Global bonds are slumping after two shock interest-rate hikes this week served traders a reality check that central banks are far from done fighting inflation. The Bank of Canada (BoC) surprised markets on Wednesday by hiking its overnight rate to a 22-year high of 4.75%. Traders expect another increase next month to address an overheating economy and stubbornly high inflation. The BoC had been on hold since January to assess the impact of previous hikes. This move indicates the BoC's confidence in the economy's resilience and its aggressive stance on controlling inflation.
Asian shares slipped on Thursday in response to the surprise interest rate hike by the Bank of Canada. Investors worry that U.S. rates could stay higher for longer, and the Federal Reserve could remain hawkish when it meets next week. The unexpected rate hike by the Bank of Canada follows a similar move by Australia's central bank earlier this week. The Reserve Bank of Australia also warned of more rate hikes to address rising pricing pressures. Saxo Markets strategists note that two consecutive central bank surprises raise the risks of a Fed surprise next week.
Markets are now pricing in a 68% chance of the Fed standing still next week, compared to 78% just a day earlier, according to the CME FedWatch tool. However, traders are still pricing in a 25 basis point hike in July. The Canadian dollar rose slightly, while Turkey's lira hit a record low against the dollar as the newly re-elected government appeared to loosen stabilizing measures after signaling a pivot to more orthodox policies.
In the commodity markets, U.S. crude futures rose slightly, while Brent remained relatively stable. Gold prices steadied after a 1% drop in the previous session. Bitcoin's price has ticked down to $26,348, signaling a contraction in its value. The contraction in Bitcoin price follows a market-wide decline, and analysts fear that BTC might be headed to new year-to-date lows. This negative sentiment in the cryptocurrency market is driven by a fresh wave of SEC-led regulatory enforcement against Coinbase and the June 5 lawsuit against Binance exchange.
The U.S. trade deficit widened significantly in April, with imports rebounding and exports of energy products declining. Economists predict that if this trend continues, trade could be a drag on economic growth in the second quarter. The strong dollar and slowing global demand may further curb exports.
Asian equities fell, mainly due to weakness in Chinese stocks. Benchmarks in Australia, South Korea, and Japan also experienced slight declines. Investors are also keeping an eye on Indian equity benchmarks, which are potentially reaching a new record high after a recent rally. In the U.S., tech shares bore the brunt of jitters over higher rates, leading to a decline in the S&P 500 for a second day this week and the Nasdaq 100's worst day since April.
Upcoming key events for this week:
- Eurozone GDP (Thursday)
- Rate decisions in India and Peru (Thursday)
- US wholesale inventories and initial jobless claims (Thursday)
- China's PPI and CPI data (Friday)
That's all for today's Chump Profit Morning Brief. Stay tuned for further updates throughout the day.