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Morning bid: Stocks buoyant as Sweden cuts, oil skids

[May 08, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

Wall Street looks to have brushed off the latest hawkish Federal Reserve noises and Disney's outsize swoon, with European bourses stalking new records as Sweden becomes the latest G10 central bank to cut interest rates and oil prices plunged.

Stocks futures and Treasury yields held pretty steady overnight even after Minneapolis Fed chief and known hawk Neel Kashkari said all policy options were on the table in getting inflation back in the bottle.

"If we need to hold rates where they are for an extended period of time to tap the brakes on the economy, or if we even needed to raise, we would do what we needed to do to get inflation back down," Kashkari said.

Perhaps seen as a outlier and not even a voting member of the Fed's policymaking committee this year, markets appeared to bat the comments away.

Helped by brisk demand for the hefty $58 billion sale of three-year notes on Tuesday and another sharp fall in crude oil prices, Treasury yields were relatively calm going into a $42 billion 10-year auction later on Wednesday.

Crude oil prices fell to their lowest since March 11 as industry data showed a pile-up of U.S. inventories - a sign of weakening demand - and cautious supply expectations emerged ahead of an OPEC+ policy meeting next month.

U.S. crude stocks rose by 509,000 barrels in the week ended May 3, sources said, citing American Petroleum Institute figures, and gasoline and distillate inventories also rose. Official U.S. government data is due later in the day.

And European bourses looked set for record highs as Sweden cut interest rates on Wednesday and underlined the divergence between European central banks policymaking and the Fed's.

Sweden's central bank cut its key interest rate to 3.75% from 4.00% as expected and said it was likely to cut the rate two more times in the second half of the year if the outlook for inflation still holds.

After eight rate hikes in Sweden, inflation is now close to the Riksbank's 2% target after peaking at over 10%.

The Riksbank is the second of the major G10 central banks to ease, with the Swiss National Bank jumping the gun in March.

And crucially, the crown weakened only marginally.

With the European Central Bank now widely expected to cut rates next month, attention turns to Thursday's Bank of England meeting. Although no UK move is expected this week, there's considerable speculation the BoE may open the door for a rate cut in June too.

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Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford/File Photo

Britain's benchmark FTSE 100 hit a new record high on Tuesday, 10-year gilt yields fell to their lowest in almost four weeks and the pound slipped.

The overall picture kept the dollar buoyed generally - especially against the ailing Japanese yen. Dollar/yen climbed back above 155 despite fresh warnings from Japanese authorities of repeat intervention to sells dollars.

Asian stocks bucked the U.S. and European trend and wobbled across the board earlier, with Tokyo, Shanghai and Hong Kong all ending in the red.

Back on Wall Street, Tuesday's gains and steady overnight futures survived another retreat in Tesla and Walt Disney's 10% slump. Disney fell as a surprise profit in its streaming entertainment division was eclipsed by a drop in its traditional TV business and weaker box office.

Shares in electric-pickup maker Rivian fell about 5% in out-of-hours trade overnight as it stuck to a 2024 production forecast well below Wall Street targets and reported a wider-than-expected first-quarter loss as it ended a weeks-long manufacturing halt.

Key diary items that may provide direction to U.S. markets later on Wednesday:

* Federal Reserve Vice Chair Philip Jefferson, Fed Board Governor Lisa Cook and Boston Fed President Susan Collins speak

* US corporate earnings: Uber, News Corp, Airbnb, Emerson Electric, Corpay, Celanese, Atmos Energy, NiSource, STERIS, Broadridge Financial Solutions

* Chinese President Xi Jinping in Serbia and Hungary as part of week-long visit to Europe

* US Treasury auctions $42 billion of 10-year notes

(By Mike Dolan, editing by Nick Macfie mike.dolan@thomsonreuters.com)

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