As the North American session begins, the USD is the strongest and the GBP is the weakest (snapshot before the BOE press conference).

The GBP is the weakest after the Bank of England (BoE) opted to maintain the Bank Rate at 5.25%, but with a less expected 7-2 vote outcome, as Ramsden joined Dhingra in advocating for a 25 basis point cut.

This decision underscores the BoE’s repeated guidance that monetary policy should remain restrictive for a considerable duration to avert the risk of inflation exceeding the 2% target, but with a dovish tilt. BoE Governor Bailey comments acknowledged the positive developments regarding inflation but indicated that further evidence of sustained low inflation is required before considering a rate reduction. He remains optimistic about the potential for future cuts. The BoE’s stance will continue to be restrictive, even with a potential rate cut, as they closely monitor economic indicators. Although current data show progress, the bank believes it is premature to reduce interest rates and awaits more conclusive proof that inflation rates will remain low. The BoE also noted an increasing divergence in economic demand between the US and Europe, which could lead to divergent monetary policies, potentially impacting foreign exchange markets.

Inflation and growth forecasts showed lower inflation projections with higher growth.

INFLATION FORECASTS:

• 2024: 2.50%, previously 2.75%
• 2025: 2.25%, previously 2.50%
• 2026: 1.50%, previously 2.00%

GROWTH FORECASTS:

• 2024: 0.5%, previously 0.25%
• 2025: 1.0%, previously 0.75%
• 2026: 1.25%, previously 1.0%

In the early comments from BOEs Bailey in his press conferenc, he says that the BOE may need to cut rates more than what the market currently perceives. He adds:

• Rate Cuts Possibility: Bailey indicates that it might be necessary to cut rates more significantly than what is currently expected by market rates, though there are no preconceived plans about the extent and speed of these cuts.

• Future Rate Cuts: He suggests that it is likely that the Bank Rate will be reduced over the coming quarters.

• Economic Effects on Wages and Prices: Bailey expects the secondary effects on domestic wages and prices to diminish slightly faster than previously thought.

• Uncertainty About June Rate Change: He mentions that a change in the Bank Rate in June is neither completely dismissed nor certain.

• Inflation and Wages Caution: Recent data showing higher than expected wage and services inflation since February should prompt careful consideration, although these should not be overly interpreted.

• Normalization of Economic Conditions: The lack of surprising data is seen as an indicator that the economy is moving towards more normal conditions.

The market were projecting -55 bps in cuts by the end of the year. Will that move toward 3 cuts?

In geopolitical news, Hamas delegation has left Cairo and insists on the peace proposal that Israel rejected.

The weekly US initial jobless claims will be released at 8:30 AM ET with expectations of 215K versus 208K last week. Continuing claims are expected at 1.785M vs 1.774M estimate.

At 1 PM, the coupon auction for the week will conclude with the sale of 30-year bonds. Both the 3 and 10-year issues were met with close to average results for the major auction components – not bad, not great as borrowing needs increase with deficits.

A snapshot of the other markets as the North American session begins currently shows.:

• Crude oil is trading up $0.61 or 0.78% at $79.61. At this time yesterday, the price was at $77.56
• Gold is trading up $7.32 or 0.32% at $2315.90. At this time yesterday, the price was higher at $2313.58
• Silver is trading up $0.38 or 1.41% at $27.71. At this time yesterday, the price was at $27.22.
• Bitcoin currently trades at $61,120. At this time yesterday, the price was trading at $62,357

In the premarket, the US major indices are trading lower after mixed results yesterday:

• Dow Industrial Average futures are implying a decline of -77 points. Yesterday, the index rose 172.13 points or 0.44%
• S&P futures are implying a decline of -10.92 points yesterday, the S&P index closed unchanged at 5187.66
• Nasdaq futures are implying a decline of -39.76 points. Yesterday the index fell -29.80 points or -0.18% at 16302.76.

European stock indices are trading mixed. German and UK indices are on pace to close at a record level:

• German DAX, +0.64%
• France CAC , +0.18%
• UK FTSE 100, +0.37%
• Spain’s Ibex, -1.01%
• Italy’s FTSE MIB, +0.06% (delayed 10 minutes)..

Shares in the Asian Pacific markets were mixed/higher:

• Japan’s Nikkei 225, -0.34%
• China’s Shanghai Composite Index, +0.83%
• Hong Kong’s Hang Seng index, +1.22%
• Australia S&P/ASX index, -1.06%

Looking at the US debt market, yields are higher. Today the U.S. Treasury will auction off 30-year notes. Earlier this week, the 3- year note 10-year notes were auctioned with average (10 year) to slightly better than average (3-year) demand.

• 2-year yield 4.844%, +0.2 basis points. At this time yesterday, the yield was at 4.842%
• 5-year yield 4.518%, +1.7 basis points. At this time yesterday, the yield was at 4.497%
• 10-year yield 4.514%, +2.9 basis point. At this time yesterday, the yield was at 4.487%
• 30-year yield 4.670%, +3.9 basis points. At this time yesterday, the yield was at 4.6 to 8%

Looking at the treasury yield curve spreads the yield curve is steeper (but still negative):

• The 2-10 year spread is at -33.3 basis points. At this time yesterday, the spread was at -35.5 basis points
• The 2-30 year spread is at -17.3 basis points. At this time yesterday, the spread was at -21.4 basis points

European benchmark 10-year yields are higher.

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