Wall Street equities, US bond markets, and commodities were swamped Thursday by data showing that the US economy is stronger than thought.
Coming a day after the minutes of the last Fed meeting injected a note of caution into the pie-in-the-sky speculation about a rate cut and bets on its timing, the early survey of US business activity for May was much stronger than estimated, while jobless numbers fell for a second week, confounding those who were looking for a gain.
The Fed minutes surprised by revealing that the Open Market Committee was closer to a rate hike than anyone thought, which underlined the reluctance of Chair Jay Powell to say nice and comforting words to the nervous nellies in the markets.
Next Friday's personal consumption expenditure data report—especially the core inflation reading that the Fed tracks closely—is now the big test for sentiment. It has to show a clear easing in cost pressures; otherwise, market nerves will be on full alert. The day before, sentiment will also be tested by the second (and more accurate) reading on US first-quarter economic growth.
That saw US bond yields jump sharply, the US dollar rise, and gold slump $US62 an ounce. Copper sold down sharply for a second day (as did gold), and silver slid, also for a second day. Oil fell for the 4th day (a positive for weaker inflation), and iron ore shed more than 2% in trading in China and Singapore.
So Wall Street fell—except for Nvidia, which jumped 9.3% in regular trading to a record $US1,037.99 before turning slightly lower in after-hours trading. That added close to $US200 billion to the market’s capitalization but couldn’t stem the wave of selling or help other markets.
Stronger than expected economic data hit markets as investors cut their odds of a rate cut in September. Services and manufacturing data for May both topped economists’ expectations, according to the surveys from S&P Global.
Initial jobless claims for the week ending May 18 came in at 215,000, while economists had forecast 220,000. The results added to investors’ concerns that the Federal Reserve will not lower interest rates soon.
The data saw US 10-year bond yields bounce higher to 4.8%, while two-year yields rose to within sight of 5%, closing at 4.948%.
Comex gold futures lost $US62 an ounce to trade around $US2,330 an ounce—the front-month contract has fallen $US125 an ounce in a couple of days. Silver shed another 3.8% to $US30.30 an ounce.
And the great boom in copper prices was well and truly spiked for the time being, with the red metal shedding 1.6% to end at $US4.77 a pound—still a strong figure but nowhere near the all-time peak of $US5.19 a pound earlier this week.
Oil lost ground again, with US West Texas Intermediate type crude trading around $US76.99 a barrel and Brent style crude around $US81.34—both down by 0.6% to 0.7% on the day.
In Singapore, iron ore retreated from its three-month peak around $US122 a tonne for 62% Fe fines, ending Thursday down 2.3% at $US119.55 a tonne.
