The Bank of Japan is expected to reduce its purchases of Japanese government bonds, which are currently above 6 trillion yen per month. This reduction in bond purchases is seen as a softer form of monetary tightening compared to outright rate hikes. Although some analysts predict another rate hike to counter the depreciation of the Japanese yen, UBS argues that currency market management falls more under the purview of the Ministry of Finance. UBS forecasts the BOJ to hike rates by October to 0.25%, but a surprise hike in July cannot be ruled out due to recent wage data for April that show promising signs of improved consumption and higher inflation. The gains in base pay are expected to spread to employees of smaller firms, but workers' earnings are still lagging behind rising costs.
EQUITY
The Dow rose after job openings fell to a 3-year low of 8.1 million in April, boosting bets on a September rate cut as Treasury yields declined, although there is more job data coming. Intel unveiled new AI chips to try catching Nvidia and AMD, while Tesla's China EV sales dropped 6.6% in May. GameStop rallies were short-lived after investor Keith Gill showed his position. Nikkei fell on wage growth, while India's markets tanked after the BJP secured a slimmer-than-expected majority in elections, raising reform concerns.
GOLD
Gold prices edged up slightly on Wednesday, supported by lower Treasury yields that fell on a cooling labour market. However, prices remained rangebound as investors awaited more labour market data and the central bank's decision, namely the Bank of Canada and the European Central Bank. Indian tanker equity could drive up physical demand for gold as investors shift to commodities. However, Swiss gold reported declining exports as higher shipments to India and Turkey were outweighed by lower exports to China and Hong Kong.
OIL
Oil prices fell close to four-month lows after OPEC+ decided to boost supply in October, which some view as committing to a 500,000 barrels per day hike in Q4 2024. However, Saudi Arabia said OPEC+ could pause or reverse the supply increase if demand is too weak. Rising U.S. stocks could further dent oil demand views, with Memorial Day data indicating the start of the summer driving season.
CURRENCY
The dollar has rallied over 3% this year on sticky inflation that keeps interest rates higher for longer. The strong dollar is weighing on the euro despite eurozone economic data turning positive, which may see the Bank of England cut rate on Thursday. The yen remains weak, while the yuan saw modest gains on solid service data. However, the dollar's strength should endure if U.S. inflation picks up again and forces a short Fed easing cycle, leaving the dollar overvalued.
