China’s central bank has lowered its interest rate. Bank of England prepares to raise borrowing costs

By JustMarkets

The US stock indices did not trade yesterday due to the bank holiday.

According to the CME FedWatch tool, there is currently a 74% chance of a 25 basis point rate hike at the Fed’s next meeting in late July. But then the markets see a 78% chance that rates will remain unchanged.

The US Secretary of State Anthony Blinken concluded his visit to Beijing on Monday with a surprise meeting with Chinese President Xi Jinping. The latter stressed the importance of sustained relations between the two countries after a period of simmering tensions. During the meeting at the State Guest House, Xi said that the world needs a “generally stable” Sino-American relationship. Xi Jinping also added that the future and fate of humanity depend on whether the two countries can find the right path. The Chinese foreign minister also urged Washington to abandon the so-called “China threat theory” and lift sanctions against Beijing and no longer stifle China’s technological development.

Stock markets in Europe were mostly down on Monday. German DAX (DE30) decreased by 0.96%, French CAC 40 (FR 40) lost 1.01%, Spanish IBEX 35 (ES35) decreased by 0.66%, and British FTSE 100 (UK100) fell by 0.71% yesterday.

The Eurozone will get its first view of how June is shaping up in terms of economic activity when the PMI data is released on Friday. Last month’s reports were dismal, as surveys showed slower growth in services and sharper declines in manufacturing. On the positive side was a decline in inflation expectations. And so far, there are few signs that activity has increased.

After some unwelcome inflation and wage data, markets now expect the Bank of England to raise rates above 5% in the coming months, even though inflation forecasts point to a marked reduction in price pressures over the summer.

Crude oil prices fell Monday on concerns that a fragile economic recovery in China will hit demand from the world’s biggest crude importer in the second half of the year. But from a broader perspective, the analyst community still expects significant shortages in the coming months.

Uncertainty over interest rate hikes combined with mixed signals of a potential recession this year kept gold in a tight trading range last month. Gold came under pressure after the US Federal Reserve raised its peak rate. Gold has an inverse correlation with the US dollar and government bond yields. Tightening monetary policy tends to push the dollar higher and push government bond yields higher, which is negative for precious metals. But analysts believe that since the US Federal Reserve is at the end of its tightening cycle, gold has a good chance of rising before the end of the year.

Asian markets traded mostly in negative territory yesterday. Japan’s Nikkei 225 (JP225) was down by 1.00% for the day, China’s FTSE China A50 (CHA50) fell by 1.58%, Hong Kong’s Hang Seng (HK50) decreased by 0.64% by Monday’s close, and Australia’s S&P/ASX 200 (AU200) was positive 0.60% by the day.

China cut its benchmark interest rate (LPR) by 10 basis points as Beijing struggled to support the country’s slowing economic recovery. But the move sent a somewhat negative signal to metals markets, given that it underscores the deepening cracks in the Chinese economy, despite the reversal of anti-COVID measures earlier this year.

Reserve Bank of Australia (RBA) Deputy Governor Michelle Bullock said the unemployment rate needs to rise to about 4.5% from its current level of 3.6% to bring the economy back into balance. According to the politician, this will help contain inflation and avoid further rate hikes and a deep recession.

S&P 500 (F) (US500) 4,409.59 0 (0%)

Dow Jones (US30)34,299.12 0 (0%)

DAX (DE40) 16,201.20 −156.43 (−0.96%)

FTSE 100 (UK100) 7,588.48 −54.24 (−0.71%)

USD Index 102.52 +0.28 (+0.27%)

• – China PBoC Loan Prime Rate (m/m) at 04:15 (GMT+3);
• – Australia RBA Meeting Minutes (m/m) at 04:30 (GMT+3);
• – Japan Industrial Production (m/m) at 07:30 (GMT+3);
• – German Producer Price Index (m/m) at 09:00 (GMT+3);
• – Hong Kong Inflation Rate (m/m) at 11:30 (GMT+3);
• – US FOMC Bullard Speaks at 13:30 (GMT+3);
• – US Building Permits (m/m) at 15:30 (GMT+3);
• – US FOMC Williams Speaks at 18:45 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.