Investors cautious ahead of the Fed and ECB later in the week

Investors appear to be treading carefully ahead of some key interest rate announcements this week, most notably the Fed on Wednesday but also the ECB one day later.

Eurozone inflation data for April didn’t throw up any nasty surprises a couple of days before the central bank makes its decision, rising slightly to 7% as expected, while core stayed stubbornly high at 5.6%. A 25 basis point rate hike is now heavily backed with one or two more to come over the following months.

RBA may not be done with rate hikes despite brief pause

The RBA surprised markets by hiking the cash rate by 25 basis points to 3.85%. The move came after the central bank paused its tightening cycle at the previous meeting and inflationary pressures appeared to have eased slightly. That wasn’t enough to put minds at ease though and the RBA warned further hikes may be necessary.

Even with the latest hike, the central bank believes it will take a couple of years to return inflation to its 2-3% target, with low unemployment and the prospect of sustained higher wage and price pressures outweighing the benefits of keeping the cash rate at 3.6%. The Aussie dollar spiked after the announcement and markets are pricing in a 50% chance of another hike at one of the upcoming meetings.

HSBC looks to return cash to shareholders as it benefits from higher interest rates

HSBC shares are up more than 5% on Tuesday after the company announced strong first-quarter earnings – boosted by the purchase of SVB UK – a $2 billion share buyback, and the resumption of quarterly dividends. The results were driven by higher interest rates which lifted its net interest margin, something the bank is particularly sensitive to. All things considered, it was a good quarter for HSBC but with favourable one-off events boosting its profitability, there remains a lot of work to do to win over some shareholders.

More backlash as BP reports strong profits in Q1

BP reported bumper profits again in the last quarter, buoyed once more by higher oil and gas prices, albeit to a much lesser extent than we were seeing last year. Profits overall have come down quite a lot from last year’s peaks but at £4 billion for the first quarter remain extremely healthy. While the results will draw more criticism around excess profits on the back of the war in Ukraine and further calls for higher tax rates as households continue to pay sky-high energy bills, the only thing they seem to ensure for now is more share buybacks and higher dividend payments.

Is Bitcoin set to give back some of its incredible 2023 gains?

Bitcoin appeared to be finding some form again late last week but a more than 6% decline on Monday followed days of it hitting resistance around $30,000. Whether that will be sufficient to trouble those that were hopeful that a sustained recovery is underway isn’t clear but a break below $27,000 could spell trouble in the short-term.

For a look at all of today’s economic events, check out our economic calendar:

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.