Equity rally fizzles as markets weigh another possible Fed hike

The blue-chip Dow Jones finished more than 90 points higher on Wednesday, while the S&P 500 lost nearly 0.3%.  Nasdaq fell 1.3%, trimming some of its recent AI-related gains as tech shares were pressured by higher Treasury yields after the Bank of Canada’s surprisingly raised rates.  Investors were cautious ahead of May inflation data and Fed’s monetary policy decision next week.  Energy companies were among the best performers, up more than 2%, while the heavyweights Microsoft, Amazon, and Alphabet fell more than 3%.  European equity markets also fell yesterday, with the Euro Stoxx 50 marginally down by 0.1%, pressured by healthcare shares after strong gains on Tuesday. 

Summary for 08.06.2023 

• Asian equity markets mostly fell this morning as global economic uncertainties continued to dampen investor sentiment.  Meanwhile, markets will assess a slew of economic data coming out of the region, headlined by Japanese GDP figures revised higher for the first quarter.  The Nikkei 225, Kospi, Hang Seng, and Shanghai Composite indices declined, while the S&P/ASX 200 Index bucked the trend. 
• European and US equity markets are seen heading for a mixed open as global markets look for direction. 
• Oil prices were little changed in early Asia trade on Thursday as investors weighed demand concerns over a global economic slowdown against an expected fall in supply from Saudi output cuts. 

• The Japanese economy advanced 0.7% quarter-on-quarter in Q1 compared with a flash reading of 0.4% expansion and after an upwardly revised 0.1% rise in the prior period, exceeding market forecasts of a 0.5% gain.  This was the second straight quarter of economic growth and the steepest pace since Q2 of 2022, as private consumption rose the most in three quarters after tough border controls were fully lifted. 
• China’s biggest banks on Thursday said they have lowered interest rates on yuan deposits, in actions that could ease pressure on profit margins and reduce lending costs, providing some relief for the financial sector and wider economy.  This is the second such cut within a year, with the previous action taken in September. 
• The Bank of Canada unexpectedly raised the target for its overnight rate by 25bps to 4.75% yesterday, after pausing the tightening campaign in the previous two meetings, while markets were anticipating interest rates would be left on hold.  Borrowing costs are now at high levels not seen in 22 years, as policymakers consider monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target. 
• The global economy has begun to improve, but the recovery will be weak, according to the OECD’s June Economic Outlook.  GDP growth for 2023 was revised slightly higher to 2.7% from 2.6% forecasted in March but the outlook for 2024 was left unchanged at 2.9%.  GDP growth in the US is projected to be 1.6% in 2023, before slowing to 1% in 2024 in response to tight monetary and financial conditions.  In the Euro Area, declining headline inflation will help to boost real incomes and contribute to a pick-up in GDP growth from 0.9% in 2023 to 1.5% in 2024. 
• Shares of Visa and Mastercard were under pressure yesterday following a report that lawmakers are circling back to proposed legislation that could bring down credit card fees.  The Wall Street Journal reported that a bill is expected to be introduced this week that would give merchants the power in many cases to process Visa and Mastercard credit cards over different networks.  Giving merchants that right could lower the fees they have to pay.  A similar bill was introduced last summer but it didn’t get voted on. 

• GameStop terminated CEO Matthew Furlong’s job and reported lower fiscal first-quarter revenue year-over-year after yesterday’s market close, amid declining software and collectibles sales.  Shares plunged 19% in after-hours trading.   
• Vodafone and CK Hutchison are in the final stage of agreeing to merge their British operations, with an announcement expected as soon as Friday or early next week, according to Reuters sources.  Vodafone will own 51% and Hutchison 49% of the combined group, which could be worth the equivalent of $18.6 billion including debt, in line with an announcement made by Vodafone in October.  The tie-up will create Britain’s biggest mobile operator with about 27 million customers, overtaking BT’s EE and VM O2, owned by Telefonica and Liberty Global.