Early Morning Call: BoJ stays put; TSCO trading update; recession fears

European indices outlook

European indices have shown small gains this morning after recording heavy losses yesterday.

The FTSE 100 closed 228 points lower, and later in the evening even tested the major psychological support of 7,000 points on IG's 24-hour market.

Investors were spooked by the Bank of England's (BoE) expectations. The bank sees the economy shrinking by 0.3% in the second quarter (Q2) and inflation topping 11% in October, higher than the “just above 10%” previously announced.

As for sterling, it initially fell against the dollar when the BoE announced its 25 basis point (BPS) hike, but rallied later.

US indices

In the US, the Dow Jones fell by 2.42%, the S&P 500 ended 3.25% lower, and the Nasdaq composite plunged 4.08%, setting a new 18-month low.

The dollar lost ground falling to a one-week low yesterday afternoon before recouping some of its losses. The Dollar Basket now hovers around 104.

APAC

In the Asia-Pacific region, trading was mixed.

The Nikkei and ASX 200 recorded losses of around 2%, while the Hang Seng and CSI 300 posted small gains.

In Japan, the Bank of Japan (BoJ) decided to keep its short-term interest rate target unchanged at -0.1%. It also kept its massive stimulus in place, pledging to buy unlimited amounts of 10-year Japanese government bonds at 0.25% every business day.

The yen fell on the news against all major currencies.

Macro outlook

Very little is expected on the macroeconomic front today, other than US industrial production at 2.15pm UK.

In its trading statement for quarter 1 (Q1), Tesco maintained its full-year (FY) profit guidance despite reporting a 1.5% drop in ex-fuel, and sees “early indications of changing customer behaviour as a result of the inflationary environment."

Over in the US, Adobe shares fell in extended trading despite beating earnings and revenue forecasts. The group posted earnings of $3.35 per share. Analysts had expected $3.31. Revenue was also above expectations, rising 14% to $4.39 billion.

But the group signalled that the third quarter (Q3) would be impacted by the ongoing war in Ukraine, and its decision to cease all new sales in Russia and Belarus. Adobe sees earnings and revenue below what analysts had anticipated.

Commodities

On the commodities front, the Federal Open Market Committee (FOMC) and BoE economic projections weighed on industrial metals prices.

Copper is trading near one-month lows, and aluminium set a new 11-month low.

Oil prices are also feeling the impact of gloomy forecast. WTI and Brent are about to post their second straight week of losses.

Finally, on the cryptocurrency market, bitcoin is set to post its worst weekly performance since May 2021.