In the open: TSX gains support from resource sectors

Global stock markets strengthened on Monday as investors braced for a big wave of inflation data that could set the stage for an interest rate cut in Europe as early as next week and a policy easing in the U.S. within just a few months.

Holidays in Britain and the United States contributed to weak trading ahead of Friday’s data on core personal consumption expenditures (PCE), the Federal Reserve’s preferred measure of inflation.

Canada’s main stock index started the week on an upbeat note, supported by a rally in energy and materials stocks ahead of a flurry of inflation data from the U.S. and Canada that provide clues to the timing of interest rate cuts.

At 9:30 a.m. EST, the Toronto Stock Exchange’s S&P/TSX composite index was up 41.52 points, or 0.19%, at 22,362.39.

MSCI’s broadest share index gained 0.2%, after falling 0.38% last week and just shy of hitting an all-time high of over 796.

“The road to the Federal Reserve’s 2% target appears to be longer and more difficult than predicted last year,” said Bruno Schneller, managing director at Erlen Capital Management.

According to a Reuters poll, the median forecast is for the PCE price index to rise 0.3% in April, maintaining an annual pace of 2.8%, with the risk of a loss.

The U.S. economic recovery remains uneven, with sectors such as manufacturing showing signs of slowing and services remaining resilient, Schneller told Reuters.

“This complex scenario likely delays any potential rate cuts until the end of 2024 or later, requiring continued monitoring of incoming data to assess the appropriate timing and pace of monetary policy adjustments,” he added.

Euro zone inflation data will also be published on Friday and economists believe that the expected increase to 2.5% should not stop the European Central Bank from easing its policy next week.

Policymakers Piero Cipollone and Fabio Panetta signaled an upcoming rate cut over the weekend, while markets indicate an 88% chance of easing rates to 3.75% on June 6.

Analysts from Societe Generale noted that by Thursday the ECB will enter a quiet period before the meeting scheduled for June 6.

“There have been questions about how the latest wages data will hold up, given that wage growth is weakening, and we can hear more ECB speakers highlighting that Q1 figures were impacted by temporary factors.” the note reads.

The Bank of Canada may also ease next week, while the Fed will wait until September to make its first move.

At least eight Fed officials will speak this week, including two appearances by the influential head of the New York Fed, John Williams.

The head of the Bank of Japan (BOJ) said on Monday that it would proceed cautiously with its inflation targeting strategy, adding that some challenges were “exceptionally difficult” for Japan after years of ultra-easy monetary policy.

The BoJ will hold a policy meeting on June 14 and there is some chance it will buck the global trend and raise interest rates again, albeit to a modest 0.15%.

European shares fell on Monday, several major markets were closed and investors took a cautious stance ahead of this week’s inflation data.

The pan-European STOXX 600 index rose 0.2% at 12:28 GMT. With US and UK markets closed on Monday, there was little overall trading activity.

S&P 500 and Nasdaq futures remained stable, with the market opening on Tuesday. Last week, the Nasdaq hit record highs after Nvidia beat expectations.

In currency markets, attention has returned to the yen and the risk of Japanese intervention above the 160.00 level. The dollar was at 156.84 yen, up 0.9% last week and near a recent high of 160.245. Japan renewed efforts to counter excessive yen declines at a weekend meeting of Group of Seven (G7) financial leaders after a recent rise in bond yields to a 12-year high failed to slow the currency’s decline.

The euro held at $1.0850, just below the recent high of $1.0895.

Gold rose about 0.6% to $2,348 an ounce, after falling 3.4% last week, to hit an all-time high of $2,449.89.

Oil prices are stuck near four-month lows on demand concerns as the U.S. driving season begins this week. Investors are waiting to see whether OPEC+ will debate new production cuts at its June 2 online meeting, although analysts doubt a consensus on such a move will be reached.

Brent rose 55 cents to $82.67 a barrel, while U.S. crude rose 55 cents to $778.27 a barrel.

Reuters

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