All calm on the currency market... for now

The US dollar

The sole currency to watch on Wednesday is the USD. It will have to go through a first test at 1.30 p.m., at the release of the latest US inflation data. The May consumer price index is expected to rise at an annualized 3.4%, unchanged compared to April. Core consumer price index (CPI) growth is expected to decelerate to 3.5%, up from 3.6% in April. The deceleration has almost been constant, but there is still a long way to go to reach the Fed's 2% target. Economists fear that inflation could remain higher than previously thought. US Services CPI is the worry here. The sub-index has been rising in the last two months. In April, it pointed at 5.3% year on year.

The FOMC

The second test is obviously the Fed decision tonight. There is virtually no change for a fed rate cut tonight. More interesting will be the Federal Open Market Committee (FOMC) economic projections, which could tell the market more about what the Fed intends to do for the remainder of the year. At the moment, economists seem divided when it comes to the number of rate cuts in 2024. After tonight's decision, there will be four more FOMC meetings: in July, September, November, and December.

The latest Chicago Mercantile Exchange (CME) FedWatch tool read shows a 9% probability of a 25 basis point cut in July. This goes up to 52% in September, 67% in November, and 89% in December. Also, as we go further into the year, economists spread their bets. If we look at December, for example, 11% see no change, 38% see a 25 basis point cut, another 38% see a 50 basis point cut, 12% expect a 75 basis point cut, and 1% expect a full percentage point cut. This is why tonight's meeting is important; the market is clearly looking for guidance from the US Federal Reserve. We'll see tomorrow if the dot plot has answered some of these economists’ questions.

China's consumer inflation

China's consumer inflation held steady in May. Consumer price index (CPI) rose 0.3% in May YoY, matching April gains but missing forecasts of a 0.4% increase. The producer price index continued to decline in May, but not by as much as in the previous month. Production Price Index (PPI) fell 1.4%, to be compared to the 2.5% decline in April. This might be the softest decline since February 2023, but many believe Chinese authorities need to do more to prop up an uneven economic recovery.

The UK economy

The UK economy stalled in April, as expected. Industrial production unexpectedly fell 0.4% in April year-on-year (YoY).

Oracle

Oracle shares jumped to an all-time high in extended trading on the back of a strong revenue forecast. Markets hesitated for a couple of minutes at the publication of the Oracle Q2 report. Earnings per share and revenue narrowly missed Wall Street expectations. Oracle posted adjusted earnings per share (EPS) of $1.63 per share, compared with estimates of $1.65 per share. Total revenue increased by 3% to $14.29 billion, missing estimates of $14.55 billion. But soon after, Oracle's share price rose to an all-time high, as Oracle predicts revenue will grow in double digits in 2025, boosted by a strong demand for its AI-powered cloud services.

Broadcom

Analysts await Broadcom Q2 earnings tonight. Expectations are for earnings per share of $10.85. Revenue should reach $12.05 billion. Like many of its peers, Broadcom benefits from the exponential development of AI. Two divisions to watch: analysts expect semiconductor revenue to come in at $7.12 billion, sequentially down but up from the $6.81 billion recorded the same quarter a year ago. Networking revenue is expected to be $4.93 billion, up from $1.93 billion a year ago.

Oil

On Tuesday, the Environmental Impact assessment (EIA) revised its oil output and global demand forecast. The agency now expects US oil output to grow by around 310,000 barrels per day to 13.24 million bpd this year, about 40,000 bpd higher than its previous forecast in May. EIA now expects global oil output of around 102.6 million bpd, compared with its 102.8 million bpd forecast in May. Also yesterday, American Petroleum Institute (API) inventories revealed a 2.4 million-barrel drop in crude oil stocks last week. Gasoline inventories decreased by 2.5 million barrels. Distillate inventories rose by 970,000 barrels.