SNB cuts policy rate, BoE holds

The Swiss National Bank cuts rates by 25bps at its June 20 meeting, taking the policy rate to 1.25%. This was the second cut in a row from the SNB after a 25bps cut in March and was somewhat of a surprise to markets. The SNB noted that the “underlying inflationary pressure has decreased again” and the central bank forecast inflation at just 1.3% on average for 2024 before decelerating to 1.1% next year. The Swiss Franc had been on an appreciating trend against the Euro since May, having gained more than 4% versus the single currency. The SNB noted that it was “also willing to be active in the foreign exchange market” to presumably stem any substantial appreciation in the franc.

The Bank of England’s MPC kept rates on hold as expected at 5.25% yesterday, with two members again voting for a cut. For some of the remaining seven MPC members, the decision to hold rates unchanged was “finely balanced” with the strong services inflation for May persuading them to wait longer before starting to ease the policy rate, even as headline inflation reached the 2% target last month. Overall, the statement after the meeting was considered dovish, and the market is pricing a 62% probability of an August cut, with a 25bp cut fully priced by September.

Japan’s flash PMI readings for June came in lower than May, with the manufacturing PMI declining to 50.0 from 52.6 last month and the services PMI easing to 50.1 from 50.4 in May. CPI also came in softer than forecast in May, with headline CPI rising to 2.8% y/y from 2.5% in April and core (excluding food and energy) slipping to 2.1% y/y last month.

Today’s Economic Data and Events

10:00 UK retail sales (May) forecast 1.8% m/m prev. -2.3% m/m

12:00 Eurozone flash composite PMI (Jun) forecast 52.5 prev. 52.2

12:30 UK flash composite PMI (Jun) forecast 53.0 prev. 53.0

17:45 US flash composite PMI (Jun) forecast 53.5 prev. 54.5

18:00 US existing home sales (May) forecast 4.1mn, -1.1% m/m

Fixed Income

• US 2y yields ticked higher on Thursday as the market reopened after Wednesday’s holiday. The 2y and 10y yields rose 3bp to 4.74% and 4.26% respectively.
• In the UK, 10y gilt yields declined -1bp to 4.06% while most other European benchmark yields continued to rise. The 10y Swiss bond yield fell -5.0bp to 0.58% after the SNB surprised the market with a 25bp rate cut yesterday.

FX

• CHF weakened -0.6% yesterday after the SNB eased the policy rate and is trading weaker again this morning in Asian trade. Most other major currencies also lost ground against the US dollar on Thursday, with JPY down -0.4% to 158.42 and GBP down -0.2% to 1.2704, the latter reflecting a dovish tone from the BoE after their MPC meeting yesterday and a repricing of market expectations for rate cuts in the coming months.
• Commodity currencies were largely unchanged and overall, the spot USD index gained 0.3% yesterday against a basket of major currencies.

Equities

• US equities were mixed on Thursday after their recent rally. The DJIA gained 0.8% but both the S&P500 and the Nasdaq100 declined -0.3% and -0.8% respectively. European stocks rallied after the rate cut by the SNB with the EuroStoxx50 up 1.3% and the FTSE100 up 0.8% yesterday.
• The DFMGI and ADXGI both closed a touch lower on Thursday.

Commodities

• Oil prices are on track for their second consecutive weekly gain after the API reported a surprising 2.2mn barrel decline in US crude inventories last week. The data also pointed to improved demand for gasoline, diesel and jet fuel. Separately, the American Automobile Association forecast a record 71mn people would travel over the 4 July holiday. Brent oil rose 0.8% to USD 85.71/b on Thursday while WTI gained a similar amount to USD 82.17/b. Both benchmarks are trading lower in Asian markets this morning however.