Stocks on Wall Street lagged behind European peers ahead of a two-day US central bank meeting that will be closely watched for clues on the future path of monetary policy.
Wall Street’s S&P 500 index was down 0.2 per cent at lunchtime in New York, retreating from an all-time high that the benchmark hit on Friday, while the technology-focused Nasdaq Composite index climbed 0.4 per cent.
Core US government debt sold off on Monday, taking the yield on the benchmark 10-year US Treasury note up 0.03 percentage points to 1.5 per cent. This followed a rally last week in which investors banked on the Federal Reserve looking past high US inflation to maintain its pandemic-era support for financial markets.
The Fed is widely expected to maintain its $120bn of monthly bond purchases when it meets on Tuesday and Wednesday. These asset purchases, which have been followed by rate-setters in Europe and the UK, have lowered the yields on government bonds, reducing corporate borrowing costs and boosting the appeal of riskier assets such as equities.
But after a rapid recovery of the US economy fuelled by coronavirus vaccines and President Joe Biden’s massive stimulus programmes, some analysts see the Fed’s policymakers bringing forward their predictions of the first post-pandemic interest rate rise.
“We expect the Fed to upgrade its outlook for growth and materially revise up the inflation forecast,” Tiffany Wilding, US economist at the bond investment house Pimco, said in a research note. “We think the majority of Fed officials will also pull forward their projections for the first rate hike to 2023 [from 2024].”
Headline US consumer price inflation hit 5 per cent in the 12 months to May. Jay Powell, Fed chair, has maintained that the rises are a temporary effect of the US economy reopening after coronavirus shutdowns. “But others are concerned inflation is more structural,” said Marco Pirondini, head of US equities at Amundi. “I’d say it is 50-50 on either side.”
A rise in used car and truck prices, after a global semiconductor shortage lowered production of new vehicles, accounted for about a third of the increase in May’s CPI, according to the Bureau of Labor Statistics.
US wages could also “go up in a more sustained way”, Pirondini said, after Biden signed an executive order in late April to increase government pay, pressuring private industry to also raise salaries.
Across the Atlantic, the pan-regional Stoxx Europe 600 gained 0.2 per cent to another record high with energy the top-performing sector following a further lift in oil prices.
Brent crude climbed as much as 1.3 per cent on Monday to $73.64 a barrel, a two-year high for the international oil benchmark.
Elsewhere in the region, the UK’s travel and leisure companies lagged behind the wider market on reports that the planned lifting of Covid-19 curbs in England on June 21 would be delayed by the UK government.
The news left the FTSE 350 Travel & Leisure sector down 1.4 per cent compared with a rise of 0.2 per cent for the broader FTSE 350 index.
The dollar index, which measures the US currency against peers, dipped 0.1 per cent. The euro was up 0.2 per cent against the greenback, purchasing $1.212. Sterling was up 0.1 per cent at $1.411.
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