- ECB raises key rates by 25 bps in May monetary policy meeting, as expected
- Full text: ECB statement on May 4, 2023
- Lagarde opening statement: The inflation outlook continues to be too high and too long
- Lagarde Q&A: We are not pausing, that's very clear
- Some ECB governing council members see 2-3 hikes ahead - report
- US initial jobless claims 242K versus 240K estimate
- Canada March trade balance +0.97B vs +0.2B expected
- BOC's Macklem: If we see signs inflation stuck materially above 2%, we could hike again
- BOC's Macklem: The lesson from history on inflation is not to be half-hearted
- US Q1 unit labor costs +6.3% vs +5.5% expected
- Shares of Western Alliance halted -- company says it is not up for sale
- Western Alliance bank explores potential sale - report
- US officials assessing possible 'market manipulation' regarding banking shares - report
- Saudi Arabia cuts oil premium by 25-cents vs 40-cents expected
- UBS is already thinking about selling Credit Suisse
- The Atlanta Fed GDPNow estimate for 2Q growth rises to 2.7%
Markets:
- Gold up $10 to $2049
- US 10-year yields down 3.9 bps to 3.36%
- US 2-year yields down 17 bps to 3.76%
- WTI crude oil down 19-cents to $68.41
- S&P 500 down 27 points to 4080
- NZD leads, EUR lags
It was another harrowing day, beginning with the ECB decision. There was some speculation the ECB could go 50 bps but they opted for 25 bps with a cutoff in APP reinvestment in July and some talk of more hikes down the line. The market took it as dovish, though there was some volatility in the press conference as Lagarde hit some hawkish notes as well. Ultimately, the market is seeing the ECB running out of time for hikes and the euro fell across the board.
In the US, the data was a mixed bag but not a big market mover, especially with non-farm payrolls looming. The main event was a report about Western Alliance Bancorp that said it was considering a sale or breakup. The company aggressively denied it but the damage was done as it plunged and took the rest of the banks with it; compounding an earlier similar report about PacWest.
The rout in regional banks put a big bid in fixed income and has parts of the market convinced the Fed will need to cut rates, with pricing creeping in as soon as the next meeting. USD/JPY predictably fell on that, down 50 pips on the day.
What was less-predictable was the strength in commodity currencies, which were all higher on the day. The thinking may be that spreads between the US and RBA/RBNZ/BOC may not be as wide as thought, nor for as long and that the Fed will choose to tolerate some inflation rather than cratering banks. There's also the debt ceiling. That thinking is a bit of a stretch for me as the rest of the market worries about a hard landing. CAD is now higher on the week against USD despite a 10% decline in oil prices.
The pound stayed strong as well even as equities sank. Cable rose as high as 1.2598 before offers at the figure stalled the rally and it sagged 20 pips lower.
