Market Analysis

Morning Market Update: Stocks Rise as Sweden Cuts Interest Rates, While Oil Prices Decline

Amos Simanungkalit · 08 May6K Views

Market sentiment seemed largely unfazed by recent hawkish remarks from the Federal Reserve and the substantial drop in Disney's stock, as European markets eyed new highs amidst Sweden's decision to cut interest rates and a significant decline in oil prices.

Despite Minneapolis Fed President Neel Kashkari's hawkish stance on inflation, which hinted at potential future rate hikes, both stock futures and Treasury yields remained stable overnight. The Federal Reserve's upcoming $42 billion 10-year bond auction was anticipated calmly, supported by robust demand for Tuesday's $58 billion sale of three-year notes.

Crude oil prices experienced a sharp decline to their lowest levels since March 11, driven by a build-up in U.S. inventories and cautious expectations ahead of an OPEC+ meeting. The increase in U.S. crude stocks, as reported by the American Petroleum Institute, signaled weakening demand, while gasoline and distillate inventories also saw a rise. Official government data was awaited later in the day.

European markets were poised for record highs following Sweden's interest rate cut, emphasizing the contrast in monetary policy between European central banks and the Federal Reserve. Sweden's central bank reduced its key interest rate to 3.75% and hinted at further cuts later in the year if inflation remains subdued. The slight weakening of the crown accompanied the decision, reflecting the Riksbank's efforts to manage inflation close to its target after multiple rate hikes.

As attention shifted to the Bank of England's meeting on Thursday, speculation arose regarding a potential rate cut in June, despite no immediate action expected this week. The FTSE 100 hit a new record high, while 10-year gilt yields dipped and the pound edged lower.

The dollar maintained strength, particularly against the struggling Japanese yen, despite warnings from Japanese authorities regarding potential intervention. Asian markets, however, saw mixed performances, with Tokyo, Shanghai, and Hong Kong ending the session in the red.

On Wall Street, gains from the previous session persisted despite setbacks for Tesla and Disney. Disney's stock plummeted by 10% due to disappointing results in its traditional TV business and weaker box office performance, overshadowing a surprise profit in its streaming division. Electric-pickup maker Rivian also faced challenges, with its shares falling approximately 5% after reporting a wider-than-expected first-quarter loss and maintaining a production forecast below Wall Street expectations for 2024.