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In the US overnight, the S&P500 and Nasdaq closed lower as investors took profits from technology stocks that have rallied over recent weeks, and overall investor sentiment was dampened by a surprise interest rate hike out of Canada’s central bank due to persistent inflation in the region. The rate hike out of Canada heightened investor fears ahead of the Fed’s FOMC meeting next week.

US trade balance data for April was also released yesterday weighing on investor sentiment as the data showed the US trade deficit widened in April by US$14bn to US$74.6bn as exports fell 3.6%, which is the most since the pandemic began.

Interestingly, the Russell2000 index of small-cap companies in the US rose to its highest level since the regional bank crisis before slipping in afternoon trade. The rise in small-caps is on the back of recovery in the US regional banking sector.

The S&P500 lost 0.38% on Wednesday while the Nasdaq declined 1.29%, but the Dow Jones rose 0.27%.

Over in Europe, markets also closed lower as investor sentiment remains shaky amid persistently high inflation and fears of further rate hikes to come, especially out of the UK, with new data showing the UK will experience the highest level of inflation among all advanced economies this year.

The U.K. is set to report a headline inflation of 6.9% this year, above the OECD average of 6.6% for 2023, according to CNBC.

Germany’s DAX fell 0.2% on Wednesday, the French CAC lost 0.09%, and, in the UK, the FTSE100 fell 0.05%.

The local index closed 0.16% lower on Wednesday, weighed down by losses in the energy, financials and real estate sectors as investors assessed outlook for further rate hikes out of the RBA alongside the release of Australia’s GDP growth rate data for Q1 which came in below expectations at an expansion of 0.2% quarter-on-quarter, but revealed the low unemployment rate and demand for services had lifted unit labour costs and further weakened already low productivity output growth. Through the year, the economy grew by 2.3%, slowing from a 2.7% expansion in Q4.

The GDP data also validates the RBA’s case to possibly continue raising interest rates as real GDP growth slowed mostly from higher prices. It’s also important to note that the RBA are watching key developments in economic datapoints to guide the rate movements forward, including the global economy, household spending, and growth in labour costs. On the latter point, GDP per hour worked fell by 0.3% quarter-on-quarter in Q1, resulting in an annual fall of 4.6% in productivity – which is the largest on record according to CNBC and is a key indicator of the need to raise interest rates. This is because the labour market data suggests that productivity will likely remain weakened this quarter, which will again hike unit labour cost growth and keep services inflation stubbornly high.

What to watch today:

• Ahead of the local trading session here in Australia the SPI futures are expecting the local market to open 0.18% lower.
• On the economic data front today, Australia’s trade balance data for April will be released just after midday with consensus expecting a decline in Australia’s trade surplus from $15.3bn in March to $14bn in April amid a decline in net exports.
• On the commodities front this morning, oil is trading 1.01% higher at US$72.47/barrel, uranium is up 1.87% at US$54.60/pound, gold is down 1.02% at US$1942.81/ounce and iron ore is up almost half a percent at US$109/tonne.
• AU$1.00 is buying US$0.67, 93.22 Japanese Yen, 53.67 British Pence and NZ$1.10.

Trading Ideas:

• Bell Potter has increased the price target on Green Technology Metals (ASX:GT1) from $1.38 to $1.46 and maintain a buy rating on the lithium exploration and development company after the company announced an initial 8.1million tonnes at 1.32% Lithium Oxide Mineral Resource Estimate for the Root Bay prospect, part of its 100%-owned Root Project in Ontario, Canada.
• Trading Central has identified a bearish signal on Air New Zealand (ASX:AIZ) following the formation of a pattern over a period of 165-days which is roughly the same amount of time the share price may fall from the close of 69 cents to the range of 59 to 61 cents according to standard principles of technical analysis.