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The Asia-Pacific equity markets are showing mixed performance today. China’s trade surplus for April increased by less than anticipated, mainly due to a notable rise in imports. Asian bond prices fell, following the sell-off in US Treasuries. Chinese stocks increased due to positive trade data and indications of property market support. Benchmark rates in Japan rose, while US government bond rates also increased after a lukewarm response to a $42 billion offer of 10-year notes. Japanese rates went up after the central bank made a hawkish statement about its April meeting, discussing the potential reduction of bond purchases and the path for future rate hikes.In the UK, the most recent RECS survey on the labor market indicates a continued decline in both recruitment activity and unfilled vacancies, although the rate of decrease appears to be slowing down. The Bank of England is widely expected to maintain its policy interest rates at 5.25% for the sixth consecutive meeting in today’s update. However, the focus lies on the signals regarding potential future policy adjustments, particularly regarding the timing and extent of rate cuts. Similar to trends in other regions, financial markets have tempered their expectations for a rate cut in the UK. There is now a 50% probability assigned to a reduction in June, and while the likelihood of an initial cut by August is high, the total number of expected cuts for the year has decreased to around two, down from six at the beginning of the year. This shift is partly in response to adjustments in expectations for US interest rates and also reflects domestic uncertainties. Some members of the Monetary Policy Committee remain concerned about persistent domestic inflationary pressures, such as wage growth and service prices. However, with headline inflation expected to approach the 2% target in April and interest rates considered to be in restrictive territory, there may be room for signaling that current market expectations on rates could be overly pessimistic. There are several avenues for potential signaling, including a change in policy guidance, although this is unlikely to go beyond indicating the BoE’s readiness to lower rates pending economic data. Another avenue is the MPC vote split, which has recently leaned more dovish. While markets anticipate the vote split to likely remain unchanged, there is a risk of additional members favoring a reduction. Additionally, the MPC’s updated economic forecast, based on the higher interest rate path currently factored into markets, may suggest inflation undershooting its target for much of the forecast period, potentially hinting at more rate cuts than currently anticipated by markets.Other than these developments, today’s data docket is light. The US weekly jobless claims data will offer insights into the labor market, and the BoE will release the results of its latest Decision Maker Panel survey.
Overnight Newswire Updates of Note
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
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