RBNZ, UK CPI and Nvidia results to hit markets

Headlines

* Markets raise bets of June BoC rate cut after inflation data

* ECB’s Lagarde sees June rate reduction with inflation “under control”

* May RBNZ likely to see not enough reasons to turn dovish

* Nasdaq closes at fresh record highs ahead of Nvidia earnings

FX: USD closed very modestly higher but remains in a bearish consolidation pattern. The 50-day SMA is at 104.86. If prices fade and the 200-day SMA at 104.36 is beaten, then the index could move down past recent lows at 104.08. The FOMC minutes released early Thursday could be viewed as stale. This is due to softer NPF and CPI data since the prior recent meeting.

EUR is the mirror image of the Dollar Index turned on its head, as it has a heavy weighting towards the single currency (57%). Prices are consolidating in a possible bullish flag pattern. If they beat 1.0894, buyers will look to 1.0950 and beyond. Near-term support sits at 1.0835. PMIs will be watched when released on Thursday.

GBP edged higher on little news. Markets are awaiting the CPI data released today. Expectations are for a sharp easing in the headline figure. This will grab headlines. But policymakers will be focused on the services number, forecast at 5.4%.

USD/JPY printed a doji in a very narrow day of trading. Prices remain above the 50% mark of the high to low levels during “yentervention” in late April and early May, which is at 156.03.

AUD is just about holding above 0.6650 in consolidation mode. USD/CAD pushed higher above the 50-day SMA at 1.3637 after softer April CPI. Odds on a June rate cut moved higher from around 40% to just above a coin toss at 56%.  

Stocks: US equities rose to new all-time highs. The S&P 500 closed 0.25% higher at 5321. The tech-laden Nasdaq 100 added 0.21% to finish at 18,713. The Dow Jones settled up 0.17% at 39,873. Focus was on retailers after their latest earnings reports. Macy’s stock fell over 2% after a drop in Q1 ales and profits, even though the figures beat expectations. Lowe’s shares also fell as the company warned consumer demand is unlikely to improve in 2024.

Asian Stocks: APAC futures are mixed. Asian stocks were muted after subdued performance Stateside. The ASX 200 went lower with losses in mining stocks. The Nikkei 225 was initially higher on the weaker yen but negative sentiment hit the index late on. The Hang Seng and Shanghai Comp were both downbeat with amid tech losses.

Gold was choppy with prices trading in a very narrow range. The precious metal eventually closed below the April spike high at $2431.

Day Ahead –RBNZ and UK CPI

The RBNZ is unanimously expected to stay on hold at 5.5%. There will be a full set of communications including the quarterly Monetary Policy Statement with updated explicit forward rate guidance and a press conference held by Governor Orr. Markets are priced for no chance at a cut until at least the August meeting but with most of a 25bps move priced for October. The last explicit forward guidance leaned toward no policy rate change until well into 2025. A similar bias is expected this time in the wake of an up-tick in headline CPI. With a flatlining economy, the likely course keeps the RBNZ in the “watch, worry and wait” stance it adopted a year ago.

Headline UK inflation is seen cooling considerably to 2.1%, versus the prior 3.2%. Disinflationary pressures will come chiefly from a 12% fall in household bills set by the energy regulator. Services prices is the key input for the MPC as it is more sensitive to labour costs which are still elevated. It is expected to decline to 5.4% from 6.0% and is likely to continue easing throughout 2024 as wage growth gradually slows. Expectations for a BoE June rate cut remain a near-enough coin flip so expect GBP volatility. However, there is another CPI report the day before the June BoE meeting.

Chart of the Day – Nvidia hovers below record highs

Nvidia’s quarterly results on Wednesday could set the tone for US stock markets and hit the wider indices due to artificial intelligence being such a huge driver of market sentiment. The chip giant is expected to report a massive jump in revenue and profit for its fiscal first quarter. Revenue is expected to rise to $24.8 billion, from $7.2 billion a year earlier, with earnings per share soaring to $5.57 from $1.09, according to LSEG data.

The stock has jumped over 90% this year after more than tripling in 2023, making the AI darling the third-largest U.S. company by market value. Options markets price a near 9% move on Thursday when the stock opens after its results are released after the US close. A move of that size would equal around $200bn of market cap and equate to a +0.5% move in S&P500 futures. Nvidia will need to meet those lofty expectations and then some to keep its soaring stock price moving higher. The all-time high is at $974 with the initial support at $855.