An unsuccessful attempt at record highs, 10-yr yield near the bottom of three-month consolidation range - inflation expectations

• CAPITAL MARKETS OVERVIEW:

The US stock market fluctuated between a small decline and a rise on Wednesday, as investors were reluctant to Masukura before releasing the highly anticipated May US inflation report on Thursday to guide stimulus measures during the crisis. Thanks to the successful launch of the vaccine and unprecedented monetary policy support, the economic outlook has improved, and the stock market has recently risen to historical highs. However, with the economic rebound, the market is worried that rising inflation may force the Fed to begin to cut its bond purchase program in the fourth quarter, much faster than the market expected. The most obvious decline was those economically sensitive sectors rebounded recently, including financial stocks and industrial stocks. The major Canadian stock indexes ended their three-day uptrend on Wednesday, and the S&P/TSX Composite Index fell from a historical high to around 20,000 points. Investors digested the Bank of Canada's decision to keep interest rates and the pace of its quantitative easing program unchanged. Policymakers described the country's recovery path in the first quarter as strong. However, the market focus will still be on the US CPI report released on Thursday, after the market's concerns about the extended duration of inflation triggered a round of market volatility. Denison Mines Corp and Lithium Americas Corp were the worst performers on the Toronto Stock Exchange, falling 4.7% and 4.6%, respectively. European stock markets fluctuated on Wednesday as investors suppressed their bets before releasing US inflation data on Thursday, which will provide clues to whether price increases may force the Fed to accelerate its ultra-loose monetary policy time frame. Last month, US inflation increased more than expected, triggering a massive sell-off in the stock market. Similar data this week may put the market under heavy pressure again. In addition to the talk of inflation, the EU is preparing for the economic take-off. The €800 billion bond issuance plan € is expected to reach 80 billion euros in 2021. In terms of data, despite the gradual reopening of the German economy, the growth rate of German exports in April was lower than expected, and the decline rate of imports was higher than expected. The CAC40 index rose for the fourth consecutive trading day. It closed at a nearly 21-year high of 6563 points on Wednesday, increasing 12 points or 0.2%. It outperformed its European counterparts. The highly anticipated US inflation data and ECB monetary policy meeting on Thursday Previously, travel and leisure stocks boosted the index. Air France-KLM (AirFrance-KLM) shares rose 3.3%, news that the US Centers for Disease Control (CDC) said it would relax travel recommendations for 110 countries and regions. In France, Renault was accused of fraud in the anti-pollution control of older generation diesel engines. The car manufacturer was instructed to pay a sum of €20 million and provide €60 million in cash as compensation for losses and fines. The FTSE MIB index closed down 67 points, or 0.3%, to 25,742 points on Wednesday, still close to the 2008 level, as other European stock markets ended their trading days. As most of the growth prospects have been reflected, traders continue to assess the risks of inflation and interest rate prospects. The London stock market oscillated again and closed lower. The benchmark FTSE 100 index hovered around 7080 points, and the heavyweight materials and financial sectors sold off. As the market has digested much good news about corporate earnings and the economy, investors seem to be reluctant to Masukura before releasing the highly anticipated May US inflation data on Thursday to guide economic stimulus measures during the crisis. Continued concerns about the rapid spread of delta variables have exacerbated the bearish tone, which could lead to the postponement of the wider reopening of the British economy scheduled for June 21. The Shanghai Composite Index rose 11.29 points, or 0.32%, to close at 3591.4 points on Wednesday. It fell 0.5% on the previous trading day. Traders welcome reports today that Beijing urges all regional authorities to supervise the commodity market, strengthen supervision, and make every effort. Ensure adequate supply and stable prices of imported products. There are reports that the World Bank raised its forecast for global economic growth this year to 5.6% from 4.1% in January, supporting risk appetite. In terms of data, China’s annual inflation rate in May jumped to 1.1%, the highest level since September 2020; simultaneously, Reuters said that the U.S. Senate approved a package on Tuesday to improve the United States' competitiveness in China. legislation. In Hong Kong, the Hang Seng Index fell 33.35 points, or 0.12%, to 28,748.03, which was the 6th consecutive day of decline and its longest decline since late September 2019. The Australian Stock Exchange 200 Index fell 22.40 points, or 0.31%, to 7270.20 points. The record high reached in early trading has fallen. It fell 5.2% to the lowest level in five months at 107.2 points in June 2021, concerns about the Melbourne blockade, and disappointment with the federal budget. The latest data also reflects the statistical correction after the sharp spike to an 11-year high in April. The local 10-year bond yield hit a 4-month low of 1.533%, while the US 10-year bond yield fell to 1.526%. Regarding the coronavirus, Victoria has recorded a new locally acquired coronavirus case. The government will relax the lockdown restrictions on Thursday as planned unless there are any unexpected mysterious cases. Before the market opened, Brickworks announced an optimistic profit outlook, and its stock price rose 11.18%, setting a record high.

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- USD: Data from the EIA Oil State Report showed that US crude oil inventories fell by 5.241 million barrels in the week of June 4, which was the third consecutive decline, compared with the 2.036 million barrel drop predicted by the market. At the same time, gasoline inventories increased by 7.046 million barrels, the highest level since April 2020, compared with the previously expected increase of 698,000 barrels.

- USD: US wholesale inventories increased by 0.8% from the previous month to $698 billion in April 2021, consistent with preliminary estimates, and increased by 1.2% in March. Affected by increased inventories of daily necessities and agricultural products, non-durable goods inventories rose 0.9% (1.4% in March). In addition, boosted by automotive, electrical, metal, and professional equipment, durable goods stocks rose 0.7% (1.0% in March). Thus, on an annual basis, wholesale inventories increased by 5.2% in April.

- USD: According to data from the Mortgage Bankers Association, as of the week of June 4, US mortgage applications fell 3.1%, the third consecutive week of decline. Housing loan refinancing applications fell by 5.1%, while purchases increased slightly by 0.3%. As a result, the average interest rate on 30-year fixed mortgages fell somewhat by two basis points to 3.15%.

- CAD: After the Bank of Canada decided to keep interest rates and the pace of the quantitative easing program unchanged, the June exchange rate of the Canadian dollar to the US dollar remained at around 1.21, close to the 2018 level. Policymakers pointed out that the Canadian economy still has overcapacity, and recovery still needs strong support from monetary policy. In addition, due to signs of strong fuel demand in Western economies, the price of oil, one of Canada’s main exports, rose to US$70.5 per barrel.

- EUR: Germany's current account surplus has greatly expanded from 10 billion euros in the same period last year to 21.3 billion euros in April 2021. With the recovery of global demand after the gradual reopening of the economy, the goods surplus increased from 3.7 billion euros a year ago to 16.7 billion euros. In addition, the service industry surplus increased from 1.7 billion euros to 2.1 billion euros, and the secondary income deficit fell from 4.3 billion euros to 3.9 billion euros. However, the primary income surplus fell from 8.9 billion euros to 6.5 billion euros. Considering the January-April period, the current account surplus expanded from 72.3 billion euros in the same period in 2020 to 87.8 billion euros.

- AUD: In April 2021, the seasonally adjusted estimate of the total number of approved homes in Australia fell by 8.6% from the previous month to 21,482 units. Without preliminary data correction, the final increase was 18.9% a month ago. The main reason for the decline was that the price of private sector housing, excluding housing, fell by 28.6%. At the same time, despite the end of the housing builder subsidy on April 14, the number of housing approvals in the private sector increased by 4.6%. Victoria (down 23.5%), Queensland (down 14.3%) and Tasmania (down 2.5%). In contrast, New South Wales (12.3%), Western Australia (5.5%), and South Australia (3.4%) have seen increases in building permits.

- CNY: In May 2021, China's producer price index rose by 9.0% year-on-year, higher than the previous month's 6.8% and higher than market expectations of 8.5%. This is the fifth consecutive month that China's ex-factory prices have risen, and it is also the largest month since September 2008. At that time, the recovery of domestic production accelerated, and commodity prices continued to rise. The prices of the means of production rose faster (12% vs. 9.1% in April), driven by extraction (36.4% vs. 24.9%), raw materials (18.8% vs. 15.2%), and processing (7.4% vs. 5.4%). In addition, consumer goods prices rose even more rapidly (0.5% vs. 0.3%), mainly food production (2.2% vs. 1.8%) and consumer goods (0.5% vs. 0.3%) led the rise, while clothing (0.6% vs. -0.6%) ) And consumer durables (0.8% vs -0.9%) fell further. On a monthly basis, producer prices rose by 1.6%.

- CNY: In May 2021, food prices in China rose by 0.3% year-on-year, which is the opposite of the 0.7% drop in the previous month. Since January, this is the first increase in food costs due to the sharp rebound in fresh vegetable prices (-1.1% in April, or 5.4%) and the rebound in egg prices (14.3%, or 6.8%). In addition, the prices of fresh fruits (1.4% vs. 2.7%), edible oil (8.1% vs. 7.5%), and dairy products (2.4% vs. 2.3%) have also increased. In contrast, pork prices fell by 23.8%, and after falling 21.4% in April 2019, surged due to the African swine flu outbreak.

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: CPI m/m, Core CPI m/m, Unemployment Claims, Natural Gas Storage, 30-y Bond Auction, and Federal Budget Balance.

- EUR: French Final Private Payrolls q/q, French Industrial Production m/m, Italian Industrial Production m/m, Monetary Policy Statement, Main Refinancing Rate, and ECB Press Conference.

- GBP: RICS House Price Balance and MPC Member Haldane Speaks.

- AUD: MI Inflation Expectations.

- JPY: PPI y/y.

 

• KEY EQUITY MARKET DRIVERS:

- MOEX rose to an all-time high of 3838 points.

- U.K. 10-year government bond yield drops to a 4-week low of 0.75%.

- Canadian 10-year government bond yield drops to a 12-week low of 1.433%.

- Australia's 10-year government bond yield drops to a 15-week low of 1.522%.

- Japan's 10-year Treasury bond yield drops to a 6-week low of 0.068%.

- The yield on US benchmark 10-year Treasury bonds fell to a one-month low of 1.47% on Wednesday after the US Treasury Department saw average demand for 10-year Treasury bonds auctions. This auction achieved a high yield of 1.497% and a bid rate of 2.58%. On Tuesday, an auction of $58 billion worth of 3-year Treasury bonds showed good market demand, with a yield of 0.325%. However, in the absence of further market catalysts, investors may remain cautious because the market is worried that as the economic recovery momentum strengthens and price pressures increase, the central bank will soon cancel currency support.

- The Bank of Canada kept its key overnight interest rate unchanged at 0.25% and set the target rate of the quantitative easing program at $3 billion per week on June 9, 2021, in line with expectations. The central bank judged that there is still considerable overcapacity in the Canadian economy, and recovery still requires extraordinary monetary policy support. The bank is still committed to maintaining the policy interest rate at the practical lower limit until the economic weakness is digested to achieve the 2% inflation target sustainably. According to the World Bank’s forecast in April, this situation will occur in the second half of 2022.

- European stock market futures opened flat on Wednesday. Investors digested the latest economic data and showed that despite the gradual reopening of the German economy, German exports increased less than expected in April, and imports fell more than expected. Elsewhere, after China announced a 9% rise in producer prices in May, inflation concerns intensified due to soaring commodity prices. On the political front, officials from the United Kingdom and the European Union are scheduled to meet on Wednesday to review the operation of the Northern Ireland Protocol. Both parties expressed their commitment to protecting the Good Friday Agreement. However, European Commission Vice President Maros Sefcovic stated that “the UK has many fundamental gaps in implementation,” The British government urges the EU to show a “common sense” attitude towards its future after Brexit.

 

• STOCK MARKET SECTORS:

- High: Health Care, Utilities, Real Estate, Information Technology.

- Low: Financials, Industrials, Materials.

 

• TOP CURRENCY MARKET DRIVERS:

- USD: In early trading in the Asia-Pacific region on Wednesday, the U.S. dollar index fell 0.034 points or 0.04% to 90.101 points, only 0.7% from the 4-month low. Investors remained cautious and continued to weigh rising inflationary pressures and their impact on the Fed’s monetary policy. Impact, while waiting for the latest CPI data released on Thursday to obtain guidance on the path of stimulus policies during the crisis. At the same time, the US 10-year Treasury bond yield fell to a 5-week low of 1.533%. According to local data, the number of job vacancies increased by nearly 1 million from the previous month and reached a new high of 9.286 million in April 2021, easily exceeding market expectations of 8.3 million; while the US trade gap was 750, which was set in March. The historical high of US$100 million has shrunk to US$68.9 billion in April 2021, which is in line with market expectations. Exports increased by 1.1%, while imports fell by 1.4%.

- EUR: The euro fell from a more than the four-month high of US$1.2265 in May to US$1.217 in the second week of June. Earlier economic data was mixed. Investors waited for the ECB meeting on Thursday. The economic contraction in the Eurozone in the first quarter was lower than initially expected; despite the disappointing data in Germany, investor morale unexpectedly deteriorated in June, and both industrial production and factory orders fell in April. In addition, German Chancellor Angela Merkel warned on Monday that the global semiconductor shortage might last until at least the middle of 2022, making Germany's economic recovery more complex.

- GBP: The pound fell slightly to US$1.415 in the second week of June, which is lower than the three-year high of US$1.425 hit last week. The market is concerned that the British economy will be affected by the surge in cases of the new coronavirus variant (now called Delta) detected in India for the first time. As a result, it may be postponed to reopen on June 21. However, British Health Secretary Matt Hancock said that it is too early to say whether restrictions will proceed as planned last weekend. In terms of economic data, the British Retail Consortium reported that in any month since the beginning of the pandemic, retail sales in the UK have increased the most compared to 2019, after the UK relaxed its lockdown measures. Compared with May 2020, due to a strict ban on sales, most of the non-essential businesses were closed, and total sales increased by 28.4%. Investors are currently waiting for the critical GDP data to be released on Friday.

 

• CHART OF THE DAY:

Nikkei 225 index fell 102.76 points, or 0.35%, to close at 28860.8 points, continuing the 0.19% decline in the previous trading day. Market participants will be cautious about their positions before the critical US inflation data is released later this week. Among the local data, the Cabinet Office announced on Tuesday that the regional gross domestic product (GDP) contracted by 3.9% from the last quarter of 2020, which exceeded the median forecast of economists and eased people’s concerns about the risk of a second recession. Because of another round of virus-related restrictions. The local 10-year Treasury yield fell to 0.069%, while the U.S. 10-year Treasury yield was at a 5-week low of 1.523%. On the other hand, the World Bank predicted that the global economy would grow at 5.6% this year, up 1.5% from January's forecast. The United States and China rebounded strongly in the economic recession triggered by the coronavirus pandemic.• Nikkei 225 Index - D1, Resistance (consolidation) around ~ 28776 Support (consolidation) around ~ 27303.

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