The US stock indices remain under pressure. The Bank of England and the ECB intend to raise interest rates further

May 12, 2023

At the close of trading yesterday, the Dow Jones Index (US30) decreased by 0.66%, while the S&P 500 (US500) fell by 0.17%. Technology Index NASDAQ (US100) gained 0.18% on Thursday. The US indices continued to decline yesterday due to ongoing problems at regional banks. PacWest Bancorp shares fell by 22% after reports that the bank’s deposits decreased by 9.5% in the week ended May 5, continuing fears of a deeper banking crisis.

Alphabet (GOOGL) rose for the second straight day as the tech giant’s announcement that it will incorporate artificial intelligence into products, including its search engine, drew positive reactions from investors. Falling Treasury bond yields are also supporting growth in those stocks. Shares of Robinhood Markets Inc (HOOD) were up by 6% on the report. The company reported first-quarter results that beat Wall Street estimates, driven by higher earnings from securities lending.

Deutsche Bank said it would buy Disney stock, expecting cost-cutting, growth in streaming advertising, and the company’s strong position in consumer-focused pricing to support profitability over the long term.

The US Treasury Secretary Janet Yellen urged Congress to raise the $31.4 trillion federal debt limit and prevent an unprecedented default that would trigger a global economic slowdown. For its part, the International Monetary Fund said Thursday that a US debt default triggered by a failure to raise the nation’s debt ceiling would have “very serious consequences” for the US economy as well as the global economy, including a likely increase in borrowing costs.

Equity markets in Europe traded flat Thursday. Germany’s DAX (DE30) fell by 0.39%, France’s CAC 40 (FR40) gained 0.28% yesterday, Spain’s IBEX 35 (ES35) added 0.19%, Britain’s FTSE 100 (UK100) closed lower by 0.14% Thursday.

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European Central Bank Vice President Luis de Guindos on Thursday cited rising services prices as the main problem in the ECB’s fight against inflation, saying higher wages caused the price hikes. Markets expect another 25 basis point increase at the ECB’s June meeting and possibly another by late summer, followed by a rate cut early next year.

The Bank of England expectedly to raise its key interest rate by 0.25% to 4.5%. Governor Andrew Bailey said the British central bank would continue to “stay the course” as the BoE seeks to curb high inflation in the economy. The Bank of England raised its inflation forecast for the end of 2023 from 3.92% to 5.12% but is no longer forecasting a recession. Analysts are predicting further rate hikes from the BoE, with a final rate level of 5% this fall.

The US dollar rose to its highest level since May 1 against a basket of major currencies after US jobless claims data bolstered the case for the Federal Reserve to stop raising interest rates. A stronger dollar makes oil more expensive globally. Higher interest rates can put pressure on oil demand by raising borrowing costs and putting pressure on economic growth. Oil prices were down 2% yesterday.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) increased by 0.02% for the day, China’s FTSE China A50 (CHA50) was down 0.12%, Hong Kong’s Hang Seng (HK50) fell by 0.09% for the day, India’s NIFTY 50 (IND50) was down 0.10%, and Australia’s S&P/ASX 200 (AU200) closed negative 0.05%.

The Nikkei 225 Index (JP225) outperformed other Asian indices thanks to a series of strong reports from automakers Nissan Motor and Honda Motor, which rose 4% and 5%, respectively, but shares of investment giant SoftBank Group Corp. fell by 3% after the bank posted its second straight year of losses. Strong earnings growth in Japan suggests that the economy’s headwinds of slowing growth and high inflation have so far had a limited impact on corporate earnings, indicating that the Japanese economy is still performing steadily. The Nikkei has also been supported by recent signals from the Bank of Japan to maintain its ultra-soft monetary policy.

S&P 500 (F) (US500) 4,130.62 −7.02 (−0.17%)

Dow Jones (US30)33,309.51 −221.82 (−0.66%)

DAX (DE40) 15,834.91 −61.32 (−0.39%)

FTSE 100 (UK100) 7,730.58 −10.75 (−0.14%)

USD Index 102.06 +0.59 (+0.59%)

Important events for today:

– New Zealand Inflation Expectations (q/q) at 06:00 (GMT+3);
– UK GDP (m/m) at 09:00 (GMT+3);
– UK Industrial Production (m/m) at 09:00 (GMT+3);
– UK Manufacturing Production (m/m) at 09:00 (GMT+3);
– Eurozone French Consumer Price Index (m/m) at 09:45 (GMT+3);
– Eurozone Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
– US Michigan Consumer Sentiment (m/m) at 17:00 (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.

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The US stock indices remain under pressure. The Bank of England and the ECB intend to raise interest rates further