Central bankers, Micron, banking stress tests – what’s moving markets

A number of central bankers point to further rate hikes ahead, apart from BOJ’s Ueda, while chipmakers and the banking sector will be in focus after strong results from Micron and the passing of bank stress tests, Nike ‘s results are also expected, along with weekly jobless claims and the final reading of first quarter GDP.

1. Major central bankers remain hawkish, except Ueda…

The European Central Bank’s annual gathering at Sintra has allowed the leaders of the majority of the world’s senior central banks to affirm their hawkish tendencies, suggesting interest rates will be ‘higher for longer’.

ECB President Christine Lagarde, acting as host, largely confirmed a July hike, Fed chair Jay Powell mentioned the possibility of consecutive rate increases, while Bank of England boss Andrew Bailey implied tight monetary conditions would have to stay in place for some time given U.K. inflation remains highly elevated.

The one outlier was Bank of Japan Governor Kazuo Ueda who pointed to his country’s low underlying inflation as sufficient reason for monetary policy to stay very accommodative even as the rest of the world tightens aggressively.

There are a number of inflation releases due as this week comes to a close that could put these views into context.

Spanish consumer inflation slowed to below the 2% level targeted by the European Central Bank, rising 1.6% in June from a year ago, but this will provide little assurance with CPI in North Rhine Westphalia, the most populous of the German states, recorded a 6.2% annual rise in June.

The CPI index from the wider euro region is scheduled for Friday, and the underlying pace of price growth in the euro area is expected to have grown again.

Friday also sees the final reading of the U.S. core PCE price index for the first quarter, while Tokyo reports consumer price data – a leading indicator for Japan’s nationwide figures due later.

2. Micron gains on AI demand, but Chinese worries remain

Micron’s (NASDAQ:MU) stock rose more than 3% premarket after the U.S. chipmaker reported strong third-quarter results after the close Wednesday, powered by demand for its memory chips from the rapidly-growing artificial intelligence sector.

However, the company did point to one major reason for concern, saying up to half of its China market share is at risk due to the ongoing spat between Washington and Beijing over the flow of artificial intelligence chips to China.

And this dispute could be about to become even more heated, as a report by the Wall Street Journal stated that the United States is considering new restrictions on exports of artificial intelligence chips to China.

The Commerce Department will stop the shipments of chips made by U.S. companies, including Micron, to customers in China as early as July, the report said.

3. Futures higher; Nike results due

U.S. futures edged higher Thursday, boosted by strong earnings from chipmaker Micron and the announcement of successful stress tests in the banking sector.

At 05:30 ET (09:30 GMT), the Dow futures contract had climbed 55 points or 0.2%, S&P 500 futures rose 6 points or 0.1%, and Nasdaq 100 futures gained 25 points or 0.2%.

The strong quarterly numbers from Micron and the successful banking tests have helped create a positive sentiment, but gains are likely to be limited as investors digested Federal Reserve Chair Jerome Powell’s latest comments about the tightening cycle.

That said, the main equity averages are on course to record a strong first half of 2023, with the broad-based S&P 500 up 14% this year to date, the tech-heavy Nasdaq Composite has gained nearly 30% – set to post its best first half since 1983 — while the blue-chip Dow Jones Industrial Average is up just 2% this year.

The main corporate release Thursday comes from Nike (NYSE:NKE), with the athletic apparel maker’s quarterly results potentially hit by slowing sales in North America.

4. U.S. banks pass stress tests

The major U.S. banks all passed the Federal Reserve’s annual stress tests, the regulator announced late Wednesday, demonstrating they are able to weather a severe recession.

“Today’s results confirm that the banking system remains strong and resilient,” said Fed Vice Chair for Supervision Michael Barr.

The 23 biggest banks in the country were able to prove that they would remain active, coping with this year’s hypothetical scenario which included 10% unemployment, a 40% plunge in commercial real estate prices, and a surge in the dollar.

It’s important to also remember that only the largest banks are required to take these tests, and the issues earlier this year concerned midsize and regional banks.

“We are very reluctant to say” if the sector’s turmoil is over, Fed chief Powell said Thursday during an event held by the Spanish central bank in Madrid. “Our job is to worry about things.”

That said, investors will now be waiting for the announcements from the major banks about their stock buyback and dividend plans, as these usually follow the passing of these stress tests.

5. U.S. data deluge due

There is a large dump of U.S. economic data to study Thursday, as investors gear up for the next meeting of the Federal Reserve towards the end of July.

The weekly jobless claims are expected to come in at 266,000, virtually unchanged from the previous week’s 264,000, indicating that the U.S. labor market remains relatively stable.

The final reading of the first quarter’s gross domestic product growth is expected to remain unchanged with annualized growth of 1.4%, while pending home sales are seen growing 0.2% in May.