• CAPITAL MARKETS OVERVIEW:
Wall Street stocks trailed European stocks, which set a new record because investors seemed reluctant to increase their positions before the two-day meeting of the Federal Reserve in June. Although the reopening economy has released pent-up demand, the supply side struggles to meet demand, leading to price pressures in recent data. This macro background, in turn, has raised concerns that central banks may have to adjust their policies as soon as possible to prevent the economy from overheating. Although the Fed guarantees that any surge in inflation will be short-lived, investors will still pay attention to the path to stimulate the economy during the crisis. The blue-chip Dow Jones index fell by more than 250 points, the S&P 500 index also fell back from the record, and the sell-off in the financial and materials sectors weighed on the index. Boosted by the rising share prices of Tesla, Apple, and Amazon, Nasdaq, which is dominated by technology stocks, outperformed its peers. European stock markets closed higher on Monday, hitting a record high, as market expectations of a sharp rebound in economic activity increased. In contrast, concerns about an economic slowdown have taken a back seat. European Central Bank (ECB) President Christine Lagarde said monetary and fiscal stimulus measures should continue until there are clear signs that a "firm, steady and sustainable" economic recovery is underway. Nevertheless, Lagarde pointed out that the need for the European Central Bank to take emergency support measures in the future may be reduced because the pace of European economic recovery is faster than previously expected. The Federal Reserve, which meets later this week, has also been assuring investors of its support for the economy, saying that price increases will be temporary. The current fiscal and monetary environment also leaves room for the euro to use the dollar to weaken further. The FTSE MIB index closed up 40 points or 0.2% on Monday to 25,758 points, close to the 3-year high hit last week, and once fell intraday. With oil prices stabilizing at around US$71.5 per barrel, major Italian stock indexes are supported by energy stocks. At the same time, Atlantis lowered its early gains and closed up 0.1%. Traders digested the infrastructure group’s signing of an agreement to sell its shares in Autostrade per l'Italia to a consortium led by the National Bank CDP. , Ending the three-year uncertainty of its subsidiaries. In contrast, after Goldman Sachs analysts downgraded the company's stock to "sell" and lowered its target price to 5%, Ferrari's share price fell by 3.3% by €170 per share. The CAC40 index closed up 16 points or 0.2% on Monday to 6616 points, the highest since September 2000. As the market is optimistic about the continued economic recovery, concerns about the economic slowdown continue to fade. On the economic front, the Bank of France stated that the economy would reach pre-pandemic levels in early 2022 as the vaccination program allows more restrictions to be lifted. The central bank also raised its GDP growth forecast for 2021 from 5.4% in March to 5.8%, and 4.1% in 2022, higher than the previous forecast of 3.8%. France has vaccinated more than 30 million people against COVID-19 at least once, accounting for about half of the French population. The Nikkei 225 index rose 213.07 points on Monday to close at 29161.8 points, an increase of 0.74%, and fell 0.93% last week. Investors are optimistic that the Bank of Japan will extend the pandemic relief plan later this week to support the fragile economic recovery. After the Japanese government lifted Tokyo's COVID-19 emergency and reduced it to a quasi-emergency in three prefectures and prefectures, traders are also optimistic due to the steady decline in the number of infections. Among stocks, taiyoyudenco rose 3.29%. At the same time, Toshiba shares rose 2.69% after the company said it would change director candidates at the upcoming general meeting. In terms of data, the month-on-month growth rate of Japanese industrial output was revised to 2.9%, the preliminary data was 2.5%, and the final data in March was 1.7%. Investors are also waiting for the Fed’s monetary policy decision and Japan’s May trade data to be released later this week.
• REVIEWING ECONOMIC DATA:
Looking at the last economic data:
- USD: In May 2021, the median inflation expectations in the United States jumped to a record high of 4% for the seventh consecutive month. Housing and rent price changes, income, income, and expenditure growth expectations have also risen. At the same time, the median three-year inflation expectation rose from 3.1% to 3.6%, the second-highest level ever. The growth in these two areas is particularly evident among respondents aged 60 and above and those with a high school degree or below.
- CAD: Canadian manufacturing sales fell 2.1% from the previous month to C$57.1 billion in April 2021, after a 4.0% increase in March, almost twice the 1.1% decline expected by the market. The latest data shows that manufacturing sales experienced the largest decline since the record plunge in April last year, dragged down by sales in 11 of 21 industries (mainly the transportation equipment industry) and the oil and coal industries.
- EUR: Industrial production in the Eurozone increased by 0.4% after a revision in March. After exceeding market expectations by 0.4%, it will increase by 0.8% in April 2021 from the previous month. The production of durable consumer goods (3.4%), energy (3.2%), capital goods (1.4%), and intermediate products (0.8%) has increased. On the other hand, the output of non-durable consumer goods fell by 0.3% in April, the first monthly decline in four months. On an annual basis, due to the low base year and continued economic recovery, industrial activity surged by 39.3% in April, the largest increase in history.
- CNY: According to data from the Chinese Ministry of Commerce, from January to May 2021, foreign direct investment in China increased by 35.4% year-on-year to 481 billion yuan ($75.3 billion). Foreign investment in the service industry was 381.9 billion yuan, increasing 41.6% over the same period last year. At the same time, the high-tech industry grew by 34.6%, of which the high-tech service industry grew by 37.6%, and the high-tech manufacturing industry grew by 25%. Among the main sources of investment, direct investment in China from ASEAN countries (56%) and the European Union (16.8%) increased, while direct investment from countries along the “Belt and Road” increased by 54.1%.
- CNY: On Monday morning, the Shanghai Composite Index fell 21 points, or 0.6%, to close at 3590 points, continuing the previous week’s decline. Traders prepared for volatility around the Federal Open Market Committee meeting scheduled to be held later this week. News of China’s crackdown on cryptocurrencies has spread to southwestern China. The authorities issued a notice ordering investigations into the embezzlement and unauthorized use of electricity by Bitcoin miners, which also weakened market sentiment. In terms of the flu pandemic, mainland China added 23 new cases of COVID-19 on Sunday, down from 34 a day ago. Investors are expected to announce a series of May economic data later this week, including industrial output, retail sales, and unemployment. Speaking of foreign exchange news, Turkish President Erdogan said that the Central Bank of Turkey had reached an agreement with China to increase the existing currency swap arrangements from 2.4 billion US dollars to 6 billion US dollars. Declining stocks mainly appeared in the financial, medical, and real estate sectors.
- NZD: In April 2021, the number of overseas tourists from New Zealand surged 1755.4% year-on-year to 31,931, the highest level since March 2020. Two-way quarantine-free tourism was opened with Australia on April 19, 2021, and the Cook Islands on May 17, 2021. The biggest changes were tourists from Australia (an increase of 27,100), the Cook Islands (an increase of 600), the United States (an increase of 300), and the United Kingdom (an increase of 200). Compared with the 4,600 in March 2021, the number of overseas tourists in April 2021 increased by 27,300.
- NZD: In May 2021, the New Zealand Business Service Performance Index fell from 61.2 in April to 56.1, a record high. The data still shows the expansion of the service industry, which is higher than the long-term average of 53.9. New Zealand continues to follow global trends, with strong growth in new orders/business (62.1) and activities/sales (58.7). However, supplier deliveries (45.1) are still shrinking steadily. BNZ senior economist Doug Steel said, "Although the current strong performance of PSI (and PMI) has brought positive economic growth in the next few quarters, the obvious supply-side pressure indicates that inflation is forming huge upward pressure."
• LOOKING AHEAD:
Today, investors will receive:
- USD: Core Retail Sales m/m, PPI m/m, Retail Sales m/m, Core PPI m/m, Empire State Manufacturing Index, Industrial Production m/m, Capacity Utilization Rate, Business Inventories m/m, and NAHB Housing Market Index.
- AUD: Monetary Policy Meeting Minutes, and HPI q/q.
- GBP: Average Earnings Index 3m/y, Claimant Count Change, Unemployment Rate
- NZD: FPI m/m, and GDT Price Index.
- JPY: Tertiary Industry Activity m/m.
• KEY EQUITY MARKET DRIVERS:
- The MOEX index rose to an all-time high of 3,852 points.
- Stockholm rises to its highest point in 23 years at 2291.
- FR40 rises to a 20-year high of 6625 points.
- DE30 rose to a record high of 15739 points.
- Before the Federal Open Market Committee (FOMC) meets later this week, there was little change in U.S. stock futures on Monday. Traders weighed the prospect of a strong economic recovery and concerns about inflationary pressures, which will prompt the Fed to reduce its stimulus measures. In the bond market, the 10-year U.S. Treasury bond yield remained at 1.465% after falling to a three-month low of 1.428% last Friday. Recent data shows that the US Consumer Price Index (cpi) rose 5% year-on-year in May, the largest increase since the summer of 2008. At the same time, the number of Americans applying for unemployment benefits fell to the lowest in 15 months, a sixth consecutive week of decline. Last Friday, Wall Street closed sharply higher, the S&P 500 index hit a new closing high, and the Nasdaq index rose to its best closing level in more than a month. Last week, the blue-chip Dow fell 0.8%, the S&P 500 rose 0.4% for the third consecutive week, and the Nasdaq Composite rose 1.9%, the fourth consecutive week of gains.
• STOCK MARKET SECTORS:
- High: Information Technology, Energy.
- Low: Materials, Financials, Consumer Staples.
• TOP CURRENCY MARKET DRIVERS:
- RUB: The exchange rate of the Russian ruble against the US dollar stabilized at around 72.2 in the third week of June and rose to the highest level since July 2020 last week. Investors are looking forward to the meeting of US President Biden and Russian President Vladimir Putin on Wednesday. Last week, the Central Bank of Russia raised interest rates for the third time this year and said it would further tighten monetary policy at an upcoming meeting. After economic data showed that Russia’s annual consumer price inflation rate in May exceeded expectations, reaching 6.0%, policymakers expressed concern about increasing inflationary pressures. The rebound in oil prices also supported the euro.
- EUR: The euro was slightly above the US$1.21 mark in the third week of June after the European Central Bank (ECB) President Christine Lagarde said in an interview with Politico that there are clear signs of “firm, steady and sustainable.” Before the economic recovery is underway, monetary and fiscal stimulus measures should continue to be implemented. Last week, the European Central Bank agreed to maintain a relatively high bond purchase rate while raising its forecasts for economic growth and inflation in the eurozone in 2021 and 2022. In addition, the US inflation and employment data released earlier this month support the Federal Reserve's view that current inflation will be temporary. All eyes turned to the Fed's policy statement to be announced on Wednesday.
- CNY: The yuan fell 0.02012 points or 0.31% against the US dollar on Monday to close at a three-week low of 6.41559, as the Chinese stock and bond markets were closed for public holidays. As an important U.S. inflation report last week showed that the U.S. CPI jumped to 5% in May, the highest level since August 2008, the market’s confidence in the renminbi is still sluggish, and the People’s Bank of China is trying to reduce stimulus measures and control debt. To achieve policy normalization, data on Wednesday showed that China’s factory prices in May rose at the fastest annual growth rate in 12 years, and the Chinese economy rebounded.
• CHART OF THE DAY:
There was little change in the New Zealand NZX 50 index at 12554.43 in early trading on Monday and market participants weighed the optimistic local data against lingering inflation concerns. The local 10-year bond yield was 1.665%, a 6-week low, while the U.S. 10-year bond yield was 1.46%, a 3-month low. Local data show that in May 2021, the New Zealand Business Service Performance Index fell from 61.2 in April to 56.1, which is still in the expansion stage, higher than the long-term average of 53.9. BNZ senior economist Doug Steel pointed out, “Although the current strong performance of PSI (and PMI) brings good news for economic growth in the next few quarters, the obvious supply-side pressure shows that inflation is forming obvious upward pressure.” At the same time, the number of overseas tourists in New Zealand surged by 1755.4% year-on-year. By April 2021, Australia and the Cook Islands opened two-way quarantine-free travel, the highest number since March 2020.
• New Zealand NZX 50 index - D1, Resistance (target zone) around ~ 12635 and 12884, Support (target zone) around ~ 12350 and 12150.