As the opening bell approaches, U.S. stock futures are suggesting a negative start to today’s session. In overnight trading, markets in Asia closed mostly in the red. Meanwhile, the major European indexes are also trading in the loss column. Elsewhere, oil prices have moved lower, with West Texas Intermediate (WTI) down about 1.1%, to around $72.35 a barrel.
Yesterday, the Federal Reserve released its quarterly Senior Loan Officer Opinion survey, and the results were not encouraging. Specifically, the report indicated that, in response to recent troubles within the industry, U.S. banks have imposed tighter lending standards for both businesses and individuals, which will likely weigh on economic activity in the quarters ahead. Moreover, participants in the survey expected deposit outflows to continue.
The stricter standards and resulting reduction in lending demand are in-line with the Federal Reserve’s monetary policy tightening strategy. Last week, the central bank increased its overnight rate for the 10th time since March of last year, raising it by a quarter point, to a range of 5.00%-5.25%. This marks the highest level for the target rate in nearly 16 years. While the lead bank’s post-meeting statement did not go so far as to indicate a pause, it also did not hint that further tightening may be necessary, as it did at its March Meeting. Likely, the next decision will depend on economic developments between now and the time of the Fed’s next meeting in mid-June.
The economic news calendar for this week includes two important reports. Tomorrow morning, the U.S. Bureau of Labor Statistics will release its Consumer Price Index (CPI) for April. This measures the average of changes in prices paid for a basket of consumer goods. In March, the index suggested that inflation was easing, with an increase of 0.1%, versus 0.4% in February. On a 12-month basis, however, the CPI was up 5%, indicating it was still well above the Federal Reserve’s target of 2%. This will be followed on Thursday with April’s Producer Price Index (PPI), which measures average changes in prices that producers receive for their goods and services. In March, the index showed a decline of 0.5%, compared to an unchanged reading in February. For the 12 months ended in March, the index showed an increase of 3.6%.
Stocks began the week with a mixed session and little movement. The Dow Jones Industrials fell 55 points (0.2%), the S&P 500 gained one point (0.1%), and the NASDAQ Composite advanced 21 points (0.2%). That small uptick was enough to push the tech-heavy composite to a gain of 20% off of its low from last year, thereby lifting it out of bear market territory.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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