Markets tread water after Dow topped 40,000 yesterday

Dow gained 12, advancers were modestly ahead of decliners & NAZ was off 8.  The MLP index slid 1+ to the 277s & the REIT index was even in the 379s.  Junk bond funds crawled higher & Treasuries had limited selling which increased increased yields slightly.  Oil added pennies in the 79s & gold jumped 33 to 2419 (flirting with its record high).

AMJ (Alerian MLP Index tracking fund)

The UK's Competition & Markets Authority (CMA) cleared Microsoft's (MSFT), a Dow stock artificial intelligence partnership with Mistral of regulatory concerns after previously inviting views on whether the arrangement qualified as a merger.  The CMA said that the deal “does not qualify for investigation under the merger provisions of the Enterprise Act 2002.”  Mistral, a French AI firm founded in 2023, won a €15M $16M investment from MSFT earlier this year.  Under the terms of the deal, the US tech giant receives a minority stake in Mistral, while the French company adds its large language models to the US tech giant's Azure cloud computing platform.  In Apr, the CMA began seeking views from interested parties on partnerships agreed by US tech giants with smaller AI firms to determine whether arrangements between the companies qualify as mergers.  As part of that effort, the CMA looked into the minority investment deals agreed by MSFT & Mistral, as well as into whether MSFT's hiring of certain former employees from AI startup Inflection constitutes a merger.  Now, the regulator says it is no longer looking into MSFT's investment in Mistral.  MSFT stock fell 1.59.

Microsoft’s Mistral partnership avoids merger probe by British regulators

ECB board member Isabel Schnabel warned against back-to-back rate cuts amid lingering inflation risks as the central bank gears for its Jun meeting amid expectations of a rate cut.  While a rate cut in Jun could be warranted depending on incoming data & projections, things are less certain beyond that, Schnabel said.  The ECB held interest rates at a record high for the 5th consecutive meeting last month, but is expected to cut it to 3.75% from the current 4% at its next meeting.  “The path beyond June is much more uncertain. Recent data have confirmed that the last mile of disinflation is the most difficult,” Schnabel said, adding that a rate cut in Jul does not seem justified.  “After so many years of very high inflation and with inflation risks still being tilted to the upside, a front-loading of the easing process would come with a risk of easing prematurely,”  the ECB board member added.  Eurozone core inflation dropped in Apr to 2.7% from 2.9%.  The ECB has set an inflation target of 2%.  Markets are also currently facing “very high uncertainty,” Schnabel noted, highlighting that market participants have shifted to pricing in around 3 rate cuts now from 6 at the beginning of the year.  Geopolitical tensions & policy uncertainty amid a slew of elections worldwide this year also pose risks to euro area financial stability, the ECB said in a recent financial stability review.  The review, however, highlighted that financial stability conditions have improved.  “The near-term risk of a deep recession accompanied by rising unemployment – a major source of concern six months ago – is much lower from today’s perspective,” ECB VP Luis de Guindos said

ECB’s Schnabel reportedly cautions against back-to-back rate cuts

Treasury yields held steady as investors considered the state of the economy after digesting the week's economic data.  The yield on the 10-year Treasury was up 2 basis points at 4.396% & the 2-year Treasury yield was last at 4.795% after edging slightly higher.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Investors weighed the state of the US economy & the path ahead for monetary policy after the latest economic data & comments from Federal Reserve officials.  Atlanta Fed Pres Raphael Bostic yesterday said he was pleased with the progress on inflation in Apr, but that the central bank should stay “patient and vigilant” & was “not there yet.”  Fed officials in recent weeks have indicated caution when it comes to monetary policy plans, especially regarding interest rate cuts.  Policymakers have widely suggested that they were still waiting for more evidence that inflation is easing sustainably, & that this may take some time.  Additional remarks from central bank officials are expected today & throughout the coming week.

Treasury yields are little changed as investors weigh state of the economy

The run-up in stocks hit a bump yesterday in the wake of comments from Fed officials warning that rates are likely to stay at historic highs for a while.  That dampened enthusiasm for the likelihood of a Sep cut that had been lifted by encouraging inflation data.  Meanwhile, nervous investors are buying gold.

Dow Jones Industrials