Early Morning Call: global indices rise ahead of Fed decision
Equity markets continued to rise around the globe in Tuesday’s session after slowing US inflation supported the market’s expectations of a Fed pause at 5%–5.25%.
Equites overview
Equity markets continued to rise around the globe in Tuesday’s session after slowing US inflation supported the market’s expectations of a Federal Reserve Decision (Fed) pause at 5%–5.25%. US consumer price index decelerated more than expected. Headline the consumer price index (CPI) rose by 4% in May year-over-year (YoY), the smallest increase in more than two years. It is undeniable that the effects of the Fed rate hikes are felt more and more, justifying a pause. However, core CPI remains sticky. It came in line with expectations, up 5.3% YoY, 1.3 percentage points higher than headline CPI, which suggests that the tightening cycle is not just over yet.
Currencies overview
There's a Bank of Japan (BoJ) rate decision on Friday, but it's not likely to yield a move up in rates despite a rise in inflation, according to economists who want to see a rise in wages first. The Fed is expected to pause tonight, but the European Central Bank (ECB) is forecast to raise rates on Thursday by 25 basis points, and another hike is forecast at the bank's July meeting. This means that the JPY is likely to set a new 15-year low against the EUR. Against the GBP, the JPY has been falling pretty much constantly this year, and Tuesday's strong UK job report gave more room to the Bank of England (BOE) to keep its tightening cycle going.
The British economy expanded 0.2% month-over-month (MoM) in April, rebounding from a 0.3% drop in March and in line with expectations. The services sector was the main contributor to the growth, led by wholesale and retail trade and the repair of motor vehicles and motorcycles, while manufacturing and construction shrank. Industrial production fell by 1.9% in April YoY, marginally missing expectations. Construction output was up 3.6% YoY.
Shell dividend
Shell announces it will increase its dividend by 15%, starting in the second quarter of the year. Shell CEO Wael Sawan, appointed in January, is working at regaining investor confidence and announces a $5 billion share buyback program to start in the second half of 2023, up from $4 billion in recent quarters. Annual operating costs are also to be reduced by $2–3 billion by the end of 2025.
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