Early Morning Call: FX market little changed ahead of busy week for central banks

Equities overview

Equity markets opened higher on Monday, as volatility index remained near 40-month lows. Indices in Asia-Pacific region also traded higher. In Japan, producer price index fell more than anticipated in May, -0.7% compared to the previous month. Economists were expecting a 0.2% fall.

On an annual basis, the index slowed for a fifth straight month, driven down by falling commodity and energy prices. Three central banks are set to adjust -or not- their policy. Markets are pricing in a pause from the Federal Reserve, after 10 straight meetings in which it has jacked up its key rate by a full 5 percentage points in 14 months. Economists do see this coming meeting as an opportunity to pause to see what degree of a slowdown it's managed with its action so far. Markets are beginning to price in a further possible 25 basis points at the end of July.

European Central Bank

Then on Thursday, the European Central Bank (ECB) is expected to raise its key interest rates by 25 basis points, and again in July before pausing for the rest of the year. This is according to a poll conducted by Reuters which indicated that economists believe inflation across the single currency economies remains sticky. After 375 basis points of hikes over the past year, economic activity across the region has slowed, sending the eurozone into technical recession. As for the Bank of Japan (BoJ) on Friday, it is forecast to maintain its ultra-loose policy in place.

It could also signal the inflation is overshooting its forecast. The so called "core-core CPI", the ex-food and energy reading favoured by the BOJ, jumped to 4.1% year-on-year (YoY) in April, a level not seen since the early eighties.

This would be an appetiser ahead of the banks' economic projections due in July. In Kazuo Ueda's opinion though, inflation overshooting the BOJ's target doesn't necessarily mean rate hike. The BOJ Governor already said he needed to see durable wage growth accompany price rises before considering any move.

Macroeconomic indicators

A few UK macroeconomic indicators could shake the pound in the coming days. Tomorrow, unemployment rate is forecast to rise for as third straight month, to 4%. it would be the highest unemployment rate since December 2021. On Wednesday, GDP is forecast to rise 0.2% in April compared to March, which would be the first increase in three months.

Also on Wednesday, the market awaits Industrial production and trade balance. Oracle , an all-sessions stock on the IG platform, is set to report its 4th quarter (Q4) earnings after market close tonight. Investors are keen to see how Oracle Cloud Infrastructure performed in recent months, as the flexible work model is becoming mainstream. In Q3, Oracle cloud revenue accounted for 51% of its total revenue. In Q4, it is expected to rise to 53%. Another center of interest is Cerner.

The health information tech giant, bought in 2022 for $28.3Bln, contributed $1.5Bln of revenue in the previous quarter. Overall, the street anticipates earnings of $1.58 per share, a 2.6% increase on the same quarter a year ago. Revenue is forecast to rise 16% to $13.74Bln.

Commodities

After a month of heavy declines, the number of Oil and gas rigs in operation remained relatively stable last week, according to Baker Hughes. Total rig count fell by one to 695. This contrasts with the double-digit drops we saw through the whole of May. At the end of April there were 755 producing rigs in the US.