MARKET WRAPS
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EU ECB rate decision, PPI; U.K. money and credit, England local elections; Services PMI for Eurozone, U.K., Germany, France, Italy; Germany foreign trade; trading updates from Siemens Gamesa Renewable Energy, Solvay, Hugo Boss, Volkswagen, BMW, Henkel, Zalando, Vonovia, Infineon Technologies, Legrand, EDP, Ferrari, Swiss Re, Capgemini, Veolia Environnement, Novo Nordisk, Anheuser-Busch InBev, Shell, Maersk, Aker Solutions, Telenor, Equinor, Sberbank, Mondi, Hiscox, BAE Systems, Next, Koninklijke BAM, Gold Fields, Mediclinic International
Opening Call:
European shares may open lower Thursday as investors await the ECB rate decision. In Asia, stock benchmarks were mixed; the dollar weakened; while oil futures and gold edged higher.
Equities:
Stock futures point to opening losses in Europe on Thursday ahead of the European Central Bank rate decision, a day after the Federal Reserve approved raising interest rates to the highest level in 16 years.
The Fed signaled it might be done raising interest rates for now as it cut language from its previous policy statement from March that had said "additional policy firming may be appropriate."
"People did talk about pausing, but not so much at this meeting," Fed Chair Jerome Powell said at a news conference. "We feel like we're getting closer or maybe even there."
The reluctance by the Fed and Powell to more emphatically signal the end of the rate-hike cycle is near is par for the course, said veteran Fed watchers.
But even if the Fed had offered a more straightforward signal, it might not have provided bulls much room to run, they said.
"A pause and likely end of the Fed rate-hiking cycle isn't a boon to risk assets, since it's already largely priced in across financial markets," UBS Global Wealth Management said.
Morgan Stanley Investment Management said policy makers would give themselves a room to "maneuver if the economy goes different directions, " before they make the decision to pause.
"This might be the last rate hike that they would do, and they would keep that option in the hand of keeping rates at a higher level. The market is definitely pricing in a few cuts by the end of 2023," it said.
"We can still expect a fair amount of volatility across markets," said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
"We know the economy is slowing. I think the debate is about the magnitude of whatever recession might occur," he added.
Forex:
The dollar fell early Thursday following the Fed's move to hike interest rates by 25 basis points.
"The dollar is getting crushed as the end of the Fed's tightening cycle is likely here," Oanda said.
Emerging market currencies will likely have a nice run as the interest rate differential should widely remain in their favor, it said.
The euro is benefiting as the focus now shifts to the ECB and "their tougher battle with inflation," it added.
The Fed's post-meeting communication was less hawkish than CBA expected, said Kristina Clifton, senior economist and senior currency strategist at the Australian bank.
CBA retains its view that the Fed funds rate has peaked in this cycle, though risks still tilt toward further tightening, Clifton added.
Bonds:
Treasurys didn't trade in Asia due to a holiday in Japan.
Treasury yields finished mostly lower on Wednesday after the Fed pushed the main policy rate target above 5%, and investors saw Chairman Powell's post-meeting remarks as signaling a willingness to pause in its monetary tightening cycle.
During his press conference, Powell said inflation pressures continue to run high and policy makers have a "long way to go" to bring down persistent price gains.
He also said the labor market remains "very tight" with strong demand for workers, and that the Fed is prepared to take more action if needed.
Any decision to pause would be driven by the data on a meeting-by-meeting basis, and "it wouldn't be appropriate for us to cut rates" in an environment where inflation is likely to take time to come down, Powell said.
After Wednesday's decision, fed funds futures were pricing in a 95% probability that policy makers will pause, or make no change, at their June meeting, and a 5% chance of another quarter-point rate hike, according to the CME FedWatch tool.
By year-end, the central bank is mostly expected to cut its fed-funds rate target down to between 4.25 and 4.5%, or even lower, according to 30-day Fed Funds futures.
Energy:
Oil futures gained slightly early Thursday though demand concerns continue to linger.
The EIA's U.S. petroleum inventory data released Wednesday showed a third straight weekly decline for domestic crude supplies.
The report confirms sluggish demand fears, Oanda said adding that "it looks like crude demand fell off a cliff as fears of a weaker summer travel season are building, more so for China than in the U.S."
For now, "investors seem to be getting increasingly nervous about the macro outlook and its implications for oil demand," ING said.
From a "technical point of view, $70 [a barrel], which was close to the low seen in March, should provide support to the market," it said.
Around these levels, "we could possibly see the U.S. administration starting to refill its strategic petroleum reserves," it said, while a break below $70 would be a "concern" for OPEC+.
Analysts at Morgan Stanley on Wednesday lowered their year-end forecast for Brent to $75 a barrel from $87.50, arguing that forecasts for declines in Russian supply are too high, while the boost to crude demand from China's re-opening after the lifting of COVID-19 restrictions has largely played out.
Metals:
Gold futures gained in Asia, amid falling Treasury yields, which boost the allure of the non-interest-bearing precious metal.
Gold has gained after Fed Chair Powell hinted that the central bank may consider pausing rate increases, ANZ Research analysts said.
Powell's comments have pulled down Treasury yields, making it more attractive to hold gold, the analysts added.
"Demand for physical silver, and gold for that matter, is showing overall investor concern over the state of the economy, geopolitical turmoil, and potentially persistent inflation," said Stephen Gardner, director at ETF Managers Group.
"The risks are creating a growing willingness to park money in safe-haven assets," he said.
Also, the U.S. dollar strength that served as a headwind to precious metals during most of last year has been easing since October, he added.
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Copper prices were higher in Asia after falling overnight to its lowest level since the start of the year, as concerns over China's soft manufacturing PMI data continued to weigh on investors' mood.
"The market has become increasingly frustrated with the slow rebound in economic activity in China," ANZ analysts said.
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Chinese iron-ore futures were lower, as the market resumed trading after the Labor Day holiday.
Analysts at Guangzhou Finance Holdings Futures expect the steel-making ore to remain under pressure in the near term, amid heightened regulatory scrutiny over price speculation and potential policies to curb steel production. Both factors could weigh on buying sentiment for iron ore, the analysts said.
Other analysts also flagged the continued decline in China's overall steel production output in recent months, another sign of weak steel and iron ore demand on the ground.
TODAY'S TOP HEADLINES
Federal Reserve Raises Rates, Signals Potential Pause
WASHINGTON-Federal Reserve officials signaled they might be done raising interest rates for now after approving another increase at their meeting that concluded Wednesday.
"People did talk about pausing, but not so much at this meeting," Fed Chair Jerome Powell said at a news conference. "We feel like we're getting closer or maybe even there."
China Caixin Gauge Shows Contraction in Factory Activity
A private gauge of China's factory activity fell into contractionary territory in April, pointing in the same direction as an official index and reflecting weakening market demand.
The China Caixin manufacturing purchasing managers index fell to 49.5 in April from 50.0 in March, according to data released Thursday by Caixin Media Co. and S&P Global.
Why stock-market bulls can't celebrate as Fed hints at pause in rate hikes
Stock-market traders were in no mood for subtlety Wednesday.
The Federal Reserve and its leader, Chair Jerome Powell, left the door open to a halt in rate increases after delivering, as expected, a 10th straight hike that lifted the fed-funds rate to a range of 5% to 5.25%, its highest since 2007.
ECB set to continue rate-hike campaign on Thursday
The European Central Bank is not about to stop hiking interest rates now.
The latest data from Eurostat showed inflation running at a 7% year-over-year clip in April - roughly what the market expected, but a modest acceleration from March. Core inflation - which excludes food, energy, alcohol and tobacco - ticked down a tenth to 5.6% from 5.7%.
Silver hit a 1-year high. Here's why it can keep climbing.
Gold isn't the only precious metal benefitting from economic uncertainty and the crisis in the banking sector. Silver prices last month climbed to their highest in a year, with room to move higher as the global market for the metal this year looks to post its second largest supply deficit in 20 years.
"Demand for physical silver, and gold for that matter, is showing overall investor concern over the state of the economy, geopolitical turmoil, and potentially persistent inflation," said Stephen Gardner, director at ETF Managers Group, the issuer of the ETFMG Prime Junior Silver Miners exchange-traded fund SILJ.
Airbus Backs Outlook Despite Supply-Chain Woes. That's Good for the Industry.
Commercial aerospace showed again Wednesday that it's still a life preserver for industrial investors getting tossed around in choppy economic waters.
(MORE TO FOLLOW) Dow Jones Newswires
05-04-23 0346ET
