The S&P 500 is setting new historical records. The Nasdaq Composite hovers around its maximum valuation. The Dow Jones is struggling to reach new all-time highs. The dollar weakened mainly due to poor retail sales data, which fueled concerns about consumer strength. Industrial production in the US surprised with a high month-over-month growth rate, but the data contradicts earlier ISM indexes, which suggested weak growth in this sector. In Europe, the DAX gained a modest 0.35% but remains in a downward correction. The French CAC40 rebounded by 0.76%, but there is still a long way to go to recover the losses incurred mainly in the past week. The Swiss franc gained again, with the EUR/CHF pair falling below 0.95. The Polish zloty also appreciated. The EUR/PLN pair reached a local low of 4.33, and USD/PLN fell below 4.03.
Sentiment on Wall Street remains positive. The rally in the Nasdaq Composite and S&P 500 continues, driven mainly by technology companies. Nvidia shares, a leader in artificial intelligence, rose by 3.5% yesterday. In Europe, sentiment is improving, but slowly. The German DAX is significantly distant from its records, and the main French stock market benchmark is even further from this level. The situation is likely to remain tense until the first round of elections in France (June 30). The spread between French and German government bonds remains elevated, reflecting the premium for political risk.
Yesterday, we received several speeches from Fed representatives, all emphasizing the need for more evidence of cooling inflation before starting to cut interest rates. Adriana Kugler stated that if the economy develops according to her expectations, it is likely that the process of easing monetary policy could begin this year. Williams from New York sees a process of disinflation and expects continued easing of price pressures this year and next. On the other hand, Alberto Musiał made a more hawkish statement, acknowledging that it will take quarters before data confirms the first rate cut. Lorie Logan called for patience and waiting for more data confirming the trend of easing prices. Currently, the market sees about a 65% chance of a Fed rate cut in September, with real chances for another move in December. Recall that the latest Fed forecast update indicated the possibility of one move this year. Thus, the market assumes that the Fed is wrong and will be forced to act faster to prevent a significant economic slowdown.
Consumer weakness was confirmed yesterday by US retail sales data. In May, it increased by 0.1%, which is worse than forecasts. The result excluding auto sales was even more disappointing, with a decline of 0.1% m/m instead of the expected increase. April’s data was revised downward. The data is not catastrophic but indicates that Americans are showing great caution in spending, suggesting growing concerns about an economic slowdown in an environment of still-high inflation. Industrial production surprised positively, rising by 0.9% m/m, significantly higher than the consensus of 0.3%. The situation is not entirely clear. Other data regarding the industrial sector (ISM index) disappointed with a low result (48.7 points).
Yesterday’s data from the US weakened the dollar, driving the EUR/USD pair to the level of 1.0750 and causing the USD/PLN pair to drop below 4.05. In relation to the euro, the zloty also gained, with the rate momentarily reaching 4.33 yesterday.
Łukasz Zembik
Oanda TMS Brokers
