Market Update & Important Indicators
Stocks fell as investor expectations for higher interest rates picked up after reports of upbeat U.S. economic data and a jump in inflation. Major indexes' losses deepened mid-afternoon as investors sold more consumer staples and utilities shares. Those sectors include steady dividend paying companies, which had made them investor favorites in recent months amid prolonged low interest rates and scarce returns elsewhere. Interest rate futures–a popular tool for hedge funds and money managers to place bets on the Fed's policy–showed Tuesday that the odds of a rate increase at the Fed's June meeting were 19% Tuesday, up from 4% a day ago, according to CME Group. The odds for a rate increase at the December meeting were 70% recently, up from 58% a day earlier. The Fed's minutes from its April policy meeting are scheduled to be released on Wednesday and investors will look for clues over when and if the Fed will continue to raise interest rates. Stocks have struggled for direction recently, with the S&P 500 down 0.1% this month. The Dow has changed direction from the prior session for the past six trading days on a closing basis.
European stocks ended a choppy session almost flat, with a rally for banks and commodity shares offset by a slump for auto makers after a round of broker downgrades. The Stoxx Europe 600 ended down 0.01 point at 334.72, after trading as high as 338.73 earlier in the session. Basic material shares helped keep the pan-European benchmark out of deep negative territory, finding support from a softer U.S. dollar, which tends to help prices for metals and oil for holders of other currencies. Oil prices moved closer to $50 a barrel, after gaining on Monday as Goldman Sachs said the global oil market likely shifted into a deficit in May. Metals were also mostly higher.
Shares in the Asia-Pacific region ended mostly higher on Tuesday as Brent crude oil neared $50 a barrel. Japan's Nikkei Stock Average closed up 1.1% and Korea's Kospi ended little changed. In China, the Shanghai Composite Index slid 0.3% and Hong Kong's Hang Seng Index rose 1.2%. Energy shares were up in the region after oil prices hit a fresh 2016 peak overnight. PetroChina Rose 3.2% and Cnooc rose 3.1%. Oil explorer Inpex rose 3.2% in Japan. Higher oil prices helped push Malaysia shares higher on Tuesday. The 30-stock local benchmark index climbed 0.75% to 1,633.38 points in the afternoon, driven mainly by gains for the listed units of national oil company Petroliam Nasional Bhd. "Definitely, higher oil prices are bringing good sentiment to the stock market" in Singapore and across the region, said Margaret Yang, market strategist with CMC Markets. Singapore's stock benchmark, the FTSE Strait Times Index, was recently up 0.4%, its second positive day in a row. In Japan, the yen abruptly weakened after the stock market closed. Some analysts attributed the move to investors who were closing U.S. dollar short positions after the dollar hit 109 per Japanese yen. Other analysts said the yen could strengthen next week after the G-7 summit in Japan, if officials dash hopes for fresh stimulus.
Australian shares advanced for a second straight session Tuesday, hitting a nine-month high as energy and mining stocks were buoyed by firmer commodity prices. Investor sentiment continues to be swayed by moves in crude-oil prices, which now appear poised to reclaim the US$50 a barrel mark, overshadowing worries about global growth that weighed heavily on the local market earlier in the year. The S&P/ASX 200 finished at its high of the day, up 37 points, or 0.7%, at 5395.9. The index continues to claw its way back from technical bear-market territory, and has risen about 13% from its February lows. Oil and gas stocks posted the strongest gains of the day, with the energy subindex climbing 3.1%, while the basket of materials shares rose 1.9%. Most banks were higher, but the sector was held back as National Australia Bank and Macquarie traded ex-dividend and together knocked almost nine points off the ASX 200. In the energy space, Santos jumped 6.3% and Woodside Petroleum and Oil Search gained 2.9% and 3.1%, respectively.
Copper prices closed higher after a choppy session in London on Tuesday, amid dollar weakness and stronger oil prices. The London Metal Exchange's three-month copper contract was up 0.26% at $4,657 a metric ton at the end of open-outcry trading, having hit a three-day high earlier in the session at $4,699.50 a ton. The WSJ Dollar Index was recently down 0.26% at 86.67, making the dollar-denominated commodity cheaper to buy for those holding other currencies. Additionally, the global oil benchmark, Brent crude, was up 0.6% at $49.28 a barrel. The two commodities are often traded together by funds as part of an index, with greater weighting given to oil, so copper tends to slip lower when oil prices fall. Among the other base metals, aluminum was down 0.19% at $1,545 a ton, zinc was up 0.2% at $1,904 a ton, nickel was up 0.9% at $8,795 a ton, lead was down 0.9% at $1,722 a ton and tin was up 0.3% at $16,960 a ton.
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