Today's markets: China cut fails to boost shares

At the start of Tuesday's trading session in Europe, there was a varied performance in the stock markets following a decline on Monday. Meanwhile, most of Asia experienced a weaker market. The US market is expected to make a comeback today after celebrating the Juneteenth holiday. Despite the People's Bank of China cutting its benchmark rate by 0.1 percentage points and making additional cuts to short and medium-term rates last week, Chinese stocks still experienced a decline. Furthermore, HSBC has reduced its China GDP forecasts along with Goldman Sachs and other companies due to the reopening plans not going as smoothly as anticipated.

The FTSE 100 went up a bit by 0.07% and is hanging around 7,600. On the other hand, the DAX in Frankfurt went down by 0.7% and is now below 16,100 after reaching its all-time high last week. Because the US was closed on Monday, yesterday's activity was slower. The price of crude oil remains stable, with spot WTI sitting at $71.50, and the value of gold seems to remain stagnant, staying around the $1,950 mark.

This week, the Bank of England is the center of attention as 2-year gilt yields reach new highs of over 5% for 15 years. Inflation remains a concern and the Bank may share some responsibility for not pushing back earlier. The question now is whether the Bank will follow the market's expectation of a 6% terminal rate or resist this narrative. The focus is more on the tone and guidance provided by the Bank as they have been reluctant to sound too strict during the hiking cycle. The Bank may still hold the belief that inflation will decrease due to the delays caused by previous hikes, as seen in their comfort with the imbalance of inflation's slow decrease versus its quick rise after the hike in May. Will the Bank hold onto this belief?

Looking ahead to the upcoming meeting, the UK CPI inflation rate for May is anticipated to be high once again. In April, the headline CPI decreased from 10.1% to 8.7%, while core inflation increased from 6.2% to 6.8%, which suggests that the Bank of England will need to continue raising rates. Strong wage data from last week has further bolstered the view in the market that the Monetary Policy Committee will implement numerous rate hikes. Moreover, the Bank of England has conceded that its forecasting is inadequate. Although core inflation is expected to remain consistent at 6.8%. In more positive news on the inflation front, grocery inflation has decreased to 16.5%, the lowest rate so far this year.

There isn't much information available today besides the stats on US housing starts and building permits. The German producer price inflation went down to 1%, the lowest it's been since January 2021. We're wondering if Europe's consumer inflation will go back to normal in the coming year and if the UK will be an exception. Let's keep an eye out for answers this week.

Neil Wilson, who is the chief market analyst at Finalto, is the author of the Trader.