A look at the day ahead in the US and global markets by Mike Dolan
Wall Street returns from its mid-week break to find record levels of equities still gnawing away, with monetary easing abroad in focus as the Swiss cut rates for the second time this year and the decision of the Bank of England now waiting.
With artificial intelligence still the dominant driver in the United States, Nvidia’s (NASDAQ:) vault that became the world’s most valuable company on Tuesday offers the latest twist. The stock was up another 1% before Thursday’s bell and futures rose 0.4%.
With the dollar floating all over the place, China continued to provide a nervous counterbalance to buoyant global markets.
Yields fell to their weakest levels of the year even as the People’s Bank of China left rates unchanged and Chinese stocks again bucked the global trend.
Mainland Chinese shares fell again on Thursday and this year they are now underperforming the broader MSCI all-country index by about 8%.
With the PBOC tracking lower rates on a daily basis, concerns are growing that currency weakness is preventing it from easing monetary policy to tackle the ongoing housing crisis.
And this is also accompanied by renewed weakness in the Japanese yen, which has reached its lowest point since the Bank of Japan’s intervention in April, despite warnings of repeated action.
Leaving aside French political turmoil for now, European shares were higher, helped by the continent’s latest rate cut.
The Swiss National Bank cut its key policy rate for the second time this year on Thursday, helping the central bank maintain its position as the frontrunner in the global policy easing cycle and sending the Swiss franc lower and Swiss stocks higher.
The latest quarter-point reduction to 1.25% has been priced in by the money markets for almost 70% and a further easing of a quarter-point is expected by the end of the year.
However, the Norwegian central bank was not willing to budge and held the line – it was more concerned about sharper inflation there.
Attention now shifts to the Bank of England, which will also announce its latest decision on Thursday. Not least with the 4 July UK election looming, the BoE is expected to hold its ground for the time being – with a one in three chance of a cut at its next meeting on 1 August, which is now on the money markets is visible.
Although UK inflation hit the BoE’s 2% target last month for the first time in three years, ‘core’ interest rates remain well above 3% and service sector inflation is even more persistent. The BoE’s monetary policy committee is expected to be split 7-2 in favor of keeping rates on hold, as was the case last time.
The pound sterling was slightly lower against the inflated dollar before the decision, but rose against the euro.
In Europe, French stocks were firmer and French debt spread stable against Germany after the European Union warned on Wednesday of excessive French and Italian budget deficits, raising the bar for next month’s early French parliamentary elections.
Back on Wall St, US Treasury yields were slightly higher on Thursday after the reopening – with a focus on the housing figures, but also a keen eye on the weekly unemployment numbers to see if last week’s outsized jump held up.
The only figure released Wednesday during the “Juneteenth” market holiday was a weaker-than-expected NAHB housing confidence indicator for June.
In company news and deals, Britain’s Tate & Lyle (OTC:) fell 6.5% after the food ingredients maker said it would buy US-based CP Kelco for $1.8 billion from JM Huber Corporation.
And British bank NatWest struck a deal to acquire most of the banking operations of retailer Sainsbury’s, in a deal that would boost the British lender’s assets by 2.5 billion pounds ($3.2 billion).
Key developments that should give more direction to US markets later on Thursday:
* Bank of England policy decision
* US housing starts/authorizations in May, weekly unemployment claims, Philadelphia Fed business survey in June, US current account balance in Q1; Consumer confidence in the eurozone in June
* San Francisco Federal Reserve President Mary Daly Richmond, Fed President Thomas Barkin and Minneapolis Fed Chief Neel Kashkari all speak
* Eurogroup meets in Luxembourg, in the presence of European Central Bank President Christine Lagarde and ECB Board Member Piero Cipollone
* US corporate earnings: Accenture (NYSE:), Kroger (NYSE:), Jabil, Darden Restaurants (NYSE:), Smith & Wesson, Aurora Cannabis (NASDAQ:), Algoma Steel, Mynaric
(by Mike Dolan, Editing by William Maclean mike.dolan@thomsonreuters.com)
