Fedspeak remains a key force this week, in the wake of Friday’s red hot jobs report and ahead of Wednesday’s release of the latest data on U.S. consumer prices.
Recent evidence of a healthy U.S. economy, despite the Fed’s prolonged rate-hiking cycle, has resulted in traders drastically reducing bets on how much the Federal Reserve will cut rates this year.
Fed funds futures contracts for December on Monday reflected expectations of around 60 basis points in rate cuts this year, compared to some 150 basis points that had been priced at the start of 2024.
This has occurred even with the Federal Reserve projecting it will cut rates by 75 basis points this year.
Fed speakers have been sounding the alarm on cutting rates too early, with Minneapolis Federal Reserve Bank President Neel Kashkari even mentioning last week the potential for no reductions this year.
However, the tone has seemingly turned more dovish this week, with former Federal Reserve Bank of St. Louis President James Bullard stating he’s expecting three interest-rate cuts this year as inflation moves toward the central bank’s target.
Chicago Federal Reserve President Austan Goolsbee also stated that the U.S. central bank must weigh how much longer it can maintain its current interest rate stance without it damaging the economy.
U.S. stock futures were largely unchanged Tuesday, amid cautious trading ahead of the release of key consumer prices data.
By 04:35 ET (08:35 GMT), the Dow futures contract was down 30 points, or 0.1%, S&P 500 futures climbed just 1 point, or 0.1%, and Nasdaq 100 futures rose by 14 points, or 0.1%.
The main Wall Street indices closed near the flatline Monday, with traders wary of placing big bets ahead of Wednesday’s inflation print that could determine the outlook for interest rate cuts.
The economic data slate is quiet Tuesday, with the focus on not only the inflation figures on Wednesday but also the minutes of its March meeting where officials continued to expect three cuts for this year albeit with less conviction relative to their forecast from the end of last year.
The new quarterly earnings season is also set to start in earnest this week, with reports from major banks due on Friday.
The only way appears to be up for Taiwan Semiconductor Manufacturing (NYSE:TSM), with the shares of the world’s largest contract chipmaker surging to a record high on Tuesday.
This followed the news that the U.S. Commerce Department will award it a $6.6 billion subsidy for an advanced semiconductor plant in Phoenix, Arizona, to produce the world’s most advanced 2 nanometer technology. The chipmaker was also eligible for up to $5 billion in low-cost loans.
“These are the chips that underpin all artificial intelligence, and they are the chips that are necessary components for the technologies that we need to underpin our economy, but frankly, a 21st century military and national security apparatus,” Commerce Secretary Gina Raimondo said in a statement.
Taiwan shares of TSMC jumped about 4% to a record high of T$817.0, while TSMC’s American Depository Receipts rose 1% in overnight trade – both are over 30% higher so far this year.
TSMC is a key supplier to technology giants, including Nvidia (NASDAQ:NVDA) and Apple (NASDAQ:AAPL), and has been a major beneficiary of the seemingly insatiable global interest in artificial intelligence.
HSBC (LON:HSBA) is set to depart Argentina, taking a hefty hit along the way as the lender sells its Latin American unit as part of efforts to streamline its business.
The U.K.-based banking giant announced Tuesday that it had entered a binding agreement with private financial group Grupo Financiero Galicia to sell its Argentina business for $550 million, suffering a $1 billion pretax loss on the disposal.
Along with the pretax loss, which the bank will report in the first quarter of 2024 after the disposal, HSBC will also recognize at least $4.9 billion of historical cumulative foreign currency translation reserve losses.
The move comes as part of a massive restructuring, with HSBC recently completing the sale of its Canadian operations to RBC as it attempts to focus more on its key Asian and European markets.
Oil prices edged higher Tuesday, regaining some of the previous session’s lost ground on raised uncertainty over a possible ceasefire in the Israel-Hamas conflict.
By 04:35 ET, the U.S. crude futures traded 0.5% higher at $86.87 a barrel, while the Brent contract climbed 0.5% to $90.85 per barrel.
A fresh round of Israel-Hamas ceasefire discussions in Cairo had ended a multi-session rally on Monday, but the prospect of an immediate ceasefire remains fleeting, given that the two parties have failed to reach an agreement despite repeated efforts to broker peace.
Oil prices remained close to five-month highs, supported by the notion that any cuts to production from the oil-rich region would likely further tighten global oil markets.
Still, gains are minor Tuesday ahead of the release of key inflation data from both the U.S. and China later in the week, as well as industry data on U.S. crude stockpiles later in the session.
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