Looming Fed Meeting, Inflation Data May Lead To Choppy Trading On Wall Street

The major U.S. index futures are currently pointing to a roughly flat open on Monday, with stocks likely to extend the lackluster performance seen over the two previous sessions.

Traders may be reluctant to make significant moves ahead of several key events later this week, including the Federal Reserve’s monetary policy meeting.

The Fed is due to announce its latest monetary policy decision on Wednesday, when the central bank is widely expected to leave interest rates unchanged.

Since the decision is largely seen as a foregone conclusion, traders are likely to pay closer attention to Fed officials’ latest projections for the economy and rates.

Ahead of the Fed announcement, the Labor Department is scheduled to release its report on consumer price inflation in the month of May.

Economists currently expect consumer prices to inch up by 0.1 percent in May after climbing by 0.3 percent in April, while core consumer prices, which exclude food and energy prices, are expected to increase by 0.3 percent for the second straight month.

The annual rate of growth by consumer prices is expected to come in unchanged at 3.4 percent, but the annual rate of core consumer price growth is expected to slow to 3.5 percent in May from 3.6 percent in April.

Reports on producer prices, import and export prices and consumer sentiment and inflation expectations may also attract attention later in the week.

Stocks showed a lack of direction over the course of the trading day on Friday, extending the lackluster performance seen during Thursday’s session. The major averages spent the day bouncing back and forth across the unchanged line before closing modestly lower.

After reaching a new record intraday high in early afternoon trading, the S&P 500 ended the day down 5.97 points or 0.1 percent at 5,346.99. The Dow also dipped 87.18 points or 0.2 percent to 38,798.99, while the Nasdaq slipped 39.99 points or 0.2 percent to 17,133.13.

For the week, the Nasdaq surged by 2.4 percent and the S&P 500 jumped by 1.3 percent. The narrower Dow posted a more modest gain, rising by 0.3 percent.

The choppy trading on Wall Street came as traders reacted to the Labor Department’s closely watched monthly jobs report.

The report showed employment jumped by much more than expected in May but also showed an unexpected uptick in the unemployment rate.

The Labor Department said non-farm payroll employment surged by 272,000 jobs in May after climbing by a downwardly revised 165,000 jobs in April.

Economists had expected employment to increase by about 185,000 jobs compared to the addition of 175,000 jobs originally reported for the previous month.

The report also showed the annual rate of growth by average hourly employee earnings accelerated to 4.1 percent in May from 4.0 percent in April.

Meanwhile, the Labor Department said the unemployment rate crept up to 4.0 percent in May from 3.9 percent in April. The unemployment rate was expected to remain unchanged.

With the unexpected increase, the unemployment rate reached its highest level since hitting a matching rate in January 2022.

“The May jobs report is a Rorschach blot,” said Bill Adams, Chief Economist for Comerica Bank. “Optimists about the growth outlook will see solid payrolls growth as a sign the expansion continues unabated.”

He added, “Pessimists will focus on the unemployment rate’s uptick to the highest since early 2022, the increase in part-time employment, and the dip in temporary employment, which is often a leading indicator of broader job market weakness.”

Adams suggested there would also be the same “one-hand, other-hand interpretations” of the report to describe the interest rate outlook.

“Accelerating pay growth could be a sign of inflationary pressures ready to rebound if the Fed takes their foot off the brake,” he said. “On the other hand, higher unemployment could signal weaker wage growth ahead, softer consumer demand, and less pricing power for businesses, which would cool inflation.

While most of the major sectors showed only modest moves, gold stocks saw substantial weakness, resulting in a 6.6 percent nosedive by the NYSE Arca Gold Bugs Index. The sell-off by gold stocks came amid a steep drop by the price of the precious metal.

Steel stocks also showed a significant move to the downside on the day, dragging the NYSE Arca Steel Index down by 1.9 percent to a six-month closing low.

Considerable weakness was also visible among interest rate-sensitive telecom stocks, as reflected by the 1.8 percent loss posted by the NYSE Arca North American Telecom Index.

Networking, housing and airline stocks also saw notable weakness, while pharmaceutical and banking stocks saw modest strength.

Commodity, Currency Markets

Crude oil futures are climbing $0.81 to $76.34 a barrel after edging down $0.02 to $75.53 a barrel last Friday. Meanwhile, after plummeting $65.90 to $2,325 an ounce in the previous session, gold futures are slipping $0.60 to $2,324.40 an ounce.

On the currency front, the U.S. dollar is trading at 156.99 yen versus the 156.75 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0751 compared to last Friday’s $1.0801.

Asia

Asian stocks turned in a mixed performance on Monday, with markets in China, Hong Kong and Australia closed for public holidays.

The dollar rose in international markets as the euro collapsed dramatically in the wake of political upheaval in France following President Emmanuel Macron’s demand for an early legislative election.

Gold traded below $2,300 per ounce ahead of this week’s Federal Reserve meeting, where no changes to monetary policy are expected. Oil nudged higher on hopes of improved summer fuel demand in the U.S.

Japanese markets rose sharply after government data showed Japan’s economy contracted less than initially reported in January-March, due to upgrades in capital expenditure.

The Nikkei 225 Index rallied 0.9 percent to 39,038.16, while the broader Topix Index jumped 1 percent to 2,782.49.

A weaker yen lifted export-related stocks, with Honda Motor and Toyota Motor rising 2.4 percent and 1.7 percent, respectively.

Financials benefited from increased domestic yields, with Mitsubishi UFJ Financial and Sumitomo Mitsui Financial both climbing around 2 percent.

Electronics giant Sharp surged 6.3 percent on SoftBank’s Group new AI data center announcement. SoftBank shares advanced 2.4 percent.

The Bank of Japan (BOJ) holds its two-day monetary policy meeting this week and it is likely that the central bank will consider whether to scale back its roughly 6 trillion yen ($38 billion) in monthly Japanese Government Bond purchases.

Seoul stocks fell notably as investors awaited cues from the upcoming Fed meeting. The Kospi fell 0.8 percent to 2,701.17. Market bellwether Samsung Electronics lost 2.1 percent and top chemicals maker LG Chem shed 3 percent.

New Zealand’s benchmark S&P/NZX-50 Index dropped 0.6 percent to 11,787.57, recording its third successive fall.

Europe

European stocks have drifted lower on Monday, with French stocks under heavy selling pressure after President Emmanuel Macron called for snap legislative elections later in June.

Macron’s decision comes after the European Union elections showed a broader shift towards right-wing and far-right parties.

Focus also shifted toward Federal Reserve policymakers updating their rates forecast on Wednesday, though no change in policy rates is expected.

While the French CAC 40 Index has tumbled by 1.6 percent, the German DAX Index is down by 0.5 percent and the U.K.’s FTSE 100 Index is down by 0.2 percent.

French banks have led losses, with BNP Paribas, Credit Agricole and Societe Generale all moved notably lower.

Airbus SE has also declined. The plane maker announced that its Airbus Defence and Space unit has received a contract from Al Yah Satellite Communications Co. PJSC, or Yahsat, UAE’s flagship satellite solutions provider, for its new geostationary telecommunications satellites, Al Yah 4 and Al Yah 5.

Pennon has also dropped as the British water company appointed David Sproul as chair designate, replacing Gill Rider after the annual general meeting on July 24.

Meanwhile, Tristel has risen. The maker of infection prevention products said that it has appointed Matthew Sassone as Chief Executive Officer with effect from September 2.

In economic news, U.K. permanent staff appointments fell for the twentieth consecutive month in May, but the pace of decrease was the softest since March 2023, a report compiled by S&P Global showed.

Recruitment consultants cited delayed decision making and a lack of demand amongst companies as reasons for the fall in recruitment activity, the KPMG/REC Report on Jobs revealed.

Temp billings also decreased in May, with the decline the weakest since January.

U.S. Economic Reports

The Treasury Department is scheduled to announce the results of this month’s auction of $58 billion worth of three-year notes at 1 pm ET.