Wayne Cole gives an overview of the European and international markets for the next day.
A US holiday has given markets a handy justification to consolidate their recent substantial gains ahead of a slew of central bank conferences this week, which has resulted in the predicted sluggish trading environment in Asia. The majority of indices are downward, with the Nikkei down slightly after rising 22% through a 10-week stretch to reach 33-year highs.
The NASDAQ has posted eight weeks of increases, while the S&P 500 futures remained unchanged after rising for five straight weeks. Yet only nine large-cap stocks, or 30% of the S&P 500, account for those rallies, which have a limited foundation. The term "diversified" investment is difficult to apply to the index these days.
Markets are keeping an eye on Antony Blinken, the US Secretary of State's trip to Beijing, but you can tell that hopes aren't high when it makes headlines that a Chinese diplomat dared to shake his hand.
While the euro and dollar both reach fresh highs, albeit by a small number of ticks, the yen downturn is still very much in effect. A further move toward tightening by the Bank of Japan, which some Western analysts believe is conceivable in July, does not appear to be imminent, and additional losses seem likely. Governor Kazuo Ueda, though, appeared to set a high standard last week when he stated that his inflation outlook would have to "sharply" shift in order to justify such a move.
A lot of central bank activity is expected in the upcoming week, with China leading the pack on Tuesday with a 10 basis point reduction in prime loan rates. Given the already significant decline in mortgage rates and the fact that lower rates merely reduce returns on household savings, that could be pushing it. More fiscal stimulus is clearly needed to boost GDP, as it has done so frequently in the past, and the markets are really waiting for it.
On Wednesday and Thursday, Jerome Powell, the chairman of the Federal Reserve, testifies before Congress. He might try to persuade the markets that two additional quarter-point rate increases are actually, sincerely, cross-my-heart likely.
With only 21 basis points of tightened pricing by September, futures are underwhelmed, while a final boost in July is regarded as having a respectable 70% chance of happening.
Markets, on the other hand, are clamoring for a rate increase from the Bank of England following its meetings on Thursday, with the only options being a 25 or 50 basis point increase. Futures point to a modest increase to 4.75% yet also predict rates will rise to at least 5.75% due to persistent inflation and rising wages.
The UK housing market has been rocked by the rise in gilt yields, which have already reached 15-year highs. This has driven up the government's already exorbitant borrowing costs.
This week, rate increases are anticipated in Switzerland and Norway as well, possibly by 50 basis points. However, these increases will likely be small in comparison to the Turkish central bank's rate hikes, which some analysts predict could reach 25%.