Stocks head lower ahead of US GDP data – Daily Market Brief, May 26, 2022

US markets finished on higher ground. However, Europe is pointing to a softer start after a weak handover from Asia as inflation and growth concerns linger.

·         The Fed minutes supported market expectations, helping US stocks close higher

·         UK Chancellor is expected to announce a cost-of-living crisis bailout, which must be targeted to avoid more inflationary pressures

·         US GDP & initial jobless claims data are due later

The minutes of the latest Fed meeting brought little in the way of surprise but managed to boost the mood in the US, helping indices close on a positive note. The minutes revealed that all Fed policymakers at the 3-4the FOMC meeting supported the 50-basis point rate hike. Furthermore, the majority judged a 50 basis point rate hike in the upcoming meetings in June and July to be appropriate. The minutes also highlighted the Fed’s faith in the strength of the US economy. However, the tight labour market, global supply chain problems, and ongoing COVID in China skewed inflationary risks to the upside.

The Nasdaq closed 1.5% higher while the S&P500 rallied 0.95% and the Dow Jones 0.6%.

UK living crisis bailout

The upbeat mood evaporated overnight as sentiment remains fragile and the market continues to flip flop over inflation and growth concerns. Europe is expected to see a modestly softer start with an announcement from the UK Chancellor of the Exchequer Rishi Sunak, who is expected to lay out plans for some form of emergency support for struggling households, as the cost-of-living crisis ramps up.

The package is expected to be around £10 billion and aimed at helping households deal with surging energy bills. Any form of fiscal support from the government must be extremely targeted; otherwise, it could make the inflation problem in the UK worse.

The FTSE is set to open around 0.2% lower after gains of 0.5% yesterday; the pound is heading for a weaker start against both the US dollar and the euro.

US GDP, jobless claims

Looking ahead, attention will be on US GDP data and initial jobless claims for further clues over the health of the US economy. USD Q1 GDP data is expected to see a slight upward revision to the surprise -1.4% contraction to  -1.3%.

Initial jobless claims rose to a ten-week high in the previous week, unnerving investors. The market will be looking for signs that the economic slowdown is reflected in the jobs market. Another rise in initial jobless claims could fuel recession bets. Expectations are for claims to fall slightly to 215k, down from 218k.

Oil

Oil prices are edging higher for a second straight session amid signs of a tight market. The latest EIA crude oil stockpile data showed a larger than forecast draw of 1.019 million barrels compared to a draw of 737k forecast. However, the main upside driver of oil prices continues to be the prospect of an EU ban on Russian oil imports, which is expected to be approved soon, as Hungary holds up the process. Even without the formal deal buyers are increasingly avoiding Russian oil; deliveries to France and the Netherlands have almost completely halted.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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