Early Morning Call: GBP/USD remains near one-year high ahead of BoE decision

China growth

China's economy grew faster than expected in the first quarter, by 4.5%, thanks to the lifting of Covid curbs. But at the same time, several indicators point to an uneven recovery. After three months of expansion, factory activity contracted again in April, while retail sales growth hit a two-year high.

The latest inflation data gives further indications that the world's second biggest economy is finding it difficult to shake off the Covid-induced damage. The consumer price index (CPI) in April rose 0.1% compared to the same month a year ago, the lowest rate since February 2021, slowing from the 0.7% annual gain recorded in March. Economists anticipated a 0.4% rise.

Producer deflation also deepened, falling at the fastest pace since May 2020. PPI declined 3.6% year-on-year (YoY) after a 2.5% drop the previous month, and lower than a forecast for a 3.2% fall. The NBS attributed the weaker consumer inflation to the base effect. Vegetable prices extended their decline to 13.5% and pork price growth slowed to 4.0% from 9.6% in March.

But the fact remains that CPI is still well below the government's ceiling of around 3%, which means there is ground for the People's Bank of China (PBoC) to either cut rates or release more liquidity into the financial system.

BoE

The Bank of England (BoE) is set to decide on its interest rates at noon UK time. Investors are fully pricing in the 12th straight hike of 25 basis points (bp) that would take the rate to 4.5%, a level not seen since October 2008.

If there is no doubt about today's decision, the market will be looking for clues on the likelihood of further rises in the months ahead. Earlier this month, a Reuters poll showed most economists expected a pause at 4.5% for the remainder of the year. Most but not all.

This week, Goldman Sachs said it was now forecasting rates to peak at 5% in August. As recession fears are moving away, it gives a bit more room for the BoE to continue its fight against inflation, which stubbornly remains above 10%, more than five times the bank's target.

Equities

ITV released a trading statement saying that total external revenue fell 7% to £776 million. Total studio revenue was flat at £457Mln.

Rolls-Royce said its performance year-to-date was in line with expectations. Supply chain management remained a key operational challenge for the Aircraft engine maker.

In Germany, Thyssenkrupp posted a second quarter (Q2) net loss of €223Mln due to impairment losses at its Steel Europe division.

Deutsche Telekom saw its adjusted EBITDA rise 0.9% in the first quarter to €10 billion, beating expectations. The group now expects EBITDA to reach €40.9Bln in 2023, €100 million more than its previous forecast.

Bayer's EBITDA fell 14.9% to €4.47Bln in the first quarter. The group said its 2023 results would likely come in at the lower bound of its target range.

Disney shares fell in extended trading on Wednesday after the release of its quarterly report. Earnings came in at 93 cents per share and revenue at $21.82Bln, both lines broadly aligned with forecasts.

But the group's streaming business, Disney Plus, caught the eye. Last November, Bob Iger was brought back by the board, with a main mission: put a cap on swelling spending at Disney Plus. With the help of a price increase and reduced marketing expenses, Iger managed to reduce Disney Plus losses by $400Mln compared to the last three months of 2022, ending the quarter with an operating loss of $659Mln.

But the division also lost subscribers for the second straight month, down four million to 157.8 million. Most subscriber losses came from India after Disney lost streaming rights to IPL cricket matches. Disney also shed 300,000 customers in the United States and Canada, where it raised prices last December.

This a blow for investors who expected Disney Plus would add more than a million customers in the quarter. Disney plans to launch a new app that combines Disney+ and Hulu, and with it, Iger wants to open more opportunities for advertisers. And an ad-supported option also will be added to Disney+ in Europe by year's end. Three months ago, Iger vowed to reduce costs by $5.5 billion, partly through 7,000 job cuts. He said yesterday that this target would be exceeded.