A preview of the day ahead in the European and global markets of Sonali Desai.
The US debt ceiling saga continues to loom over global markets, with the White House and Republicans both citing progress in the latest round of talks but no breakthrough yet.
Rating agency Fitch chose not to wait, placing the country’s “AAA” rating on watch for possible downgrade – the first major agency to do so. This could raise the stakes for protracted negotiations as the “X date” of June 1 approaches – or policymakers in Washington could simply choose to ignore it.
The ratings watch gave further boost to US Treasury yields and the greenback, with the dollar index hitting new highs while the Japanese yen hit its lowest since Nov. 30 and the euro and pound sterling are sitting on major chart support.
Two-year Treasury yields also hit highs not seen since mid-March, while the yield on Treasury bills maturing in early June rose again above 7%.
Stock markets across Asia are in the red, except for Japan’s buoyant Nikkei, although S&P E-mini and Nasdaq futures rebounded after a strong revenue forecast from Nvidia Corp.
The data calendar from Europe is quite light, with the final German GDP for the second quarter being the main release. However, there are plenty of central bank speakers, with comments from Bundesbank chief Joachim Nagel and ECB chief economist Philip Lane likely to generate the most interest.
Bank of England monetary policy committee member Jonathan Haskell’s speech in Washington will also be watched after UK price data beat expectations again on Wednesday. That left Governor Andrew Bailey worrying about “sticky and stubborn” inflation as markets priced in further policy tightening.
Expectations of a Federal Reserve rate hike in June also continued to rise, even after minutes from the May 2-3 meeting showed little consensus on the need for further hikes.
Key developments that could influence markets on Thursday:
Final German Q1 GDP and GfK Consumer Sentiment in June
Bundesbank chief Nagel, ECB’s Lane and de Guindos and BoE’s Haskell speak out
US weekly jobless claims and second estimate of Q1 GDP
Gains: Dollar Tree, Ralph Lauren and Gap
(Reporting by Sonali Desai; Editing by Edmund Klamann)