05 Jun

Australia’s economy is slowing down. The BoC meeting is in the spotlight today

June 5, 2024

By JustMarkets

At Tuesday’s close, the Dow Jones Index (US30) was up 0.36%, while the S&P 500 Index (US500) added 0.15%. The NASDAQ Technology Index (US100) closed positive 0.17% yesterday. The April JOLTS job openings number fell more than expected to a 3-year low, pushing 10-year T-note yields to a 2-week low and reinforcing expectations that the Fed may cut interest rates sooner rather than later. The April JOLTS US Job Openings Index fell by 296,000 to a 3-year low of 8.059 million, indicating a weak labor market compared to expectations of 8.350 million.

Weakness in energy stocks weighed on the overall market on Tuesday after WTI crude fell more than 1% to a 3-month low on concerns that OPEC+’s plan to bring oil production back to the market sooner than expected will lead to a glut in global oil supplies.

Friday will see the release of the monthly US payrolls report for May, looking for signs of labor market strength that could decide when the Fed can start cutting interest rates. The consensus is that non-farm payrolls for May will increase by 190,000, and the unemployment rate will remain unchanged at 3.9%.

The Bank of Canada (BOC) will hold a monetary policy meeting today. In April, the Bank of Canada kept its key rate at 5% as expected and refrained from hinting at the start of rate cuts due to rising inflation risks. However, the latest GDP report showed that the Canadian economy has not recovered as much from the soft period last year as previously thought and may convince the central bank to start lowering borrowing costs. Thus, the Bank of Canada could deliver a surprise 0.25% rate cut.

Equity markets in Europe mostly fell yesterday. Germany’s DAX (DE40) fell by 1.09%, France’s CAC 40 (FR40) closed down 0.75%, Spain’s IBEX 35 (ES35) lost 0.97%, and the UK’s FTSE 100 (UK100) closed negative 0.37% on Tuesday. European equity markets opened higher on Wednesday as investors await the European Central Bank’s decision this week. The ECB is widely expected to cut interest rates on Thursday for the first time since 2019, but markets will be watching to see if last week’s Eurozone inflation data will influence the ECB’s decision.

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Germany’s unemployment rate change for May rose by 25,000, the largest increase in 7 months, and showed a weaker labor market than expected at 7,000. Swaps discount the odds of a 25 bps ECB rate cut at Thursday’s ECB meeting to 99%. If the ECB cuts rates by 25 bps on Thursday, markets expect a 0% chance of another rate cut at the next meeting on July 18 and a 62% chance of a 25 bps rate cut at the September 12 meeting.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was down 0.22%, China’s FTSE China A50 (CHA50) was up 0.60%, Hong Kong’s Hang Seng (HK50) added 0.22% and Australia’s ASX 200 (AU200) was negative 0.31%. Hong Kong (HK50) stocks were up 0.4% in early trading on Wednesday, rising for a third session amid growing hopes of fresh supportive measures from China as the country’s regulator unveils capital market policy measures at a high-level forum in Shanghai on Saturday. Investors also welcomed private survey data that showed activity in the mainland’s service sector rose by the most in 10 months in May, rising for the 17th month and matching official data.

In Japan, real wages fell for the 25th consecutive month in April, with domestic inflation continuing to outpace wage growth. It also became known that the Bank of Japan is likely to discuss reducing bond purchases at its meeting next week. These are positive factors for the Japanese yen.

In the first quarter, the Australian economy grew by 0.1%, slowing down from the growth of 0.3% in the previous quarter and failing to meet market forecasts of 0.2%. Investors breathed a sigh of relief as the economy avoided an outright recession. Nevertheless, markets see little chance of the Reserve Bank of Australia (RBA) easing policy this year, with the probability of that happening in December at 44%.

S&P 500 (US500) 5,291.34 +7.94 (+0.15%)

Dow Jones (US30) 38,711.29 +140.26 (+0.36%)

DAX (DE40) 18,405.64 −202.52 (−1.09%)

FTSE 100 (UK100) 8,232.04 −30.71 (−0.37%)

USD Index 104.16 +0.02 (+0.02%)

Important events today:
  • – New Zealand Trade Balance (q/q) at 01:45 (GMT+3);
  • – Japan Services PMI (m/m) at 03:30 (GMT+3);
  • – Australia GDP (q/q) at 04:30 (GMT+3);
  • – Caixin China Services PMI (m/m) at 04:45 (GMT+3);
  • – German Services PMI (m/m) at 10:55 (GMT+3);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
  • – UK Services PMI (m/m) at 11:30 (GMT+3);
  • – US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
  • – Canada BoC Interest Rate Decision at 16:45 (GMT+3);
  • – Canada BoC Rate Statement at 16:45 (GMT+3);
  • – US ISM Services PMI (m/m) at 17:00 (GMT+3);
  • – Canada Press Conference at 17:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (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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