MARKET WRAPS
Watch For:
EU ECB consumer expectations survey results; UK Bank of England rate decision; trading updates from Ferrovial, Bayer, Hannover Rueck, Telefonica, Naturgy, ThyssenKrupp, RWE, Merck KGaA, Hapag Lloyd, Deutsche Telekom, Pirelli, 3i, ING, Sberbank
Opening Call:
Shares are set to open slightly higher in Europe on Thursday, as investors digest U.S. inflation data and await U.S. initial jobless claims and PPI, along with the Bank of England's policy decision. In Asia, stock benchmarks were also mixed; Treasury yields weakened as traders factored in U.S. CPI data and a possible debt-ceiling resolution; the dollar was little changed; while oil and gold firmed up.
Equities:
European stocks could edge up after a report on U.S. inflation in April showed price pressures eased about as much as expected. Investors are also keeping an eye out for U.S. PPI and initial jobless claims, as well as the BOE's interest-rate decision.
"Stripping through the noise, the CPI report shows a clear downward trend in inflation while last week's data evidenced a resilient labor market," Lazard said. "If next month's data looks like these reports, the Fed's inclination to pause the rate-hike cycle will be validated."
Traders hope the lower-than-expected inflation data may leave room for the U.S. central bank to refrain from raising interest rates further at its June meeting.
"The details of the print suggest that we are still a meaningful distance from the Fed's 2% target, giving little reason for the Fed to cut this year," Goldman Sachs Asset Management said.
Fed funds futures traders boosted the likelihood of a July interest rate cut, seeing a 42% chance of a quarter percentage point cut that would take the fed funds rate down to 4.75% and 5%, after factoring in a pause at between 5% and 5.25% in June, according to CME FedWatch Tool
Concerns around the U.S. debt ceiling debate in Congress linger and the market may start to trade in a fairly tight range, SLC Management said.
"The equity markets haven't been showing a lot of concern yet, because everybody's seen this before," it said. "But if you saw any blips there, if there's any chance we run over and have any serious interruption, I think equities would sell out very quickly because some of the impact could be quite severe on growth."
Forex:
The dollar was barely changed in Asia amid signs of cooling U.S. inflation.
The dollar had weakened overnight after April inflation fed bets on a dovish turn by the Fed.
April's CPI data showing a 4.9% yearly rise makes a June rate pause a "done deal," but markets may be overconfident of a summer rate cut scenario, said Oanda. "People are too convinced that disinflation will continue, but we don't know that," it said.
Oanda believes expectations of 70 basis points in overall cuts by the year-end are too much, too soon and that any cuts may be pushed back into next year.
It points to a labor market, which while cooling, is still strong and the possibility that China's reopening may light a fire under commodity prices. It all could mean that rates stay higher for longer, which would likely support the dollar.
For the rest of Thursday, markets will likely focus on U.S. initial jobless claims and PPI, along with the BOE's policy decision, MUFG Bank said.
Bonds:
Treasury yields dropped, as traders factored in April's CPI data and some possibility of a resolution to the U.S. debt ceiling in coming months.
Investors take April inflation data as supporting a pause in the Fed's interest rate increases, fueling demand for government debt.
As of late Wednesday afternoon, markets were pricing in a 93.9% probability that the Fed will leave interest rates unchanged between 5% and 5.25% on June 14, and a 6.1% chance of a quarter-point hike next month, according to the CME FedWatch tool.
The central bank is still mostly expected to take its fed-funds rate target back down to between 4.25% and 4.5% by December, according to 30-day Fed Funds futures.
PPI data are expected to remain hot, while weekly jobless claims are forecast at 245,000, just a little higher than in the previous week, in a WSJ poll with economists.
Energy:
Oil futures rose in Asia in a likely technical rebound after front-month WTI and Brent futures settled lower on Wednesday. However, gains may be limited, analysts said.
Commodity trade data from China have provided little sign that the country's demand for oil is improving, while the market is skeptical that Russia's reduction in production will materialize, ANZ Research said.
Weakness in the U.S. dollar following the April reading of the CPI offered little support to dollar-denominated oil prices.
Metals:
Gold edged higher in Asia on Thursday in possible position-adjustment.
Gold futures had given up gains in the wake of the U.S. CPI data and settled lower overnight.
The U.S. April consumer price index data were "mixed in nature," so gold and silver saw a selloff after an initial jump in prices, said Insignia Consultants. "There is no confirmation of the next interest rate move by the Federal Reserve," it said.
The precious metal's strong run-up so far in 2023 has left it in need of a catalyst to break beyond its record high, the World Gold Council said.
One potential contender is a sharp equity correction as valuations remain elevated amid deteriorating fundamentals, the WGC said, noting that gold's performance during such corrections has nearly always been positive.
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Copper prices were lower, extending a broad downturn seen in recent months as investors grew increasingly worried over a global recession.
While such macroeconomic concerns continue to drag on buying demand, that may be about to change as the low price levels will likely pull strong trading interest, Galaxy Futures said.
It advises investors to monitor near-term price trends, as potential rebound opportunities may emerge soon.
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Iron ore prices were slightly higher, extending this week's broad recovery.
But Galaxy Securities continues to flag demand concerns for the steelmaking ingredient, as China's real-estate construction activities have slowed in recent months. Property construction is a main source of steel and iron ore demand.
Galaxy Securities reckons domestic demand is "unlikely to see significant improvement" in May.
However, it also expected relatively limited further downside, given that price levels have corrected substantially from a recent peak in March.
TODAY'S TOP HEADLINES
Biden, Republicans Dig In on Debt Ceiling
WASHINGTON-President Biden and Republicans continued to stare each other down over the debt ceiling with just weeks to go until the U.S. potentially defaults on paying its bills, while some Democratic lawmakers floated ways to make progress toward raising the borrowing limit.
House Republicans have demanded spending cuts in exchange for raising the debt ceiling. Mr. Biden and Democrats in Congress maintain that the federal borrowing limit should be raised without preconditions and have called the GOP stance irresponsible.
The West Needs Russia to Power Its Nuclear Comeback
Nuclear power in the West is having a long-awaited revival, with new reactors opening in the U.S. and Europe and fresh momentum toward building more soon.
A gaping hole in the plan: The West doesn't have enough nuclear fuel-and lacks the capacity to swiftly ramp up production. Even more vexing, the biggest source of critical ingredients is Russia and its state monopoly, Rosatom, which is implicated in supporting the war in Ukraine.
China Seeks to Pry Europe Away From Washington
BERLIN-China's foreign minister is crisscrossing Europe this week in a bid to peel the continent away from the growing confrontation between Beijing and Washington, warning that European interests would be harmed by toeing the U.S.'s approach.
A three-capital trip by Qin Gang, his first solo trip to the region since becoming China's foreign minister, comes at a pivotal moment for China's relationship with the bloc.
Israel, Palestinian Militants Trade Fire and Warn of Longer Battle
GAZA CITY-Palestinian militants fired hundreds of rockets from Gaza toward southern and central Israel, and Israeli airstrikes targeted militants in the enclave on Wednesday, as both sides said they were preparing for wider conflict.
A group of Gaza militants that includes the enclave's rulers Hamas and Palestinian Islamic Jihad, both designated by the U.S. as terror groups, took responsibility for the rocket fire. The militants said they had retaliated for Israeli airstrikes on Tuesday that killed senior Islamic Jihad commanders and civilians in the Gaza Strip.
Google Says Search Enters New Era With Conversational AI Features
MOUNTAIN VIEW, Calif.-Google unveiled conversational features for its search engine and made its chatbot Bard widely available for English speakers, a show of force as it races Microsoft and a growing number of startups to win over consumers with artificial-intelligence products.
Calling the moment a new era in search, Google introduced a set of features-called Search Generative Experience-that use AI programs to provide lengthier summaries in response to a range of queries. The features invite follow-up questions, opening a new interface allowing users to hold conversations with the search engine.
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Expected Major Events for Thursday
04:30/NED: Apr CPI
05:30/IRL: Apr CPI
07:00/CZE: Apr CPI
07:00/CZE: Mar Import & export price indices
07:00/SVK: Mar Construction production
07:00/TUR: Mar Balance of Payments
09:00/MLT: Mar Industrial Production Index
10:00/POR: Apr CPI
11:00/UK: Bank of England Monetary Policy Report
11:00/UK: UK interest rate decision
15:59/UKR: Apr CPI
16:59/AUT: May OPEC Monthly Oil Market Report
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05-11-23 0016ET
