As the week wraps up, markets grapple with mixed signals.
Expectations for a Federal Reserve rate cut are pushed back following a spike in inflation. Alphabet Inc. reports soaring earnings, propelling its market valuation past $2 trillion. Oil prices could surpass $100 per barrel if Middle East tensions worsen. Meanwhile, the Japanese yen weakens as the Bank of Japan maintains rates amidst slowing inflation.
US rate cut expectations delayed after inflation spike
Recent economic data led investors to reassess the timeline for Federal Reserve action. The updated data, which showed inflation and growth figures below par, has shifted expectations for the first quarter-point rate reduction from September to just after the November elections.
According to futures contracts, confidence in a September rate cut has dropped, with the likelihood now at about 75%, down from nearly certain before the data was released. Instead, investors are fully pricing in a cut for the Federal Reserve's November 6-7 meeting, which directly follows the November 5 presidential election.
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Alphabet's earnings triumph: shares surge, dividend announced
Alphabet Inc.'s shares ($GOOG) soared in after-hours trading, leaping 14% as the tech giant crushed earnings expectations and unveiled its first-ever dividend.
The impressive financial results, particularly a profit spike in its cloud division, propelled Alphabet's market valuation over the $2 trillion mark. The company reported earnings of $1.89 per share, significantly outpacing the $1.51.
Revenue also exceeded expectations, hitting $80.54 billion compared to the anticipated $78.59 billion. This marked a 15% increase from the previous year's $69.79 billion, signaling the fastest growth rate since early 2022.
Adding to the investor enthusiasm, Alphabet announced a forthcoming dividend of 20 cents per share, with the first payment scheduled for June 17 to shareholders of record as of June 10.
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Oil price could exceed $100 a barrel if Middle East conflict worsens
A stark escalation in Middle East conflicts could drive oil prices beyond $100 a barrel, according to the World Bank.
Despite an initial forecast averaging $84 per barrel this year, the World Bank now considers this figure optimistic should the situation deteriorate further. The price of Brent crude has surged to $87 per barrel, influenced by fears of a broader regional conflict.
The World Bank's latest commodity report outlines two scenarios: a moderate disruption could push Brent to an average of $92 this year, while a severe one might see prices surpass $100, potentially increasing global inflation in 2024 by nearly one percentage point.
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Yen dives as BOJ holds rates amid slowing inflation
The Japanese yen plummeted to a new low, reaching over 156 against the US Dollar ($USDJPY), following the Bank of Japan's decision to maintain its ultra-low interest rates.
The central bank's policy rate remains at 0%-0.1%, aligning with expectations, but leading to significant currency depreciation. This sharp decline occurred as Tokyo's inflation data showed a slowdown. April's headline inflation in Tokyo was reported at 1.8%, a drop from March's 2.6%.
Even more telling was the core inflation rate, which excludes fresh food prices, plunging to 1.6% from the previous 2.4% and missing the forecasted 2.2% by economists.
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This concludes our weekly recap. Have a great weekend and see you next week! 👋
