Here are the latest developments in global markets:
- FOREX: Sterling recovered earlier losses ahead of the BoE rate decision later today, bouncing up to a 1-week high of $1.3616 (+0.46%) despite data on the UK’s industrial production and the trade deficit coming in worse than expected and shedding a dark cloud around the country’s economic outlook. The euro gained some ground, rising to $1.1882 (+0.28%), while the dollar eased to 109.62 (-0.09%) against the yen. However, rising long-term US Treasury yields continued to underpin the greenback at a time of increasing geopolitical risks in the Middle-East. The dollar index was also weaker at 92.82 (-0.23%) before the release of US CPI readings later in the day. Kiwi/dollar was struggling to gain ground after it approached a five-month low of 0.6900 today in the wake of a dovish RBNZ monetary policy statement. The pair was last seen at 0.6926 (-0.84%). Aussie/dollar, on the other hand, rose to 0.7485 (+0.31%). Dollar/loonie changed hands lower at 1.2780 (-0.57%), remaining around the 2 ½ -week lows reached today.
- STOCKS: European stocks were on the back foot. The pan-European STOXX 600 was trading lower by 0.27% at 1000 GMT led by losses in telecommunications and utilities. Metal miner Randgold was the index’s worst performer after its Q1 profits disappointed, while the British multinational retailer NEXT was the best performer after it raised its full-year profit forecast. The blue-chip Euro STOXX 50 retreated by 0.40%, the German DAX 30 climbed by 0.27%, while the French CAC 40 slipped by 0.17%. The Italian FTSE MIB tumbled by 1.51% as political risks continued to weigh on the index amid fears that anti-establishment parties could form a government. The British FTSE 100 was also down, loosing 0.34%. Futures tracking US stock indices were flashing green, pointing to a positive open.
- COMMODITIES: Fears that the US would impose new stricter sanctions on Iran – OPEC’s third largest member – following the US withdrawal from the 2015 nuclear deal continued to support oil prices, driving WTI crude and Brent to fresh 3 ½-year highs of $71.89 (+0.70%) and $78.00 (+0.60%) per barrel respectively. In precious metals, gold edged up to $1,314.80 per ounce (+0.18%).
Day ahead: BoE decides on interest rates; US CPI attract interest
Thursday will be a busy session for sterling as investors are eagerly waiting for BoE policymakers to keep rates unchanged at 1100 GMT. Around a month ago, the market was almost certain that policymakers would provide a rise in interest rates at this gathering. In the meantime though, a series of disappointing economic data combined with Carney’s dovish remarks prompted market participants to scale back expectations for a hike. Polls suggest a 7-2 vote in favor of rates remaining at current levels. Still, it would be interesting to see whether the MPC voting structure has changed. Should more officials vote in favor of a hike than previously, sterling could get a boost as this could signal that policymakers consider the recent slowdown in economic activity to be a transitory fact. This could also increase the odds for an increase in borrowing costs at the August meeting. On the other hand, if more policymakers take the no-rate hike side, sterling could fall into losses amid speculation that a tighter monetary policy might not be delivered anytime soon. The inflation report accompanying the rate statement and the central bank’s GDP growth and inflation forecasts will be also closely watched.
At 1230 GMT, the US will see the release of inflation figures for the month of April. Headline inflation is forecasted to advance by 0.3% m/m, after a negative reading of 0.1%. Year-on-year CPI is expected to grow by 2.5% from 2.4% in March and core CPI, the measure that excludes volatile food and energy items, is predicted to tick higher by 2.2% versus 2.1% seen in the previous month. In case the data beat expectations, then that could drive the US dollar higher above the 110.00 handle.
US initial and continued jobless claims data for the week ending May 4 are scheduled for release at 1230 GMT. The Department of Labor forecasts 219,000 individuals to have applied for unemployment benefits for the first time compared to 211,000 in the preceding week.
Later in the day, data on the US Federal Budget balance for the month of April will be made public at 1800 GMT.