The strongest to weakest of the major currencies
As the North American session begins, the NZD is the strongest and the JPY is the weakest. The USD is mixed ahead of the Fed Chairs 2nd day of testimony on Capitol Hill, and the US initial jobless claims and existing home sales.
The GBP is also stronger in the morning snapshot after the BOE surprised with a 50 basis point hike after CPI inflation advanced more than expectation this week and remains well above the 2% target (CPI 8.7% versus 8.4% expected). The Monetary Policy Committee (MPC) voted 7-2 to raise with Dhingra and Tenreyro voting to maintain rates at 4.50%. The committee is actively monitoring the effects of these substantial rate increases, especially as core goods price inflation has exceeded initial projections. However, the MPC anticipates a significant decrease in CPI inflation throughout the year and expects food price inflation to fall in the coming months. Having said that, they made it clear that if persistent inflationary pressures emerge, a further tightening of monetary policy will be necessary.
The Swiss National Bank (SNB) was also in play today as they raised interest rates to 1.75% from 1.5% in response to medium-term inflation increases. The bank stated that further rate hikes might be necessary to maintain price stability, focusing on selling foreign currency in the present environment. Adjusted inflation forecasts are now at 2.2% for 2023 and 2024.
SNB Chairman Thomas Jordan disputed the idea that the current policy tightening was a mistake, suggesting that further tightening may occur, albeit gradually. This approach will be reconsidered in September. Despite monetary tightening strengthening the Swiss franc, Jordan highlighted the rising underlying inflation pressure and warned of inflation potentially exceeding 2%. He also indicated that higher rents driving inflation won’t deter future rate hikes.
Fed Chair Powell will testify before the Senate on the second day of his congressional hearings starting at 10 AM ET. Despite skepticism from the market, Powell has maintained a hawkish position, projecting two more 25-basis-point rate hikes. His colleague, Raphael Bostic, President of the Atlanta Federal Reserve, warned that even an increase in July could risk unnecessarily weakening the U.S. economy. Powell’s upcoming appearance before the Senate Banking Committee is likely to provide further insight into the Federal Reserve’s future monetary policy direction.
Meanwhile, U.S. futures are trading lower for the 4th consecutive day, especially in the tech sector, following Powell’s signals for further rate hikes during his congressional testimony. Both Dow futures and S&P 500 futures have seen declines, while Nasdaq futures have also dropped. Investors are keeping a close eye on Powell’s testimony before the Senate Banking Committee for more clues regarding the Federal Reserve’s future actions. Notably, the tech-heavy Nasdaq Composite suffered its worst daily performance since early June after Powell’s semi-annual testimony’s first day.
Bitcoin has reached a two-month high yesterday reaching a level of $30,755. The high price today as come in at $30,505, spurred by increased institutional interest. The world’s largest cryptocurrency has made a significant recovery despite increased regulatory scrutiny.
Crude oil prices are demonstrating volatility, with prices moving lower in trading today. Concerns over global demand growth is always there to weaken the price. The Bank of England decision is certainly not helping. Meanwhile, the private inventory daily released late yesterday showed crude oil inventories saw a drawdown of -1.246 million which was opposite of the expectations for a 0.329 million estimate build. Gasoline inventories did show a build of 2.935 million. The expectation from the EIA data due to be released today at 11 AM ET is for a buildup of 0.113 million.
Initial jobless claims will be released at 8:30 AM with expectations of 260K. Recall the last 2 weeks have come in at 262K indicative of a weakening employment picture. The continuing claims are expected at 1.782 million versus 1.775 million last week. Existing home sales are expected to remain fairly steady at 4.25M versus 4.28M annualized rate last month. Building permits and housing starts surprised earlier this week. Leading index is expected to decline once again. The LEI has declined for 13 consecutive months. This month is expected to show a decline of -0.7% after -0.6% last month
A snapshot of the markets currently shows:
- Crude oil is trading down $-1.47 at $71.06
- Spot gold is trading down $6.95 at $1925.15
- Silver is down down $0.09 at $22.54
- Bitcoin is trading at $29,981
In the premarket for US stocks, the major indices are trading modestly lower after declined yesterday
- Dow Industrial Average is trading down -81 points after yesterday’s -102.35 point decline
- S&P index is trading down -11 points after yesterday’s -23.04 point decline
- NASDAQ index is trading down -46 points after yesterday’s -165.09 point decline
In the European equity markets, the major indices are trading lower
- German DAX down -0.49%
- France’s CAC down -1.01%
- UK’s FTSE 100 down -1.09%
- Spain’s Ibex down -0.97%
- Italy’s FTSE MIB down -0.88% (delayed)
In the Asian Pacific market today :
- Japan’s Nikkei fell -0.92%
- Hang Seng index fell -1.98%
- Australia’s S&P/ASX 200 index fell -1.63%
In the US debt market yields mostly higher
- 2-year yield 4.737% +3.0 basis points
- 5-year yield 3.976% +2.1 basis points
- 10-year yield 3.744% +2.1 basis points
- 30-year yield 3.831% +2.3 basis points
In the European debt market, benchmark 10 year yields are mixed. UK 10 year yields are lower as investors react to expectations for slower growth ahead as the Bank of England tightens: