Market snapshot: an important day after Apple’s record rally

A fresh bout of AI exuberance lifted the S&P 500 and Nasdaq once more to record closing highs, leaving those markets defying gravity ahead of an important day of economic updates.

The Apple conference unveiled a new set of AI features which are designed to be more personalised and intuitive in an effort to heighten consumer demand across its product suite.

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Apple Inc (NASDAQ:AAPL) shares rose by over 7% during the trading session, with some noting a small switch away from NVIDIA Corp (NASDAQ:NVDA) towards Apple as the news emerged. The warm reception to the update was sufficient to nudge the more technology-focused indices to fresh closing records, with the S&P 500 and Nasdaq now having gained 12.7% and 15.5% respectively in the year to date.

Attention will now switch to two events in the US today which could determine sentiment in the shorter term. While not being the Federal Reserve’s most preferred inflation gauge, the Consumer Price Index (CPI) release will nonetheless have an impact on the thinking of the central bank and investors alike.

A monthly increase of 0.1% is expected, annualising to 3.4%, showing strong progress from the peak of 9.1% two years ago, but apparently refusing to travel the final mile towards the Fed’s 2% target.

The conclusion of the Fed’s two-day meeting will then follow, where a no-change decision to interest rates seems all but a formality. However, any perceived changes to the mantra of “higher for longer” rates would be warmly received, although there is a real possibility of the opposite message coming through.

Recent economic data has tended to confirm that the economy is sufficiently robust and growing despite elevated rates, and the so-called dot plot – a measure of rate projections by individual Fed members – will likely be revised from the previous forecast of three cuts this year. The current consensus is that a cut is possible in September, but equally the possibility of just one cut this year in November is increasingly gaining traction.

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Asian markets were mixed overnight, with tech-heavy markets such as Taiwan gaining on the back of the Apple news, while the larger markets were more introspective. In China, soft inflation data failed to garner much interest, while in Hong Kong the market was slightly rattled after part of the Evergrande group warned of losing assets. The China Evergrande New Energy Vehicle Group subsequently plunged by 20%, renewing concerns over the beleaguered property sector which has dragged on much of the region over recent months.

Japan’s Nikkei index also ran into some resistance with an accelerated 2.4% gain in producer prices, fuelled by yen weakness against the US dollar which has heightened costs for imported fuel and manufacturing components. The difficulty of the decision facing the Bank of Japan on interest rates later this week was further highlighted by a continued fall in real wages, reiterating concerns that consumer spending could remain on its downward trend.

The latest release of UK GDP growth comes at a politically-sensitive time and will provide fuel to the fire of the opposing parties. On the one hand, the economy is looking at a brief and shallow recession in the rear-view mirror, but a flat April GDP reading also shows that headwinds remain to building up any positive and sustained momentum.

Of itself, the release is unlikely to change the Bank of England’s thinking on interest rate reduction, although the fact that the reading was better than an expected minor contraction lifted both sterling and the FTSE 250, the latter of which has now gained by 3.2% this year.

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The premier index opened briskly in an attempt to reverse the listless performance of recent days. Rentokil Initial (LSE:RTO) shares were the standout performer, with rumours that a US activist investor has taken a stake lifting the price by over 16% in opening exchanges.

On the downside, Legal & General Group (LSE:LGEN) shares slipped by more than 4% after its Capital Markets Event announcement, with investors questioning both the pace of growth as well as the relatively limited £200 million buyback scheme. Elsewhere, the banks provided some buying interest after a difficult few sessions of late, and the overall bounce takes the performance of the FTSE 100 to a positive 6% in the year to date, albeit some way off the record highs achieved in May.