Global markets await central bank policy decisions

Investors eye Fed, ECB, and BOJ meetings as stock futures rise, Crude prices decline, and Gold suffers subdued trading

By Ahmed Azzam | @3zzamous | 3 July 2023

  • Central bank policies in focus for investors

  • Japan's producer prices decline for the fifth month

  • WTI crude dips below $70 on Chinese demand concerns

What’s happened?

US and European stock futures commenced the week on a positive note, driven by anticipation surrounding the upcoming Federal Open Market Committee (FOMC) meeting. However, investors are keeping a close eye on policy decisions from other central banks, such as the European Central Bank (ECB), the People's Bank of China (PBOC), and the Bank of Japan (BOJ). In the Asian markets, stocks displayed mixed performances, while Australian markets remained closed. Meanwhile, Treasury yields experienced a decline, prompting a marginal uptick in the value of the dollar. On the commodities front, Brent crude faced extended losses, largely influenced by Goldman Sachs' downward revision of price forecasts, attributed to increased global supplies and weakening demand.

In Japan, the producer prices index rose by 5.1% year-on-year in May 2023, marking the fifth consecutive month of deceleration and reaching its lowest level in nearly two years. This downward trajectory can be attributed to the easing of global inflationary pressures. When examining monthly figures, producer prices in May recorded a decline of 0.7%, dipping into negative territory for the first time since February.

What to watch?

WTI crude futures dipped below the $70 per barrel mark on Monday as concerns surrounding Chinese demand growth persisted. Weaker-than-expected economic indicators from China have raised doubts about the country's recovery path, posing challenges for the world's leading crude importer. Furthermore, reports suggest that Russian oil exports to China and India have continued to increase despite the European Union's embargo and the Group of Seven's price cap mechanism implemented since early December. These bearish factors have overshadowed Saudi Arabia's attempts to buoy prices by implementing an additional 1 million barrels per day reduction in oil production slated for July.

Gold prices experienced a decline below $1,960 per ounce, reflecting subdued trading activity. Market sentiment remained cautious ahead of crucial monetary policy meetings scheduled this week, including those of the Federal Reserve, the European Central Bank, and the Bank of Japan. Investors are particularly interested in the upcoming US inflation data, which could significantly influence the economic outlook and interest rate trajectory. Market expectations indicate a probability of over 70% for the Fed to maintain its benchmark interest rate unchanged during Wednesday's meeting. However, opinions are divided regarding whether the Fed will keep rates steady or resume policy tightening in July. On the other hand, the Bank of Japan is widely expected to sustain its ultra-loose monetary policy during Friday's meeting, while the ECB is anticipated to raise its policy rate by 25 basis points this week and again in July to combat persistent inflationary pressures.