The JPY is the strongest and the AUD is the weakest as the North American session begins. The USD is mostly higher. Flight to safety concerns are helping to support the JPY and the USD.
In Japan the Bank of Japan ‘Summary of Opinions’ from the most recent meeting in late April saw many board members seeing the need to keep monetary policy ultra-loose for the time being. Some added that they saw growing signs of progress towards sustainably achieving 2 per cent inflation.
US yields are lower as banking concerns are back in play with PacWest shares falling sharply (-21%) and the KRE regional bank index falling by about 2% in pre-market trading. During the week ended May 5, PacWest said deposits declined about 9.5%, with the majority of those outflows happening on May 4 and May 5 after news reports said PacWest was exploring options. The bank says it $15 billion in liquidity is more than enough to cover its $5.2 billion in uninsured deposits. The bank is exploring strategic asset sales to be completed in Q2 2023.
Meanwhile, the US stock futures are imply a mixed open as investors await the data with the Producer Price Index (PPI) projected to show a 0.3% increase in April, with YoY final demand falling to 2.4% from 2.7% last month supporting the possibility of the Fed temporarily halting its policy tightening campaign. Yesterday, CPI inflation was modestly lower at 4.9% vs 5.0% YoY.
In other news at 8:30 AM ET, the US initial claims are expected to come in at 245K vs 242K last week.
Disney shares have are trading at $95.55 in premarket trading down from $101.11 at the close yesterday as the company reported its largest-ever quarterly drop in Disney+ subscribers, raising concerns about profitability amid fierce competition from Netflix and Amazon.
Treasury Secretary Janet Yellen warns of "dreadful consequences" if lawmakers fail to reach an agreement on lifting the $31.4 trillion borrowing limit, though negotiations remain at a standstill.
In the UK, the Bank of England's Monetary Policy Committee (MPC) decided to increase the Bank Rate by 0.25 percentage points to 4.5% (as expected) in a 7-2 vote - the highest since 2008. The hike marks the 12 consecutive meeting where rates were lifted. Two members preferred to maintain Bank Rate at 4.25%. The markets see the terminal rate peaking at 4.75%. The committee sees UK GDP to be flat in H1 2023, but underlying output is projected to grow modestly. The labor market is expected to remain tight, with the unemployment rate below 4% until the end of 2024.
CPI inflation was 10.2% in Q1 2023, higher than previously expected, but is projected to fall sharply from April. The committee attributes the persistent inflation to rising energy and food prices due to the war in Ukraine. The MPC's latest projections indicate that CPI inflation will decline to just above 1% at the two and three-year horizons, below the 2% target. However, risks around the inflation forecast remain skewed to the upside. The MPC aims to return inflation to the 2% target sustainably in the medium term and will adjust the Bank Rate as necessary to achieve this.
The Committee will closely monitor persistent inflationary pressures and uncertainties around the global financial and economic outlook, which remain elevated. If evidence of more persistent pressures arises, further tightening in monetary policy will be required. The GBP moved higher on the announcement but has since moved back down toward the levels before the decision.
A snapshot of the markets as the US session begins:
- Gold is trading up $7.85 or 0.39% at $2037.20
- Silver is trading down $0.42 or -1.66% at $24.95
- WTI crude oil is down $0.48 at $72.08
- Bitcoin is trading at $27,487. The price is trading near $27,890 near the 5 PM close yesterday
in the premarket for US stocks, the major indices are mixed with the Dow and S&P lower. The futures are currently implying:
- Dow industrial average -98 points after yesterday's -30.48 point decline
- S&P index -2.5 points after yesterday's 18.45 point rise
- NASDAQ index up 25 points after yesterday's 126.89 point rise
in the European equity markets, the major indices are mixed:
- German Dax -0.15%
- Frances CAC +0.26%
- UKs FTSE 100 -0.33%
- Spain's Ibex +0.25%
- Italy's FTSE MIB -0.42%
In the US debt market yields are lower:
- 2 year yield 3.855% -4.5 basis points
- 5 year yield 3.327% -4.5 basis points
- 10 year yield 3.389% -4.6 basis points
- 30 year yield 3.758% -4.1 basis points
In the European debt market the 10 year yields are lower
