The JPY is the strongest and the GBP is the weakest as the North American session begins.

The Bank of England (BoE) hiked interest rates by 25 basis points (bps), moving the bank rate to 5.25%. The decision was in line with expectations although there were some expectations for another 50 bp hike which makes the move a dovish. The price of the GBPUSD had been moving lower into the decision and is still lower by around 0.50% on the day.

The Monetary Policy Committee (MPC) voting 8-1 in favor of the hike (was 7-2 in the previous month), but 2 voted to hike by 50 bps. The BOE expects inflation at the end of 2023 to be 5.0% unchanged from the previous estimate and for GDP for 2023 to be 0.50%, up from 0.25% previously. The market sees a 65% chance of a hike in September in the UK. By comparison, the market has put an 18% for 25 bp hike in September by the Fed..

• Looking ahead, the Inflation is projected to be:

• 2.50% in 2024 (up from a previous estimate of 2.25%) and
• 1.50% in 2025 (up from a previous estimate of 1.00%).

Looking ahead, the GDP growth is projected to be:

• 0.50% in 2024 (down from 0.75%), and
• 0.50% in 2025 (down from 0.75%).

Some highlights from Bailey

• He made several projections and observations on the current economic conditions. He anticipates a step down in inflation to around 7% in July, and further expects it to fall to around 5% by October. Bailey notes that the slower pass-through of energy price falls is responsible for the difference observed in the UK and Euro Zone CPI.
• He comments that inflation in food and drink sectors appears to have peaked, but it remains uncertain how quickly non-energy prices will deflate. However, Bailey does predict a gradual fall in food price inflation within the year. He also highlights persistent strength in services price inflation, which he sees as unwelcome news. He advises caution in interpreting these figures, as services price inflation is influenced by volatile elements.
• Bailey emphasizes that future economic conditions will greatly depend on the labor market and pay. He notes that the latest pay growth is significantly above the BOE’s May forecast. Furthermore, unexpected increases in wage inflation imply a longer timeframe for secondary effects to fade.
• The Governor stated that evidence clearly shows the higher bank rate is having an impact. However, he refrains from predicting the path of BOE rates, asserting that several paths could lead to achieving the inflation target. Instead, the BOE will judge the most appropriate path based on evidence and a balanced consideration of risks.
• Bailey acknowledges that since May, more of the risks they foresaw have materialized, and economic activity projections have weakened. A key concern is the relationship between wage demands and slowing inflation. Despite the overall labor market softening, the pay element has not.
• Bailey disagrees with suggestions that the BOE has lost control of inflation, pointing out that there are two substantial base effects expected to lower inflation this year. Despite recent unpleasant surprises, unemployment remains historically low, and some reversal of these surprises is expected.
• Finally, Bailey asserts that a 50 basis point rate rise was not warranted at this time, despite ongoing economic challenges.

In the US stock market this morning, major indices are trading lower with Apple and Amazon to announce after the close. Yesterday, the NASDAQ index fell the most since February after Fitch lowered the US rating to A+ from AAA on Tuesday after the close. Qualcomm sales guidance after the close disappointed ($8.1 billion to $8.9 billion versus $8.7 billion estimate). Qualcomm shares are down 8.7% in premarket trading.

As far as the earnings released this morning:

• Cummins Inc (CMI) MISS: Q2 2023 Earnings – EPS was 5.05, below the expected 5.29. Revenue was $8.6 billion, higher than the expected $8.37 billion.
• Conocophillips (COP) MISS: Q2 2023 Earnings – Adjusted EPS was 1.84, below the expected 1.95. Adjusted net income was $2.23 billion, lower than the expected $2.35 billion. Cash flow from operations was $3.85 billion, lower than the expected $4.48 billion.
• Warner Bros. Discovery (WBD) MISS: Q2 2023 Earnings – EPS was -0.51, below the expected -0.38. Revenue was $10.35 billion, below the expected $10.44 billion.
• Hyatt Hotels Corp (H) MISS: Q2 2023 Earnings – Adjusted EPS was 0.82, below the expected 0.86.
• Moderna Inc (MRNA) BEAT: Q2 2023 Earnings – EPS was -3.62, higher than the expected -4.04. Revenue was $344 million, higher than the expected $320 million.
• Regeneron Pharmaceuticals Inc (REGN) BEAT: Q2 2023 Earnings – Adjusted EPS was 10.24, higher than the expected 9.84. Revenue was $3.16 billion, higher than the expected $3.02 billion.
• Hasbro Inc (HAS) MISS: Q2 2023 Earnings – EPS was 0.49, below the expected 0.57. Revenue was $1.12 billion, equal to the expected $1.12 billion.
• Becton Dickinson and Co (BDX) BEAT: Q2 2023 Earnings – EPS was 2.96, higher than the expected 2.91. Revenue was $4.878 billion, higher than the expected $4.84 billion.
• Cigna Group (CI) BEAT: Q2 2023 Earnings – EPS was 6.13, higher than the expected 6.02. Revenue was $48.62 billion, higher than the expected $47.31 billion.

Economic data in Europe today showed services PMI tilting to the downside. Swiss CPI came in as expected but down for the month:

The Services PMI in EU showed:

• Spanish Services PMI at 3:15am (EUR): The actual was 52.8, lower than the forecast of 53.5 and slightly below the previous figure of 53.4.

• Italian Services PMI at 3:45am (EUR): The actual figure was 51.5, slightly lower than both the forecast and the previous figure of 52.2.

• French Final Services PMI at 3:50am (EUR): The figure was 47.1, slightly lower than the forecast and previous figure of 47.4.

• German Final Services PMI at 3:55am (EUR): The actual was 52.3, slightly higher than the forecast and previous figure of 52.0.

• Final Services PMI at 4:00am (EUR): The actual was 50.9, slightly lower than the forecast and previous figure of 51.1.

In the UK:

A snapshot of the markets as the NA session gets underway shows:

• Crude oil is trading down $0.11 or -0.14% at $79.41
• Spot gold is trading up $2.58 or 0.13% $1936.24
• Silver is trading down $0.14 or -0.62% at $23.55
• Bitcoin is trading $29,122

In the premarket for US stocks, the major indices are trading lower after yesterday’s declines

• Dow Industrial Average is trading down -65.5 points after yesterday’s -348.16 point decline
• S&P index is trading down -12.75 points after yesterday’s minus 63.32.1
• NASDAQ index is trading down 50 points after yesterday’s -310.47 point decline

In the European equity markets, the major indices are trading lower for the 4th consecutive day

• German DAX, -0.91 percent
• France’s CAC, -0.79%
• UK’s FTSE 100, -0.75%
• Spain’s Ibex, -0.10%
• Italy’s FTSE MIB, -0.78% (delayed)

In the Asian Pacific today, equity markets closed mixed:

• Japan’s Nikkei 225, -1.68%
• China’s Shanghai Composite, +0.58%
• Hong Kong’s Hang Seng, -0.49%
• Australia’s S&P/ASX 200, -0.58%

In the US debt market, yields are continuing their move to the upside with a steeper yield curve

• 2-year yield, 4.891%, unchanged
• 5-year yield, 4.272% +3.1 basis points
• 10-year yield, 4.134% +5.6 basis points
• 30-year yield, 4.243% +7.9 basis points

In the European debt market, benchmark 10-year yields are mostly higher with the exception of the UK 10 year yield.:

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