Marketmind: G4 central bankers speak, chips wars rumble

A look at the day ahead in U.S. and global markets from Mike Dolan

Eyeing another slew of impressive U.S. economic soundings, the world’s four most powerful central bankers are set to give a collective take on Wednesday on their final policy push to rein in inflation.

Markets are torn between embracing the resilience of U.S. activity and the likelihood that robust demand will embolden western central banks to tighten credit another few notches to ensure inflation rates do eventually return to 2% targets.

The picture was complicated further overnight as Tuesday’s macro-driven rally in Wall St stocks was sideswiped by renewed Sino-U.S. trade tensions. AI darling Nvidia (NASDAQ:) recoiled 4% in out-of-hours trade after reports Washington is considering new curbs on chip exports to China.

But Wednesday’s trading may well be dominated by news from a power panel at the European Central Bank’s annual forum in Portugal.

Federal Reserve Chair Jerome Powell, ECB boss Christine Lagarde, Bank of Japan governor Kazuo Ueda and Bank of England chief Andrew Bailey all speak at the same set piece at 1330GMT.

The prospect of more policy tightening from all four by year-end has sobered up markets, which were until recently convinced that the steep interest rate rises of the past 18 months could be partly reversed into recessionary conditions in late 2023.

Even though disinflation is proceeding apace – with price pressures in Australia and Canada surprising to the downside this week and euro zone numbers due on Thursday – the prospect of any monetary easing this year now seems a distant prospect.

A sweep of U.S. economic updates on Tuesday showed consumer confidence racing ahead last month, capital goods orders rising and further evidence of an impressive rebound in the U.S. housing markets. President Joe Biden is due to deliver a keynote speech on the economy in Chicago on Wednesday.

While the recorded its best day in almost two weeks on Tuesday with gains of over 1%, Treasury bond yields backed up. Two-year yields are back above 4.7% and futures markets now don’t price a full policy rate cut from current levels for almost a year, with at least one more hike in the interim.

Partly hampered by the chip wars report, Wall St stock futures gave up some of their gains, with Shanghai earlier ending in the red too. outperformed with gains of more than 2%, while European stocks also advanced.

In currency markets, the dollar was firmer – especially against , which hit a new low for the year.

Although the People’s Bank of China appeared to support the currency on Tuesday, it seemed to step back again today and endorse the move.

Profits at China’s industrial firms extended a double-digit decline in the first five months as softening demand squeezed margins, increasing pressure for more policy support to bolster a stuttering post-COVID economic recovery.

Elsewhere, investors will keep a close eye on the Fed’s release of its latest U.S. bank stress tests. The big financial firms are expected to fare well despite the year’s troubles at smaller regional banks.

Events to watch for later on Wednesday:

* U.S. May trade balance, May wholesale/retail inventories

* Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, Bank of Japan’s governor Kazuo Ueda and Bank of England chief Andrew Bailey speak at annual ECB central banking forum in Portugal

* U.S. President Joe Biden delivers speech on the economy

* U.S. bank stress test results released

* U.S. Treasury auctions 7-year notes, 2-year FRNs

* U.S. corporate earnings: Micron Technology (NASDAQ:), General Mills (NYSE:)

(By Mike Dolan, editing by John Stonestreet [email protected]. Twitter: US consumer confidence https://tmsnrt.rs/3PybBqt@reutersMikeD)