut will likely remain unthreatened.
Domestic data showed that core inflation decreased as forecasted to 4.1% year-on-year from 4.6% in March. Other core measures were slightly higher than March results. In the second half of the year, both CPI and core inflation are expected to rise again, driven by consumer demand recovery and the still strong labor market. The increase in energy rates in the coming months will also be significant. The Monetary Policy Council is not expected to lower interest rates by the end of the year. If the ECB and the Fed decide to reduce the cost of money in the coming months, the zloty should benefit from the divergence in monetary policies.
Returning to the United States, Thursday was filled with statements from Fed decision-makers. However, all the statements seemed so vague and inconsequential that they are difficult to comment on. The dominant narrative is that interest rates should remain high for longer. Mester expects further easing of inflationary pressures but at a slower pace than observed in 2023. Williams pointed out that the latest CPI report confirms that price pressures are easing, but the Fed wants more evidence. Barkin highlighted the risk of high growth dynamics in service prices. Bostic was the only one to speak in a slightly softer tone, indicating a possible rate cut at the end of the year, conditional on further progress in disinflation.
From the U.S. data, we learned, among other things, the number of jobless claims, which was close to the market consensus at 222,000, indicating a slight decrease from the previous 232,000. Yesterday’s publication did not cause as much excitement as the previous one, and the dollar only saw a cosmetic strengthening. Meanwhile, industrial production is struggling, with the April result showing a 0.4% year-on-year decline, similar to March. The impact of high interest rates is evident, limiting investments to some extent. High costs also have a limiting effect. In the housing market, we received evidence of continued expansion, although below expectations. The number of housing starts grew by 5.7% last month, while building permits shrank by 3% month-on-month—the weakest result since the end of 2022.
Returning to Wall Street indices, yesterday’s declines and the resulting daily bearish candlesticks in a critical area do not bode well. Of course, the bearish signal from technical analysis could be wrong. However, I do not rule out a “bull trap” scenario, where a “double top” pattern forms on the chart, signaling the start of a larger correction. The next few days should provide a resolution to this situation.
Łukasz Zembik, Oanda TMS Brokers
