Japan Raises Rates, Israel Strikes Lebanon, Over To You Powell

Between month end and this afternoon’s Fed decision today had already been looking like a big one for trading but overnight developments have ramped up market action even more.

Quickly shrugging off yesterday’s weakness, stock markets around the world have exploded upward overnight after the Bank of Japan raised its benchmark interest rate to 0.15%, bringing it back into positive territory for the first time since January of 2016. On this news, which has been seen as a sign of economic strength, Asia Pacific markets have soared led by gains of 1.5% for the Nikkei and 2.0% for the Hang Seng. Major European markets are also green across the board with the FTSE up 1.2%, the CAC up 1.1% and the Dax up 0.5%. In early US trading, NASDAQ futures are up 1.7%, while Dow futures are up 0.1% and S&P futures are up 1.0%.  

Political tensions in the Middle East ramped up significantly overnight as Israel launched strikes in Lebanon and Iran that killed key Hamas leaders. This sparked a 3.5% rally in the price of US Crude Oil adding to support from API announcing a drawdown in its weekly US inventory report for the fifth week in a row. Copper is up 2.1%.

The US Dollar is trading flat to lower ahead of today’s US Fed interest rate decision. No cut is expected this time but Fed Chair Powell is widely expected to hint toward a September rate cut. The Yen has jumped 1.7% over night sending USDJPY back to 150, and the Aussie Dollar is up 0.6%. Gold is up 0.5%, while Bitcoin is up 0.3% and Ether is up 1.4%.

There are several economic month-end economic indicators due today as well. US ADP payrolls (122K vs street 150K) showed slightly lower job growth than expected. China Manufacturing PMI and Non-Manufacturing PMI hovered near 50, in line or slightly above expectations. US Chicago PMI (street 44.5) is due at 9:45 am EDT, followed by pending home sales at 10:00 am and US weekly DOE oil inventories at 10:30 am. Canada GDP for May (% vs street 0.1% and previous 0.3).   

Peak week for earnings season keeps rolling on. Microsoft* is down 2.4% premarket as traders focused on a shortfall in  cloud sales over headline beats for sales and earnings. Advanced Micro Devices is up 7.1% premarket after beating the street, while Starbucks is up 4.2% on an in-line report. Meta Platforms and Mastercard headline after the close.

*Shares of Microsoft are held in portfolios managed by SIA Wealth Management.

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