US good-news-is-bad-news theme gives a soft lead to markets this morning
The stock market will open this morning contemplating the good-news-is-bad-news theme as far as the US economy is concerned. A reasonable CPI read and very strong housing sales in the US during February have the market thinking about US interest rate increases. This led to a decline in US stock markets and is likely to flow through to a soft start to local trading this morning.
Getting inflation on a trajectory back towards 2% is a key consideration for when the Fed will begin to lift interest rates. How US inflation holds up in the face of a stronger Dollar and potentially lower import prices will be one of the most closely watched features of the world economic landscape over coming months. Consumer prices excluding food and energy have increased at an annualised rate of 1.7% over the past six months and are so far holding up reasonably well.
Much better than expected new home sales in the US during February, despite very cold weather will also be encouraging for the Fed. It appears home buyers are responding to an improved job market, low interest rates and recent softness in the median price for new houses.
As has often been the case recently, whether or not we see buying of yield stocks like the big four banks may hold the key to how today’s trading pans out once the market settle s down after the initial opening period.
For further comment from CMC Markets please call 02 8221 2137.
Frequently Asked Questions about this Article…
In the stock market, good economic news, like strong housing sales, can lead to concerns about interest rate increases. This is because a strong economy might prompt the Federal Reserve to raise interest rates to control inflation, which can negatively impact stock prices.
The US Consumer Price Index (CPI) is a key indicator of inflation. If the CPI shows that inflation is rising, it may lead the Federal Reserve to increase interest rates to keep inflation in check. This is why investors closely watch CPI readings.
US housing sales can influence the stock market because strong sales indicate a healthy economy, which might lead to interest rate hikes. This can cause stock prices to drop as higher rates can increase borrowing costs and reduce consumer spending.
US interest rates are important for global markets because they influence the cost of borrowing worldwide. Changes in US rates can affect currency values, investment flows, and economic conditions globally, impacting international stock markets.
A stronger US Dollar can help reduce inflation by making imports cheaper. This can lower the cost of goods and services, which might ease inflationary pressures and influence the Federal Reserve's decisions on interest rates.
Yield stocks, like those of the big four banks, are often sought after for their dividends. In uncertain markets, investors may buy yield stocks for steady income, which can influence overall market trading dynamics.
New home sales are significant for the Federal Reserve because they reflect consumer confidence and economic health. Strong sales suggest a robust job market and low interest rates, which the Fed monitors when making decisions about monetary policy.
Investors can contact CMC Markets for further commentary by calling 02 8221 2137. This can provide additional insights and analysis on market trends and economic indicators.
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