By Jamie McGeever
ORLANDO, Florida, May 27 (Reuters) – World stocks eked out new highs while major markets such as the S&P 500, U.S. dollar and Treasuries were largely steady on Wednesday as investors digested conflicting signals on a potential U.S.-Iran peace deal and awaited U.S. inflation figures on Thursday.
In my column today, I look at comparisons between the current AI capex boom – the largest ever – and the dotcom mania of the late 1990s. Despite growing risks, there are reasons to believe a market crash is neither imminent nor inevitable.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. US and Iran remain divided on Hormuz deal as White House rejects Tehran TV report
2. Investors expect US dollar to break higher as Fed battles inflation
3. US bonds about to bite stocks: Mike Dolan
4. Europe’s push to break Big Tech’s grip tempered by internal debate
5. FOCUS-Prediction markets look to institutional investors for next phase of growth
Today’s Key Market Moves
• STOCKS: South Korea up 3% to new high, China -1%. Europe flat, UK up 0.1%. Wall Street mixed: Dow, Russell 2000 post new highs; S&P 500, Nasdaq basically flat.
• SECTORS/SHARES: Five sectors on the S&P 500 rise, six fall. Consumer discretionary +1.9%, energy -1.5%. Zscaler -31%, Qualcomm -9%, JPMorgan Chase -2.4%. United Airlines +6%, Procter & Gamble +3%.
• FX: Dollar index flat. NZ dollar +1%, biggest G10 FX mover. Yen hits 4-week low, back in possible intervention zone.
• BONDS: U.S. yields 1-2 bps lower. 5-year auction better than previous, but registers yet another tail.
• COMMODITIES/METALS: Oil -4%, gold slips to 2-month low.
Today’s Talking Points
* Pipes of peace
We’ve been here before. President Donald Trump suggests a U.S.-Iran peace deal is close, investors get all giddy, stocks rally and oil slides. Iran denies it, the market positivity evaporates, and oil spikes (the AI mania keeps stocks elevated).
We had a role reversal on Wednesday – Iranian state TV cited an unofficial memorandum of understanding outlining the framework for a deal that would see the Strait of Hormuz reopen within a month. The U.S. called it a “complete fabrication.” But markets are behaving as if a deal is in the offing – oil is back below $100, and stocks are at all-time highs.
* Pipes of PCE
U.S. PCE inflation for April is published on Thursday, the first major inflation report in the Kevin Warsh era at the U.S. Federal Reserve. Economists expect headline annual PCE to rise to 3.8%, matching headline CPI, and the core annual rate to increase to 3.3%, notably higher than the 2.8% core CPI rate.
Hopes of a resolution to the U.S.-Iran war have lowered oil prices, bond yields and Fed expectations, but traders are still putting a 50-50 probability on a rate hike by year’s end. PCE releases are always important. This one, for Warsh and the Fed, especially so.
* Hawk wind
The Reserve Bank of New Zealand kept rates on hold on Wednesday, but the split decision is a sign hikes are imminent. This follows rate increases in Australia and Norway, strong hawkish guidance from European Central Bank officials, and a shift in tone at the Fed.
In emerging economies, Sri Lanka stunned markets with a 100 bps hike this week, and Brazil’s easing path was clouded by sticky inflation figures. Central bankers everywhere are hoping for an end to the U.S.-Iran war. If that isn’t forthcoming, they face difficult choices.
What could move markets tomorrow?
• Developments in the Middle East
• South Korea interest rate decision
• Bank of Japan Deputy Governor Ryozo Himino speaks
• European Central Bank officials scheduled to speak include President Christine Lagarde, board member Isabel Schnabel and chief economist Philip Lane
• Euro zone consumer, business confidence (May)
• Canada current account (Q1)
• Bank of Canada Governor Tiff Macklem speaks
• U.S. weekly jobless claims
• U.S. PCE inflation (April)
• U.S. durable goods (April)
• U.S. GDP (Q1, second estimate)
• U.S. Treasury sells $44 billion of 7-year notes at auction
• U.S. Federal Reserve officials scheduled to speak include Vice Chair Philip Jefferson and Richmond Fed President Thomas Barkin
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Deepa Babington, Rod Nickel)
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