With Fed policymakers in a blackout period before next week’s meeting, and new data points thin this week, market edginess was dominated by shifting sentiment more than anything.
Weekly U.S. jobless claims numbers will be watched closely as always later on Thursday but the May consumer price inflation report next week looms largest as a possible game changer before the Fed decides.
Tighter rates put some attention back on Treasury’s plans to refill its depleted coffers with a wave of new bill sales now that the debt ceiling has been lifted. Details of those plans on Wednesday have done little to disturb the bill market so far, with one-month yields dipping back below 5% on Wednesday for the first time since May 4.
Stock markets dialled back a bit from 2023 highs – with the year’s biggest winners so far – the most rate-sensitive tech sector – underperforming on Wednesday. The small-cap Russell 2000 climbed almost 2%, however.
And volatility gauges remain very subdued.
The VIX index clocked another post-pandemic closing low and remains close to that on Thursday. The MOVE index of bond volatility edged back higher from 3-month lows set the previous session, but overall currency volatility hit its lowest since February 2022.
Elsewhere, China’s yuan set another low for the year as the country’s monetary policy goes in the opposite direction.
China’s biggest banks said they have lowered interest rates on yuan deposits, in actions that could ease pressure on profit margins, reduce lending costs and provide some relief for the financial sector and wider economy.
Turkey’s ailing lira spiralled ever lower to new records as the government abandons support due to depleted reserves that were drained propping up the currency before the election. It hopes it will find some competitive level on the open market, though few know now were “fair value” lies.
In the bamboozled crypto world, hit by serial U.S. regulatory crackdowns on big exchanges this week, the latest sideswipe came from Brussels over advertising.
