LDN - Business

Stocks stagnant, dollar firm ahead of Fed; crypto climbs

[May 21, 2024] By Lawrence White

LONDON (Reuters) - Stocks drooped and the dollar held firm on Tuesday as investors awaited minutes of the Federal Reserve's policy meeting, due Wednesday, for clues as to the timing and extent of possible interest rate cuts this year.

Gold retreated from Monday's all-time peak and crude oil fell on worries of U.S. interest rates staying high for longer as Fed officials maintained a cautious view on a recent easing of inflation.

Cryptocurrencies ether and bitcoin climbed to new six-week peaks amid speculation that the U.S. Securities and Exchange Commission (SEC) may approve a spot ether exchange-traded fund.

Markets currently factor in about 41 basis points of Fed rate reductions this year, with a quarter-point cut fully priced in for November.

Traders rushed to rebuild easing bets after data earlier this month showed consumer price pressures receded in April, following three months of upside surprises at the start of the year.

Even so, Fed officials are reluctant to declare the fight against inflation over, with Vice Chair Philip Jefferson saying on Monday it was too early to tell if the slowdown is "long lasting", and Vice Chair Michael Barr saying restrictive policy needs more time.

Minutes of the last Fed meeting due on Wednesday could provide valuable insight into the future policy path, although the deliberations predate last week's softer CPI reading.

Europe's benchmark STOXX index of 600 stocks slid 0.4%, following an earlier decline of 0.9% in MSCI's broadest index of Asia-Pacific shares outside Japan.

U.S. markets looked set to follow the muted tone with Nasdaq futures inching 0.07% lower, while S&P 500 futures were flat after Monday's 0.1% gain.

LITMUS TEST

Investors refrained from placing bets ahead of chip maker Nvidia's earnings, also due on Wednesday and seen as a litmus test for the continuing health of the generative AI boom.

"Market sentiment remains relatively robust, with implied volatility low, supported by greater confidence in U.S. rate cuts this year," Kyle Rodda, senior markets analyst at Capital.com, wrote in a note.

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A worker shelters from the rain under a Union Flag umbrella as he passes the London Stock Exchange in London, Britain, October 1, 2008. REUTERS/Toby Melville/File Photo

At the same time, he said record highs for metals such as gold and copper were being seen as a signal economic activity is improving globally.

"That may be a factor keeping inflation sticky," Rodda added.

Gold fell 0.3% to about $2,417 per ounce, after pushing to the cusp of $2,450 for the first time overnight.

The greenback held its ground against major peers, with the dollar index flat at 104.54 after rebounding from a five-week trough of 104.07 reached on Thursday.

The 10-year Treasury yield was little changed at 4.4276%, after ticking up 1.7 basis points on Monday.

Brent crude futures declined 1.16% to $82.73 a barrel and U.S. West Texas Intermediate crude (WTI) eased 1.34% to $78.73.

Meanwhile, traders snapped up cryptocurrencies following a report that the SEC had abruptly asked exchanges that want to trade ether Exchange Traded Funds (ETFs) to update regulatory filings, boosting bets that approval could come this week.

Crypto experts said the overall chances of approval remained low.

"The key thing is that the market was effectively pricing in a near-zero percent chance of approval up until this point," said Joseph Edwards, head of research at Enigma Securities.

Bitcoin climbed as high as $71,957 and ether jumped to $3,720.80, both hitting levels not seen since April 9.

(Reporting by Kevin Buckland and Lawrence White; additional reporting by Elizabeth Howcroft, Editing by Subhranshu Sahu, Christina Fincher and Ed Osmond)

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