Marketmind: G4 central bankers speak, chips wars rumble
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[June 28, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
Eyeing another slew of impressive U.S. economic soundings, the world's
four most powerful central bankers are set to give a collective take on
Wednesday on their final policy push to rein in inflation.
Markets are torn between embracing the resilience of U.S. activity and
the likelihood that robust demand will embolden western central banks to
tighten credit another few notches to ensure inflation rates do
eventually return to 2% targets.
The picture was complicated further overnight as Tuesday's macro-driven
rally in Wall St stocks was sideswiped by renewed Sino-U.S. trade
tensions. AI darling Nvidia recoiled 4% in out-of-hours trade after
reports Washington is considering new curbs on chip exports to China.
But Wednesday's trading may well be dominated by news from a power panel
at the European Central Bank's annual forum in Portugal.
Federal Reserve Chair Jerome Powell, ECB boss Christine Lagarde, Bank of
Japan governor Kazuo Ueda and Bank of England chief Andrew Bailey all
speak at the same set piece at 1330GMT.
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The prospect of more policy tightening from all four by year-end has
sobered up markets, which were until recently convinced that the steep
interest rate rises of the past 18 months could be partly reversed into
recessionary conditions in late 2023.
Even though disinflation is proceeding apace - with price pressures in
Australia and Canada surprising to the downside this week and euro zone
numbers due on Thursday - the prospect of any monetary easing this year
now seems a distant prospect.
A sweep of U.S. economic updates on Tuesday showed consumer confidence
racing ahead last month, capital goods orders rising and further
evidence of an impressive rebound in the U.S. housing markets. President
Joe Biden is due to deliver a keynote speech on the economy in Chicago
on Wednesday.
While the S&P500 recorded its best day in almost two weeks on Tuesday
with gains of over 1%, Treasury bond yields backed up. Two-year yields
are back above 4.7% and futures markets now don't price a full policy
rate cut from current levels for almost a year, with at least one more
hike in the interim.
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Traders work on the floor of the New
York Stock Exchange (NYSE) in New York City, U.S., November 15,
2022. REUTERS/Brendan McDermid/File Photo
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Partly hampered by the chip wars report, Wall St stock futures gave
up some of their gains, with Shanghai earlier ending in the red too.
Japan's Nikkei outperformed with gains of more than 2%, while
European stocks also advanced.
In currency markets, the dollar was firmer - especially against
China's yuan, which hit a new low for the year.
Although the People's Bank of China appeared to support the currency
on Tuesday, it seemed to step back again today and endorse the move.
Profits at China's industrial firms extended a double-digit decline
in the first five months as softening demand squeezed margins,
increasing pressure for more policy support to bolster a stuttering
post-COVID economic recovery.
Elsewhere, investors will keep a close eye on the Fed's release of
its latest U.S. bank stress tests. The big financial firms are
expected to fare well despite the year's troubles at smaller
regional banks.
Events to watch for later on Wednesday:
* U.S. May trade balance, May wholesale/retail inventories
* Federal Reserve Chair Jerome Powell, European Central Bank
President Christine Lagarde, Bank of Japan's governor Kazuo Ueda and
Bank of England chief Andrew Bailey speak at annual ECB central
banking forum in Portugal
* U.S. President Joe Biden delivers speech on the economy
* U.S. bank stress test results released
* U.S. Treasury auctions 7-year notes, 2-year FRNs
* U.S. corporate earnings: Micron Technology, General Mills
(By Mike Dolan, editing by John Stonestreet mike.dolan@thomsonreuters.com.
Twitter: US consumer confidence https://tmsnrt.rs/3PybBqt@reutersMikeD)
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