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A look at the day ahead in U.S. and global markets from Mike Dolan
Wall St looks set to return from the 'Juneteenth' holiday in a slightly more cautious mood as hawkish European policymakers contrast with another interest rate cut in China and as U.S. housing dominates the data slate.
Both the S&P500 and Nasdaq hit new 14-month highs on Friday before a late retreat and futures continued the consolidation on Tuesday, marginally in red along with overseas bourses.
The main macroeconomic news overnight was a rather underwhelming Chinese rate cut that seemed to disappoint the local stock and currency markets, both of which fell.
The People's Bank of China cut two benchmark lending rates - its one-year and five-year loan prime rates - by 10 basis points each. The prime rate cuts, the first in 10 months, followed similar easing in other money rates last week but were less aggressive than some had hoped - with 50% of respondents to a Reuters poll forecasting a 15-bps cut to the five-year rate.
With Goldman Sachs on Monday the latest to cut China growth forecasts for this year and next, nerves about the economy's trajectory are rising again.
While some now doubt whether China is prepared for another mega monetary or fiscal stimulus to support its spluttering post-COVID recovery, the rate moves do stand in contrast to ongoing Western credit tightening and come alongside some thaw in Beijing's relations with Washington.
On Monday, China's President Xi Jinping welcomed "progress" on easing bilateral tensions after shaking hands with U.S. Secretary of State Antony Blinken at the Great Hall of the People, with both sides agreeing to stabilize their intense rivalry so it does not veer into conflict.
The meeting likely tees up a summit between Xi and U.S. President Joe Biden later in the year.
Global bond market nerves were jarred again by what's set to be another hawkish week for central bank watchers in Europe - with further rate hikes in Britain, Switzerland, Norway and Turkey expected.
The UK gilt market was in the eye of the storm, with money markets - fearing Britain may now be an inflation outlier as prices subside elsewhere - pushed the likely peak in Bank of England interest rates closer to 6% by next March and two-year fixed mortgage rate deals hit 6% for the first time this year.
While most expect a quarter point BOE rate rise this week, as many as one in three see a half point move to 5% - above which two-year bond yields rose on Monday for the first time in almost 15 years. May UK inflation readings on Wednesday will now be critical to the picture.