Fundamental Analysis

Equities Decline in Thin Trading Ahead of Jerome Powell’s Testimony

  • Investors are focused on the upcoming testimony from Federal Reserve Chair Jerome Powell.
  • The stronger dollar negatively impacted copper and gold prices, dragging UK equities lower.
  • Producer prices in Canada dropped by 1% in May.

European equities declined on Monday as investors awaited additional stimulus measures from China and focused on the upcoming testimony from Federal Reserve Chair Jerome Powell. US markets were closed for a public holiday, resulting in thin trading. 

China’s cabinet met to discuss measures for boosting economic growth. According to state media, China lowered its key lending benchmarks on Tuesday, the first such easing in 10 months, to support its slowing recovery. 

Jefferies strategists noted the lack of an enthusiastic response in China-related markets to the recent easing measures, questioning the possibility of more aggressive stimulus. 

Elsewhere, mining stocks dragged down the UK’s resource-heavy benchmark index, following lower metal prices. At the same time, AstraZeneca’s shares declined due to reports of the company’s plan to spin off its China business. 

The stronger dollar negatively impacted copper and gold prices, and the absence of specific details regarding economic stimulus in China added to the pessimistic sentiment. 

Two-year UK yield (Source: Bloomberg)

Two-year UK yield (Source: Bloomberg)

Investors will closely monitor domestic inflation data scheduled for Wednesday to assess the state of the economy ahead of the Bank of England’s monetary policy decision on Thursday. Traders have already largely factored in a 25-basis-point hike amid the challenging inflation outlook. Short-term yields have risen, reflecting rate hike expectations.

According to Sanjay Raja, chief UK economist at Deutsche Bank Research, the May inflation figures are unlikely to change the Monetary Policy Committee’s view on a June rate hike. Raja suggested that, at most, an upside surprise could lead to more hawkish forward guidance, with the committee intensifying its efforts to address excessive inflation.

Furthermore, a survey revealed a decrease in asking prices for houses in Britain, marking the first such decline in six years. This indicates an early onset of the summer slowdown amid the turmoil in the mortgage market. 

On Monday, Canada’s equities decreased slightly as industrial and consumer discretionary shares experienced losses. The Bank of Canada will release the minutes of its policy decision from two weeks ago when it raised its benchmark rate for the first time since January. 

Moreover, according to domestic data, producer prices dropped by 1% in May compared to April, primarily due to lower prices for refined petroleum energy and primary non-ferrous metal products.