Stock Rally Stalls as Investors React to Jobless Claims and Economic Data

Stock Rally Pauses: US main Stock indexes are mostly flat on Thursday, following record highs reached on Wednesday. The rally paused as investors digested US jobless claims, home construction data, and the May Philly Fed index.

Jobless Claims: Jobless claims were slightly higher than expected, coming in at 222K, down from 232K the previous week but above forecasts of 220K. This follows a significant increase in New York claims the previous week. New jobless claims had jumped last week to an eight-month high of 232,000, mainly due to a surge in applications in New York state tied to school spring break.

Home Construction and Philly Fed Index: Home construction data rebounded, while the Philly Fed index was weaker than expected, painting a mixed picture of the US economy.

USD Maintains Upward Momentum: The increase in both initial and continuing jobless claims suggests some softness in the labour market, but overall employment remains strong. Despite the slight increase, the jobless claims data did not significantly alter market expectations, with the US Dollar Index maintaining its upward momentum.

Economic Outlook: Despite rate hikes, jobs remain plentiful, and the economy is broadly healthy due to strong consumer spending. Economists initially feared rapid rate hikes might lead to a recession.

Fed’s Stance on Rate Cuts: New York Fed President John Williams tempered rate cut expectations, stating that while inflation is gradually easing, more evidence is needed to confirm it will reach the 2% target before considering rate cuts. Despite the disinflationary signals, these remarks suggest a cautious approach to policy easing, maintaining some support for the USD.

Fed Watch Tool: According to the CME Fed Watch Tool, markets are pricing in a 70% probability of at least a 25-basis point rate cut by the September meeting, with further cuts expected before the end of the year.

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