US Stocks Pull Back After Weaker Data – S&P Down 0.5%
US stock markets pulled back in trading yesterday after US service sector data increased investor concerns on tariff impact. The Dow closed down 0.14% at 44,111, while the S&P and Nasdaq took harder hits, finishing down 0.49% at 6,299 and down 0.65% at 20,916, respectively. Treasury yields found a base for the first time since Friday’s jobs numbers, the 2-year adding 4.9 basis points to move up to 3.724% and the 10-year up 1.8 basis points at 4.210%. The dollar edged slightly higher against the majors but traded in relatively tight ranges, the DXY up just 0.02% at 98.77 by the NY close. Oil prices dropped again as demand concerns weighed, Brent down 1.50% to $67.67 and WTI down 1.67% to $65.18. Gold pushed higher in quieter trading, up 0.21% to $3,379.72 by the close of the day.
Bank of England Rate Call in Focus
It is still a few trading sessions away, but sterling traders are starting to position themselves for tomorrow’s key interest rate call from the Bank of England. It is the only major central bank update this week and one of the only big events on the macroeconomic calendar, and that could be why it’s garnering more attention. However, there are a few more dynamic issues around the announcement that should add volatility around the event. The MPC is expected to cut interest rates by 25 basis points tomorrow on the back of job market concerns – unemployment rate is now 4.7% – however, persistent high inflation – CPI up at 3.6% – has caused much debate for members, and the forward guidance we receive tomorrow could push markets strongly. There is expected to be an interesting split in voting, with two members going for a hold, five going for the expected 25-basis-point cut, and the last two prompting for a 50-basis-point cut. Therefore, the message that we receive from Governor Andrew Bailey and team for the next moves could see the pound move hard. Expect sharp pressure on the pound if the guidance is more dovish on the back of jobs concerns, while we should see big moves north if inflation concerns dominate and expectations for more rate cuts pull back. Plus, we can’t discount the chance of a surprise, with a hold or 50-basis-point cut, which would really put the cat amongst the pigeons.
Another Quiet Calendar Day for Traders Ahead
It is another relatively quiet calendar day ahead for traders today, with little scheduled to move the dial across markets. We have already seen the major data release for the day, with the New Zealand employment data being released early in the Asian session. The quarterly employment change number came in on expectation at -0.1%, while the unemployment rate increased just 0.1% to 5.2%, lower than the expected 5.3%. There has been only a muted reaction in the Kiwi dollar, with the market ticking up slightly on the better-than-expected unemployment rate. There is nothing else scheduled in the Asian session today and only third-tier numbers in the European day today. However, once again there is some potential on the calendar once New York comes in, with the usual weekly crude oil inventory data due out as well as Fed members Collins, Cook, and Daly scheduled to speak later on.
