ASX set to dip to kick off the week

In the bond market, Treasury yields rose following the discouraging preliminary report from the University of Michigan.

It suggested sentiment among US consumers is weakening by much more than economists expected, and the drop was large enough to be “statistically significant and brings sentiment to its lowest reading in about six months,” according to Joanne Hsu, director of the survey of consumers.

Potentially even more discouraging is that US consumers were forecasting inflation of 3.5 per cent in the upcoming year, up from their forecast of 3.2 per cent a month earlier. If such expectations spiral higher, the fear is that it could lead to a vicious cycle that worsens inflation.

It highlights how some companies have recently been describing increasing struggles among their customers, particularly their lower-income ones.

The yield on the 10-year Treasury rose to 4.50 per cent from 4.46 per cent late Thursday. But the movement was still relatively modest compared with its drop from 4.70 per cent late last month.

Markets may remain on hold until Wednesday’s highly anticipated update on US inflation at the consumer level, according to rates strategists at Bank of America. Traders are still largely penciling in one or two cuts to interest rates by the Federal Reserve this year, according to data from CME Group.

“Right now, the market is in a good mood thanks to a decent earnings season and a Fed that has a high bar to hiking,” according to Brian Jacobsen, chief economist at Annex Wealth Management. “That mood can change quickly.”

Last week, Federal Reserve Chair Jerome Powell helped pull yields lower after saying the central bank remains closer to cutting its main interest rate than hiking it, despite a string of stubbornly high readings on inflation this year. The Fed has been keeping its main interest rate at the highest level in more than two decades in hopes of getting high inflation fully under control.

A cooler-than-expected jobs report at the end of last week, meanwhile, suggested the US economy could pull off the tricky balancing act of staying solid enough to avoid a bad recession but not so strong that it worsens inflation.

In stock markets abroad, London’s FTSE 100 rose 0.6 per cent after the government reported the UK economy bounced back to growth at the start of the year. The performance was better than expected, and it snapped two straight quarters where the economy shrank.

In Japan, Tokyo’s Nikkei 225 rose 0.4 per cent after a report showed strong auto exports whittled down the nation’s trade deficit and it racked up solid returns on overseas investments.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.