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Stocks settled on Wall Street as traders assessed data showing the Chinese economy on the cusp of deflation and braced for US inflation figures that will fuel the Federal Reserve’s interest rate decision in late July.
The leading S&P 500 rose 0.1 percent in the New York afternoon Monday, after swinging between gains and losses early in the day after a three-session losing streak. The tech-heavy Nasdaq Composite was flat.
KBW Bank rose 0.2 percent even as a top US bank regulator proposed tougher capital rules for the country’s largest lenders.
The US moves came after data from the Bureau of Labor Statistics on Friday showed that the world’s largest economy added 209,000 jobs in June.
The employment report came in below expectations for the first time in 15 months, but left some traders “confused,” said Mike Zygmunt, head of trade and research at Harvest Volatility Management. “Is this strong enough for (the Fed) to keep walking? Is this weak enough to keep the Fed on pause? Is it so weak compared to past strong months that we are looking forward to an imminent recession?”
Analysts at JPMorgan said the “remaining tight” job market is “paving the way” for another rate hike from the Fed later this month. Next, expect an “extended hold” from the central bank as economic growth slows, reducing the need for further monetary tightening.
Investors’ attention this week will focus on the US consumer price index, which is expected to slow in June, which could ease pressure on the central bank to resume raising interest rates at its July meeting.
If year-on-year headline inflation falls to 3.1 percent in June as expected, it will be the lowest rate since March 2021.
“The US is expected to record a sharp decline in core and core inflation measures during the month of June,” said Carl Chamota, senior market analyst at Corpay. “But with used car prices falling and seasonal adjustments playing huge roles, the data is unlikely to derail the Fed.”
The yield on sensitive two-year US Treasury notes fell 0.07 percentage point to 4.87 percent. Its yield, which moves inversely to price, hit a 16-year high of more than 5 percent last week after strong private payroll data.
On the other end of the inflation spectrum, Chinese data released on Monday showed that the world’s second-largest economy is on the cusp of deflation. The country’s consumer price index fell 0.2 percent month-on-month, while factory gate prices fell at the fastest pace in seven years as demand for consumer and manufactured products slumped.
Michael Ivry, an analyst at Rabobank, said China’s “slip into a world of deflation” has increased the need for economic stimulus including tax breaks and investment in strategic sectors. But “given the current levels of debt and the ongoing real estate crisis, we don’t expect any significant economic stimulus measures.”
Stagnant price growth will only add to investor concerns about China’s faltering recovery this year. Many had called for China to bounce back after the removal of strict anti-Covid measures in late 2022.
Oil prices fell after the expectations of one of the world’s largest energy consumers softened. Brent crude, the international benchmark, fell 1 percent on Monday afternoon to trade at $77.70 a barrel, while US West Texas Intermediate crude fell 1.2 percent to $72.98 a barrel.
Major Asian markets closed in positive territory after the Chinese data, with Hong Kong’s Hang Seng Index up 0.6 percent and China’s CSI 300 Index up 0.5 percent.
In Europe, the region-wide Stoxx 600 rose 0.2 percent, while the French CAC 40 rose 0.4 percent. The German DAX index gained 0.4 percent, after falling in early trading. London’s FTSE 100 rose 0.2 percent.
