Inflation data, presidential debate could sink summer rally

NEW YORK – The typical summer slowdown in US stock markets may be more pronounced this year with inflation jitters and an early presidential debate that have the potential to weigh on a rally that has pushed the S&P 500 near record highs in recent months.

The S&P 500 is up nearly 12% this year on strong earnings and signs inflation may be falling enough for the Federal Reserve to cut benchmark interest rates, but that rally is unlikely to continue in the months ahead, investors said.

Summer has historically been the slowest season for US stocks. The benchmark S&P 500 has risen 56% of the time between June through August, according to data from CFRA Research dating back to 1945. Traders on vacation and investors waiting for fall corporate earnings before committing to next year’s asset allocations are often cited as reasons for the summer doldrums.

This summer brings extra headwinds, though, with ongoing uncertainty over the timing of rate cuts and the unknowns of the US presidential election expected to drive some choppiness.

“Markets are pretty richly valued at this point, and everything has to go right between now and July for the Fed to deliver any interest rate cuts,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

“We don’t see a lot of potential catalysts for more gains, so there’s a good chance that the seasonal slowdown we typically see will be turbocharged this year.”

Inflation data will be the key driver of the market for the rest of the year, determining the path of Treasury bond yields and their relative attractiveness compared with stocks.

The S&P 500 is currently trading at a forward price-to-earnings ratio of 21.6 compared with roughly 17.5 in October when 10-year Treasury yields hit near two-decade highs.

Hotter-than-expected inflation data early this year dampened expectations for Fed rate cuts in 2024, pushing yields broadly higher. Then a dip in the rate of price increases in April was widely seen as giving the Fed cover to ease, with the market now pricing in a 35 basis point cut by the end of December.

But another hot reading in June or July could dash those hopes. The next personal consumption expenditures report is expected on Friday, while the next consumer price index report is expected on June 12.

“The real challenge will be on the relative side. If yields were to spike and if it looks like the Fed isn’t going to cut, then investors will move into bonds and cash,” said Ed Clissold, chief US strategist at Ned Davis Research.

At the same time, global fund managers have their highest stock allocation since January 2022, according to BofA Global Research. “When everybody is long, there’s nobody left to buy,” said Giuseppe Sette, president of market research firm Toggle.

TIGHT RACE

This year’s election race between President Joe Biden, a Democrat, and Republican former President Donald Trump is another unknown.

The S&P 500 has advanced between Memorial Day and Labor Day 75% of the time when a first-term president is running for reelection, said Sam Stovall, chief investment strategist at CFRA Research. But this year’s race is extremely tight with Biden largely tied with Trump in national opinion polls.

The pair have also agreed to a June 27 debate. That would mark the earliest-ever general election debate in a presidential race, focusing investor attention on the potential outcome and policy implications of the race much earlier than usual.

“This looks like it will be a fairly tight presidential election, so getting some kind of pullback as investors move to the sidelines is quite possible,” said Clissold.

(Reporting by David Randall; editing by Michelle Price and Jonathan Oatis)

Gold loses momentum on ebbing rate cut speculation

Gold prices rose on Friday as the dollar slipped, but were headed for their worst week in five and a half months as hopes of interest rate cuts by the US central bank tamed.

Spot gold rose 0.2% to USD 2,332.77 per ounce as of 1:54 p.m. ET (1754 GMT) as the US dollar index slipped 0.4%, making gold relatively less expensive for other currency holders.

US gold futures settled 0.1% lower to USD 2,334.50.

Bullion hit a record high of USD 2,449.89 on Monday, but has shed more than USD 100 since then and is on track for a 3% drop this week, its worst weekly dip since early December.

“What we’ve always had was a little bit of a lack of interest from the Western investors on uncertainty over when the Fed will cut rates…once the Fed cuts rates, they would increase exposure again,” said Michael Widmer, Bank of America’s head of Metals Research.

Minutes from the Federal Reserve’s last meeting published this week showed the central bank’s path to 2% inflation could take longer than expected.

Traders’ bets signaled growing doubts that the Fed would cut rates more than once in 2024, currently pricing in about a 63% chance of a rate cut by November according to the CME FedWatch Tool.

Higher interest rates make non-yielding gold a less appealing investment.

Despite uncertainty around the US rate outlook, gold prices managed to gain 13% so far this year, largely on the back of strong Chinese demand and ongoing geopolitical uncertainties, analysts have noted.

However, “there is a risk now that you might see somewhat lower gold purchases from the Chinese retail investors into the second half of this year, as the government is putting much more effort into reflating the economy. If that happens, you then revert back to the demand from the Western investors- taking us back to the discussion about the Fed rate cuts,” Widmer said.

Spot silver rose 0.5% to USD 30.25. It hit an 11-year high on Monday.

Platinum rose 0.8% to USD 1,027.25, while palladium fell 0.7% to USD 962.50. All three metals were headed for weekly losses.

(Reporting by Harshit Verma in Bengaluru; Editing by Vijay Kishore)

Japan issues fresh warning on yen drops, signals readiness to intervene

STRESA, Italy – Japan stands ready to take appropriate action in the market “any time” to counter excessive moves in the yen, its top currency diplomat Masato Kanda said on Friday, issuing a fresh warning on the chance of renewed exchange-rate intervention.

Kanda also said he was in frequent and close contact with overseas counterparts, particularly in the US, on issues including financial markets.

“Under a flexible exchange-rate regime, we won’t need to intervene if currency moves are stable. But if there are excessively volatile moves that have an adverse effect on the economy, we need to take action, and doing so would be justified,” Kanda told reporters.

“We are ready to act any time as needed against currency moves,” he said after accompanying Japanese Finance Minister Shunichi Suzuki for the first-day session of the G7 finance leaders’ meeting in the northern Italian city of Stresa.

Kanda made his remarks a day after US Treasury Secretary
Janet Yellen
said currency interventions should be used only rarely and in a well-communicated way.

At the Group of Seven meeting, Japan told its counterparts that vigilance was needed against excessive volatility in the currency market that was driven by speculative moves, Kanda said.

Japan also told the meeting it was important to “respond appropriately” to excessive, disorderly moves in the currency market that would hurt the economy, he added.

Japan will push for the G7 finance leaders’ communique to include language reaffirming the group’s stance that excessive and volatile currency moves were undesirable, he said.

Kanda, who oversees Japan’s currency policy as vice finance minister for international affairs, declined to comment when asked about the yen’s recent declines.

The yen has lost 11% against the dollar this year on expectations the US Federal Reserve will be in no rush to cut interest rates, which would keep the divergence between US rates and Japan’s ultra-low rates large.

SUSPECTED INTERVENTION

A weak yen has become a headache for Japanese policymakers as it hurts consumption by inflating the cost of raw material imports.

Japan is suspected to have intervened in the currency market to prop up the yen on April 29 and May 2 to arrest what authorities described as excessive, speculative currency moves.

While the suspected intervention has kept the yen from falling below the psychologically important 160-to-the-dollar line, the Japanese currency has yet to stage a clear rebound. It stood at 156.98 to the dollar on Friday, not far from the more than three-week low of 157.19 touched on Thursday.

Markets see the 160-to-the-dollar level as a line in the sand for authorities that heightens the chance of yen-buying intervention. Tokyo stepped into the market when the Japanese currency slid below that level.

The G7 group of advanced nations share a common understanding that stable currency moves are desirable and that countries have the authority to take action in the market when exchange-rate moves become too volatile.

Tokyo has argued this G7 agreement gives it freedom to intervene in the currency market to counter excessive yen moves.

(Reporting by Leika Kihara; Editing by Hugh Lawson and Paul Simao)

Checking pulse of China profits, eyeing yen action

Trading volume and activity across Asia on Monday will be among the lightest this year owing to the US and UK public holidays, but markets are open and there is no shortage of issues for investors to chew on.

The economic calendar sees the release of Chinese industrial profits figures for April and trade data from Hong Kong, while South Korea hosts a trilateral meeting in Seoul with China and Japan.

With the world’s two biggest FX trading centers London and New York both closed, yen traders may be on intervention alert. Japan’s last two suspected bouts of yen-buying action recently came in extremely illiquid hours of the global day, one of which was May 1 when many countries’ markets were shut.

The dollar is back up at 157.00 yen, and the latest Commodity Futures Trading Commission figures show that after three weeks of reducing short yen positions, speculators are now loading up on them again.

Could Tokyo be tempted to catch the market off guard again?

While trading volume will be thin in Asia on Monday, the global investment backdrop remains constructive. Although bond yields are rising and central banks are leaning increasingly hawkish, markets remain buoyant.

In large part, this is being led by US developments – strong earnings, solid growth, and extremely subdued volatility. Indeed, a key driver of the bullish momentum globally is the low level of volatility.

The Chinese investment picture, of course, is less rosy, and perhaps not coincidentally, China-Taiwan tensions are rising.

Downward pressure on the yuan’s exchange rate appears to be building again. The spot yuan just had its biggest weekly fall against the dollar since mid-March, and the central bank’s daily dollar/yuan fixing rate on Friday was above 7.1100 for the first time since January.

Foreign direct investment into China in January-April plunged nearly 28% from the same period last year, and Goldman Sachs analysts estimate that FX outflows in April accelerated to USD 86 billion from a USD 39 billion outflow in March.

While many benchmark equity indexes around the world have shot to new highs recently, and Hong Kong’s Hang Seng rebounded as much as 20%, Chinese stocks have found the going much tougher.

And China’s economic surprises index has continued to inch lower in recent weeks too – on Friday it slipped to its lowest level since February 8.

All that comes despite Beijing taking fresh steps to address the property sector crisis. The week ahead is a quiet one in terms of Chinese economic indicators, but April industrial profits on Monday is a big one for investors.

Profits fell in March, complementing a slew of economic indicators for the month such as retail sales and industrial output that pointed to frail domestic demand.

Here are key developments that could provide more direction to markets on Monday:

– South Korea, Japan, China trilateral meeting

– China industrial profits (April)

– Hong Kong trade (April)

(Reporting by Jamie McGeever; Editing by Josie Kao)

What to expect as US moves towards faster stock settlement

NEW YORK – US markets are set for an upheaval on Tuesday, May 28, when the settlement time for US equities, corporate municipal bonds, and other securities will be halved to one day, or T+1, following the adoption of a new Securities and Exchange Commission (SEC) rule in February 2023.

Here is what to expect:

WHAT IS SETTLEMENT?

A trade settlement occurs when the buyer receives the security and the seller is paid. This final stage is handled by the Depository Trust Company (DTC), a subsidiary of the Depository Trust and Clearing Corporation.

WHAT DOES SPEEDING UP SETTLEMENT MEAN FOR MARKETS?

Regulators hope a faster settlement process will reduce risk and improve efficiency in the world’s largest markets, as investors will get their money and securities sooner. Currently, as trades take two days to conclude, there can be hiccups before investors receive their money or securities.

A trading frenzy around the “meme stock” GameStop GME.N in 2021 highlighted the need to reduce counterparty risk and improve capital efficiency and liquidity in securities transactions. SEC Chair Gary Gensler said the change would make the US market infrastructure more resilient, timely, and orderly.

HOW IS IT GOING TO BE IMPLEMENTED?

Over the coming weekend, market participants will be preparing to start settling trades in one day on May 28, instead of two. Although they have been testing faster settlement since at least August 2023, this weekend will be critical.

A virtual command center has been created to monitor the implementation and communicate potential issues. Over 1,000 people will join multiple daily calls, said Tom Price, managing director at trade association Sifma.

The conversion of the Depositary Trust and Clearing Corporation (DTCC) to T+1 will be a central part of the shift to faster settlements, as it provides clearing and settlement services for Wall Street, but all market participants will have to adjust, from banks to asset managers and custodians.

IS THE US THE FIRST COUNTRY TO MOVE TO T+1?

No. Trades in India are being settled one day after the trade, after the country’s Securities and Exchange Board completed its phased-in transition in January 2023. Now India has set its sights on same-day settlement, joining China where stock settlement is T+0 and T+1 for cash settlement.

Canada, Mexico, and Argentina will also shift to a one-day settlement on May 27, one day before the US

Alejandro Félix, president of the AMIB’s (Mexican Association of Stock Institutions) Administration Committee, said Mexico decided to speed up T+1 to preserve the correlation with the US

WHO COMES NEXT?

Britain’s stock markets plan to shift to T+1 by the end of 2027, while the European Union has said it is also looking to follow the US, but the timing has not been announced.

WHAT ARE THE CHALLENGES?

Financial firms will have less time to line up dollars to buy stocks, recall shares out on loan, or fix transaction errors, which could heighten the risk of settlement failures and raise transaction costs. The foreign exchange market, for instance, still settles in two days.

WHAT MAY GO WRONG?

As market participants adjust to faster settlements, they expect a temporary increase in trade fails. This happened in September 2017 when the settlement period was reduced from three to two days, according to Sifma.

The SEC said “a shorter settlement cycle may lead to a short-term uptick in settlement fails and challenges to a small segment of market participants.”

Research firm ValueExchange found in a survey that market participants expect the trade fail rate to increase to 4.1% after T+1 implementation from 2.9%. Sifma expects a minimal rise in the fail rate which would be resolved quickly, Price said.

(Reporting by Carolina Mandl in New York; Additional reporting by Laura Matthews in New York, and Noe Torres in Mexico City; Editing by Megan Davies and Richard Chang)

Gold slips to over one-week low on hawkish Fed, US data

Gold fell to more than a week’s low on Thursday, extending its decline for a third straight session, as investors grew apprehensive over US rate cut timings and on strength in US business activity.

Spot gold fell 1.8% to USD 2,336.39 per ounce, its lowest since May 13, as of 1748 GMT. US gold futures settled 2.3% lower to USD 2,337.20 per ounce.

The non-yielding bullion hit a record high of USD 2,449.89 on Monday and is up 14% so far this year.

Making gold less attractive, the dollar cut its losses for the day on US business activity accelerating to the highest level in over two years in May, suggesting that economic growth picked up halfway through the second quarter.

Advancing dollar and a weakening US rate cut outlook have catalyzed a round of profit-taking in gold, but the downside will be limited, said Daniel Ghali, commodity strategist at TD Securities.

While the policy response for now would “involve maintaining” interest rates at current levels, the latest Fed minutes reflected discussions of possible hikes.

“Investors that care about the Fed outlook actually aren’t all that long in gold. They’ve missed the rally and in turn, don’t have that much gold to sell. So while we do think the gold prices are staging a correction here, but that will be relatively shallow,” Ghali said.

UBS raised its gold price forecasts to USD 2,600/oz for 2024-end and recommended buying on dips at around USD 2,300/oz or below, citing a series of softer US data for April, an upwardly revised central bank demand for gold and ongoing geopolitical uncertainties.

Meanwhile, imports to India, the world’s second-biggest gold consumer, could fall by nearly a fifth in 2024 as high prices spur retail consumers to exchange old jewelry for new items, according to an industry body.

Spot silver fell 1.8% to USD 30.22. The recent rally in gold and copper prices drove it to USD 32.5, an 11-year high, earlier this week.

Platinum was down 1.4% at USD 1,020.35, while palladium lost 3.5% to USD 964.75.

(Reporting by Harshit Verma and Rahul Paswan in Bengaluru; Editing by Shilpi Majumdar and Alan Barona)

US SEC approves exchange applications to list spot ether ETFs

The US Securities and Exchange Commission (SEC) on Thursday approved applications from Nasdaq, CBOE and NYSE to list exchange-traded funds (ETFs) tied to the price of ether, potentially paving the way for the products to begin trading later this year.

While the ETF issuers also have to get the green light before the products can launch, Thursday’s approval is a major surprise win for those firms and the cryptocurrency industry, which until Monday had expected the SEC to reject the filings.

Nine issuers including VanEck, ARK Investments/21Shares, and BlackRock hope to launch ETFs tied to the second-largest cryptocurrency after the SEC in January approved bitcoin ETFs in a watershed moment for the industry.

“This is an exciting moment for the industry at large,” said Andrew Jacobson, vice president and head of legal at 21Shares, noting it was “a significant step” towards getting the products trading.

Thursday was the deadline for the SEC to decide on VanEck’s filing. Market participants were bracing for the thumbs-down because the SEC had not engaged with them on the applications.

But in a surprise move, SEC officials on Monday asked the exchanges to quickly fine-tune the filings, sending the industry scrambling to complete weeks of work in just days, sources said.

Reuters could not ascertain why the SEC appeared to have a change of heart.

“The introduction of spot bitcoin ETFs has already demonstrated significant benefits for the digital assets and ETF space, and we believe that spot ether ETFs will similarly provide safeguards for US investors,” said Rob Marrocco, global head of ETP listings at Cboe Global Markets.

Nasdaq and NYSE declined to comment.

When asked about the ether ETFs by reporters at an industry event earlier on Thursday, SEC Chair Gary Gensler – a crypto skeptic – declined to comment. An SEC spokesperson said in an email announcing the approval that the agency would not comment further.

The exchange applications had sought SEC approval for a rule change required to list new products, but the issuers still need the SEC to approve ETF registration statements detailing investor disclosures before they can start trading.

Unlike the exchange filings, there is no set time frame in which the SEC has to decide on those statements. Industry participants said it was unclear how long that would take. Two sources familiar with the process said many issuers are ready to launch, but the corporate finance division of the SEC has indicated it is likely to request changes and updates in the coming days and weeks.

The SEC rejected spot bitcoin ETFs for more than a decade over market manipulation worries but was forced to approve them after Grayscale Investments won a court challenge last year.

Sui Chung, CEO of CF Benchmarks, the index provider for several of the bitcoin and ether ETFs, said ether is more complex than bitcoin and it could take months for the SEC to review the statements. But since the bitcoin ETFs offer an established template, “there’s only so much slow rolling” the SEC can do, he said.

An array of investors, including hedge funds, wealth advisors and retail investors, have poured more than USD 30 billion into the crypto ETFs.

Thursday’s decision is another tailwind for cryptocurrency industry efforts to push into mainstream finance. This week the UK regulator also approved listed cryptocurrency products while the US House of Representatives passed a landmark bill seeking to provide regulatory clarity for cryptocurrencies.

While that bill still needs to pass the Senate, its extensive bipartisan support marks a major endorsement for the industry.

(Reporting by Hannah Lang in New York and Suzanne McGee; additional reporting by Douglas Gillison; Editing by Michelle Price, Leslie Adler, and Rod Nickel)

Global stocks fatigued from bull run, but no correction expected

BENGALURU – The global equity bull run is showing signs of fatigue, with most major stock indexes not expected to repeat last year’s stellar performance, according to a Reuters poll of stock analysts who also said a near-term correction was unlikely.

With financial markets paring back 2024 rate cut expectations from major central banks and most stock indexes already trading close to lifetime highs, further gains were expected to come at a much slower pace.

A resilient global economy, an ongoing boom in technology stocks and their considerable weight in equity indexes, especially in the US, are likely to prevent any major drop in stock prices in the near-term, the poll forecast.

A strong 60% majority of analysts, 51 of 85, who answered an additional question in the May 13-22 poll said a correction of 10% or more over the coming three months was unlikely (41) or highly unlikely (10). The remaining said likely (23) or highly likely (11).

“The significant gains seen in many stock markets over the last few months have made our portfolio managers a little more cautious on the outlook…Fading prospects for interest rate cuts, such an important driver of the market rally, also give us further pause for thought,” said Paul Quinsee, head of global equities at JP Morgan Asset Management.

“But fundamentals of corporate profits still look good… Globally, this looks like a much better year for profit growth after a lackluster period post-COVID.”

Indeed, of the 15 stock market indexes surveyed, on only Britain’s FTSE was expected to achieve last year’s performance. In 2023 nearly all of them gained more than 10%.

“Equity return expectations in 2024 should stay muted – 2023’s double-digit market returns will be hard to duplicate,” said Daniel Morgan, senior portfolio manager at Synovus Trust, adding that stocks “are priced for perfection”.

The benchmark S&P 500 index, which sets the tone for global portfolio flows and is one of the best performers this year with a more than 11% gain, is forecast to end 2024 near current levels.

Japan’s NIKKEI index, up more than 15% for the year, was predicted to add another 5% in the second half of 2024. If realised, this would be the second year in a row where the index has outperformed most of its peers.

European and British stocks, which had a good run this year as both Britain and euro zone economies escaped a recession, were either predicted to make little headway or shed a little from here by the end of the year.

The Euro STOXX 50 index, France’s CAC 40 and Spain’s IBEX which are up 11.6%, 7.9% and 12.2% respectively this year, were forecast to gain another 1-2%.

Britain’s FTSE, the European STOXX 600 and Germany’s DAX index were seen falling 1.4%, 1.9% and 0.2%, respectively, between now and year-end.

Despite high valuations, India’s benchmark BSE index was forecast to lead its peers and gain more than 8% for the remainder of the year. The Sensex was already up more than 2% for the year.

(Reporting by Hari Kishan; Additional reporting and polling by correspondents in Bengaluru, Buenos Aires, London, Mexico City, Milan, New York, San Francisco, Sao Paulo, Tokyo, and Toronto; Editing by Ross Finley and Alex Richardson)

Stocks fall despite Nvidia boost as inflation concerns weigh

NEW YORK – US stocks ended lower on Thursday, even as a strong revenue forecast for Nvidia fueled a surge in its shares, but that was overshadowed by economic data showing inflation was still a concern that could delay any Federal Reserve rate cuts.

Nvidia shares jumped 9.32% to close above the USD 1,000 per share mark for the first time and helped boost the Nasdaq and S&P 500 to intraday records in the early stages of trading after the AI chip company forecast quarterly revenue above estimates and announced a stock split.

But stocks lost ground after economic data showed US price pressures increased in May even as business activity accelerated and as lower weekly jobless claims indicated the labor market remains on firm footing.

“It maybe speaks to the fact that people are now positioned for disappointing growth data, slower inflation data, rate cuts, and this morning… it caught people wrong-footed,” said Brian Nick Senior Investment Strategist at The Macro Institute in New York.

“Anything that looks like good news is still being greeted as bad news, which shows we’re still in this sort of Fed relief rally period where the market’s generally happy that interest rates have stopped going up, but the worst thing would be for interest rates to continue going up at this point.”

The Dow Jones Industrial Average fell 605.78 points, or 1.53%, to 39,065.26, the S&P 500 lost 39.17 points, or 0.74%, to 5,267.84 and the Nasdaq Composite lost 65.51 points, or 0.39%, to 16,736.03.

Treasury yields moved higher after the data, which weighed heavily on small-cap stocks, as the Russell 2000 dropped 1.6%, its biggest daily percentage drop since April 30.

The gains in Nvidia helped lift the S&P 500 tech index 0.56% as the sole advancer among the 11 major S&P sectors on Thursday. But despite the gains in Nvidia, chip stocks on the whole were lower, with the PHLX semiconductor index edging down 0.02% on the session.

The rally in equities to record highs this month has been fueled in part by AI optimism, a solid earnings season and renewed hopes for rate cuts by the Fed this year. Nvidia shares are up about 110% this year after surging roughly 240% in 2023.

Markets are now pricing in a 52.2% chance for a rate cut of at least 25 basis points (bps) in September, down from nearly 67% a week ago, according to CME’s FedWatch Tool.

The Dow was dragged lower in part by a 7.55% tumble in Boeing after the US planemaker forecast negative free cash flow in 2024 due to sluggish deliveries, which accounted for over 90 points to the downside for the blue-chip index. The 1.53% tumble was the largest daily percentage drop for the Dow since March 22, 2023.

DuPont announced plans to split into three publicly traded companies. Shares of the US conglomerate ended up 0.48% but were sharply off earlier levels.

Ticketmaster-owner Live Nation slumped 7.81% after the US Justice Department along with a group of 30 states and the District of Columbia Thursday sued to break up the concert promoter.

Declining issues outnumbered advancers for a 5.13-to-1 ratio on the NYSE and for a 3.59-to-1 ratio on the Nasdaq.

The S&P index recorded 33 new 52-week highs and nine new lows, while the Nasdaq recorded 139 new highs and 159 new lows.

Volume on US exchanges was 13.70 billion shares, compared with the 12.19 billion average for the full session over the last 20 trading days.

(Reporting by Chuck Mikolajczak; Editing by Aurora Ellis)

Markets cool off, Japan inflation on tap

A classic economic data case of ‘good news is bad news’ from the United States on Thursday looks set to weigh on Asian markets on Friday, as that eagerly awaited first US interest rate cut gets pushed back further into the distance.

A quarter-point rate cut from the Fed is now fully priced only in December, after the presidential election. It’s hard to believe now, but at the start of the year 150 basis points of easing was expected in 2024, starting in March.

Coming on the heels of a similar tempering of UK rate cut expectations and more hawkish signaling from New Zealand’s central bank this week, the prospect of tighter global policy in the coming months could be problematic for risk assets.

Stocks fell and bond yields rose on Thursday after figures showed that US business activity accelerated in May to the highest level in over two years, trumping yet another earnings ‘beat’ from AI and chipmaking giant Nvidia.

This should fuel risk appetite, but the US PMI report also showed price pressures rising rapidly. With many equity indexes historically high and volatility historically low, investors are choosing caution over adventure.

There are signs that some of the froth is coming off other markets – after hitting record highs on Monday, US copper prices are on track for a 5.5% decline this week, which would be the biggest fall since November 2022.

That’s the backdrop to the open in Asia on Friday. If markets close flat or lower, the MSCI Asia ex-Japan stock index will post its first weekly decline in five, China’s blue chip CSI300 its first fall in six weeks, and Hong Kong’s Hang Seng its biggest weekly loss since January.

Japanese inflation tops Friday’s economic data calendar, which also includes inflation from Malaysia, trade from New Zealand and industrial production from Singapore.

Annual core inflation in Japan is expected to fall to 2.2% in April from 2.6%, closer to the Bank of Japan’s 2% goal and perhaps enough to give policymakers some breathing room after Japanese Government Bond yields this week climbed to their highest in over a decade.

In Italy, G7 finance chiefs get a two-day meeting underway on Friday, with the trade standoff between China and the West high on the agenda.

And looking ahead to the weekend, South Korea hosts a two-day trilateral summit with China and Japan that starts on Sunday.

From a markets perspective, it will be interesting to see if discussions touch on trade competitiveness, AI and the chips sector, and exchange rates, after Japan and South Korea last month signed a rare joint statement with the United States to “consult closely” on currencies.

Here are key developments that could provide more direction to markets on Friday:

– Japan CPI (April)

– New Zealand trade (April)

– G7 finance chiefs meet in Italy

(Reporting by Jamie McGeever; Editing by Josie Kao)

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