GLOBAL CAPITAL MARKETS OVERVIEW:
European stock indexes closed just above flat on Tuesday, rising for a third straight session, with Germany's DAX up 0.4% and the Stoxx 600 up 0.3%, with energy, insurance, utilities, and basic resources gaining. Sentiment in commodity-related stocks improved as China eased public health restrictions, although recession fears persisted, weighing mainly on retail stocks. Meanwhile, the latest data showed German consumer confidence fell to a record low, and French consumer confidence fell to a nine-year low. Meanwhile, President Lagarde said in a speech at the ECB's annual forum in Portugal that the ECB will continue its policy normalization path and will try to bring eurozone inflation back to its 2 percent target. The CAC 40 rebounded from losses in the previous session, rising 0.64% to close at 6,086.02. It was boosted by sharp gains in luxury goods and auto stocks as China eased its quarantine period for overseas tourists. LVMH and Kering rose 1.53% and 1.4%, respectively. In addition, travel and aviation-related stocks also benefited from China News. Safran shares rose 3.88%, while Airbus shares rose 1.86%. Meanwhile, Renault rose 2.35% after the joint release of industrial data with Atos, while Valeo rose 3.83% after announcing it was supplying parts for driver assistance systems to BMW. Elsewhere, energy stocks rose in line with oil prices as investors assessed commitments by G7 leaders to consider measures to limit oil prices in Russia. Total energy increased by 1.1% and energy increased by 1.06%. Meanwhile, investors digested the ECB president's reiteration of a quarter-point rate hike in July and the central bank's pledge to opt for a more aggressive rate hike in September based on inflation data. The FTSE MIB index rose 0.8% to close at 22,100 on Tuesday, rebounding after underperforming European peers in the previous session, supported by strong industrial sectors. Leonardo and Terna rose 3.7% and 2.5%, respectively, leading manufacturers as investors welcomed further news on the reopening of China's economy. The energy sector was also green, with Tenaris shares up 2.5%, tracking crude prices higher after major producers said they were nearing capacity limits. Elsewhere, investors digested news from the ECB forum and the G7 summit. European Central Bank President Christine Lagarde said the central bank could tighten tightening in the third quarter if inflation remains high. In contrast, G7 leaders said they would explore a cap on Russian energy import prices. On Tuesday, the FTSE 100 rose 0.9%, or 65 points, to close at 7,323, its highest in more than two weeks, outperforming European peers, led by commodity-related stocks as investors welcomed China's efforts to reduce quarantines for inbound tourists. Later, it took another step on the road to reopening. Insurance companies also rose after Finance Minister Rishi Sunak said the country wanted to reform solvency rules for insurance companies as soon as possible. On the corporate side, eat takeout. com has announced that it will increase the commission it charges restaurants for service by about one percentage point in most European markets. Meanwhile, Petrofac rose 2.7% after the oilfield services provider said its half-year trading was in line with expectations. Wall Street turned an initial rally into a sell-off on Tuesday, with investors balancing signs of slowing economic growth with news that China is easing coronavirus-induced restrictions. U.S. consumer confidence deteriorated to a 16-month low in June amid persistent inflation concerns, a new report showed, while the latest S&P CoreLogic Case-Shiller index showed home costs rose at a record annual pace in April. of 21.2%. On the policy front, the chairman of the New York Federal Reserve reiterated the need for aggressive action to bring down inflation by raising interest rates to around 3.5% by the end of the year. Still, he noted, the world's largest economy remains resilient to withstand such a contraction. Meanwhile, several big banks, including Bank of America, Morgan Stanley, and Goldman Sachs, raised their dividends in response to passing this year's Fed stress test. On Tuesday, the MOEX-Russia index fell 0.2 percent to close at 2,412, with sharp losses in mining stocks offsetting gains in telecoms and real estate developers. At the same time, investors focused on new G7 penalties on Russia. Mining stocks led losses, with Pavlovsk Oil plunging 8% and Polymetals plunging more than 4% after G7 leaders agreed to halt Russian gold imports during their Bavarian summit. Meanwhile, Lukoil shares fell 2.7% after its vice president and co-founder resigned. The G7 agreed to set price caps on Russian oil and gas imports, but the energy sector remained silent on average. On the other hand, property developers surged after the Kremlin cut Russia's prime mortgage rate to 7 percent. Canadian stocks rose for the third session on Tuesday, with the S&P/TSX index climbing above 19,400, boosted by heavyweight energy and materials stocks, tracking gains in oil and gold. China's decision to ease some quarantine requirements for international arrivals, a big step toward loosening coronavirus control, boosted market sentiment, fueling hopes of a recovery. Hong Kong stocks closed at their highest level in 12 weeks, with the benchmark Hang Seng index rising for a fourth straight session to close above 22,400, driven by materials and energy stocks. The easing of the coronavirus outbreak in China's capital Beijing and the financial hub, Shanghai, as well as signs that China will roll out tools in its policy arsenal in time to deal with more economic challenges, boosted market sentiment. On the trade front, Hong Kong's trade balance widened sharply in May, with imports rising and exports falling. Sands China and Galaxy Entertainment Group were the two biggest gainers on the index, up 12% and 7.9%, respectively. New Zealand NZX 50 rose 20.7 points, or 0.2%, to a two-week high of 11,018.62 on Tuesday, extending gains from the previous session. Traders were upbeat after reports that China's central bank pledged to maintain monetary policy support to help the economy recover while suggesting that stimulus may be focused on boosting credit rather than lowering interest rates. The best performers were Barramundi Limited (47.06%), Radius Residential Care Limited (6.85%), Metro Performance Glass Limited (6.25%), and green fern Industries Limited (5.34%). On Tuesday, the Shanghai Composite rose 0.89% to close at 3,409 points, and the Shenzhen Composite rose 1.23% to 12,982 points, its highest level in nearly four months, as China decided to ease some international entry quarantine requirements. The country will halve the COVID-19 quarantine period for tourists from overseas to seven days and extend it by three more days, the health department said. Investors also welcomed remarks by People's Bank of China Governor Yi Gang, who said China's monetary policy would remain accommodative to support economic recovery. Japan Nikkei 225 rose 0.66% to 27,049 on Tuesday. In comparison, the broader Topix index rose 1.06% to 1,907, closing at its highest level in more than two weeks, with commodity-related stocks and other heavyweights gaining more than declines in the technology sector. Japanese stocks also offset early losses as investors remained cautious about some macro headwinds. The commodities sector was led by Inpex Corp (4.9%), Enesos Holdings (2%), and Osaka Titanium (6.1%). Other index heavyweights also rose, including Kawasaki Kisen (12.4%), Toyota Motor (2.2%), Tokyo Electric Power (7.2%), Renova Inc (3.9%), and Nippon Telecom (2%). Meanwhile, overnight losses on Wall Street weighed on local tech stocks, with Recruit Holdings (down 2%), Sumec (down 1.7%), and M3 Corp (down 2%) taking losses. Australia S&P/ASX 200 rose 0.86% to close at 6764 on Tuesday, its fourth straight session of gains, with energy and mining stocks rebounding strongly. Energy stocks tracked increases in oil prices as significant producers in the United Arab Emirates, and Saudi Arabia announced capacity curbs. At the same time, political unrest in Libya and Ecuador added to supply concerns. Industry leaders include Woodside Energy (4.3%), Santos Ltd (2.7%), and Beach Energy (7%). Heavy mining and gold stocks also rose, with BHP Billiton (4.3%), Fortescue Metals (3.8%), Rio Tinto (3%), Newcrest Mining (2.9%), and Northern Star Resources (6.1%) gaining. Meanwhile, overnight losses on Wall Street weighed on local tech stocks, including Block Inc (down 3.2%), Seek Ltd (down 2.8%), and Megaport (down 5.1%). Financial and consumer stocks also fell.
REVIEWING ECONOMIC DATA:
Looking at the last economic data:
- US: The Richmond Fed Composite Manufacturing Index fell from -9 in May to -19 in June 2022, the lowest level since May 2020. Two of its three component indexes fell further into negative territory value. The Shipments Index (-16 to -14 in May) and New Orders Index (-38 to -29 in May) fell, while the Employment Index (23 to 8 in May) rose. The wage index also held up, albeit slightly down, indicating continued wage growth for a large proportion of companies. In addition, the local business conditions index declined in June, falling to -32.
- US: In April 2022, the S&P CoreLogic Case-Shiller 20-city home price index rose 21.2% year-over-year to a record high after a downwardly revised 21.1% gain in the previous month. Compared to the market forecast of 21%, Tampa (35.8%), Miami (33.3%), and Phoenix (31.1%) continued to lead with the most significant price increases. However, the national index rose 20.4%, down from 20.6% in March. “April 2022 saw tentative (albeit inconsistent) signs of deceleration in U.S. home price growth. We continue to observe that the housing market is robust, and a more challenging macroeconomic environment may not support an inflated home price for more extended Growth, S&P DJI managing director Craig Lazzara said. However, the housing market is expected to cool in the coming months as high mortgage rates hurt affordability.
- US: In April 2022, the average price of single-family homes guaranteed by Fannie Mae and Freddie Mac rose 1.6% from the previous month, unchanged from March. Monthly home price changes in the nine census tracts ranged from +0.3% in the Southeast-Central to +2.5% in the Southwest-Central. House prices rose 18.8% year on year. "Home inventory on the market remains low, pushing upward pressure on sales prices. Rising mortgage rates have not yet sufficiently offset demand, preventing strong price increases across the country." FHFA Research and Statistics Division Regulatory Economics, said Dr. Will Doerner.
- US: The U.S. goods gap narrowed to $104.3 billion in May 2022 from an upwardly revised $106.7 billion in April. It was the lowest trade deficit this year, with exports rising 1.2% to a record high, while imports fell 0.1%. Merchandise sales rose to $176.6 billion, with shipments of industrial supplies (4%) and consumer goods (3.5%) increasing the most, while exports of food, feed, and beverages fell 9.2%. Imports fell slightly to $280.9 billion, mainly due to lower purchases of consumer goods (down 2.4 percent), food, feed, and beverages (down 0.9 percent), and capital goods (down 0.5 percent).
- US: Preliminary estimates show U.S. wholesale inventories rose 2% month-on-month in May 2022 to $880.6 billion, a slowdown from a 2.3% rise in April. Stocks of durable goods (2.2% vs. 2.4% in April) and nondurable goods (1.8% vs. 2.2%) rose slowly. However, wholesale inventories rose 25% year over year in May.
- IT: In April 2022, Italian industrial sales rose 2.7% month-on-month, after increasing 2.5% in the previous month. Demand growth in foreign markets picked up (2.7% in March vs. 1.9% in March), while demand growth in the domestic market slowed slightly (2.7% vs. 2.8% in March). As a result, on an annual basis, industrial sales rose 22%, the highest in five months, and rebounded from an upwardly revised 21.6% gain in March.
- FR: In June 2022, the French consumer confidence index fell for the sixth consecutive month to 82, the lowest level since July 2011 and well below the long-term average of 100. The figure was also below market forecasts of 84, amid the prospect of the ongoing war in Ukraine, high inflation, and rising borrowing costs. Consumers are more pessimistic about their financial situation in 12 months (24 to 23), intend to make large purchases (35 to 30), anticipate saving ability (1 to 4), unemployment rate (8 to 4), and the year ahead standard of living (69 to 65). On the other hand, inflation expectations fell slightly (4 to 10).
Today, investors will receive:
- USD: FOMC Member Mester Speaks, Final GDP q/q, Final GDP Price Index q/q, Fed Chair Powell Speaks, Crude Oil Inventories, Crude Oil Inventories, and FOMC Member Bullard Speaks.
- EUR: German Prelim CPI m/m, Spanish Flash CPI y/y, M3 Money Supply y/y, Private Loans y/y, OPEC Meetings, ECB President Lagarde Speaks, and ECB President Lagarde Speaks.
- GBP: BRC Shop Price Index y/y and BOE Gov Bailey Speaks.
- JPY: Retail Sales y/y, and Consumer Confidence.
- NZD: RBNZ Statement of Intent.
KEY EQUITY & BOND MARKET DRIVERS:
- US: U.S. 10-year yields held steady above 3.2 percent, up 14 basis points from a two-week low of 3.0 percent last week. Investors assessed U.S. May personal consumption expenditures data later in the week and the outlook for monetary policy. The New York Fed chairman reiterated the need for aggressive action to bring down inflation by raising the fund's rate to 3.5% by the end of the year, complemented by recent hawkish comments from Fed Chairman Jerome Powell that The Fed will continue to keep an eye on inflation, even at the risk of an economic slowdown. Investors will now focus on the Federal Reserve's preferred measure of inflation, which could provide further clues on its tightening policy.
- AU: The Australian government's 10-year bond yield hovered near 3.8 percent, partially recovering from last week's losses, with the scourge of the recession easing slightly as China, Australia's biggest export destination, gradually returned to normal. Still, a 6-basis point gain did not offset last week's 41 basis point pullback as investors remained cautious about the global economic outlook, awaiting new financial data to provide clues on whether the Reserve Bank of Australia will significantly raise the cash rate, Retail sales data and the results of a private survey of manufacturers are due later this week.
- FR: French 10-year OAT yields rose to 2.2%, near an eight-year high of 2.5% since June 16, after European Central Bank President Christine Lagarde said the central bank's tightening cycle could end if inflation remains elevated. It accelerated in the third quarter after he confirmed in July that it would rise by 25 basis points. At the same time, she said the ECB cut its growth forecasts but stressed expectations that the economy will continue to expand over the next two years. In addition, traders continued to await details on the ECB's new tool and how it will affect bond yield spreads between member states of the eurozone. Meanwhile, INSEE forecasts the French economy to expand 0.2% in the second quarter and 0.3% in the third and fourth quarters after contracting by 0.2% in the first quarter.
- IT: Italy's 10-year BTP yield rose to 3.7%, extending its recovery from a two-week low of 3.4% hit on June 23, after European Central Bank President Christine Lagarde confirmed a rate hike plan in July. If inflation remains high, the pace of tightening could accelerate in the third quarter. The central bank governor also added that growth in the euro area is expected to slow for the rest of the year but remain positive. Meanwhile, investors continued to speculate on how the ECB's new tools could prevent division among eurozone members while keeping inflation in check. As a result, the spread between the closely-watched 10-year BTP and German Bunds narrowed to 2 points, well below the 2-year high of 2.6 hit on June 14, despite a rally in euro zone bond yields. As a result, Italian debt risk premiums fell.
- GE: German 10-year bond yields rose above 1.65%, near an 8-1/2-year high of 1.926% hit on June 16, after European Central Bank President Christine Lagarde reiterated that the central bank would raise policy rates by 25 basis points in July. It was the first rate hike in 11 years as a new anti-secession tool was prepared to help tighten widening spreads between Italy and Spain. Bond yields in these countries have surged since the central bank took a more hawkish stance in June. Meanwhile, investors are awaiting preliminary inflation data from key eurozone countries this week, with price growth in 19-euro zone nations set to hit another record high of 8.3 percent in June.
- US: Stock futures contracts linked to the three major indexes rose about 0.5% on Tuesday, with Wall Street poised for a rebound as investors continued to assess the outlook for monetary policy amid signs of slowing global growth. Market participants lowered expectations for how much the Fed would raise interest rates, fearing that higher borrowing costs could tip the economy into recession. Meanwhile, several big banks, including Bank of America, Morgan Stanley, and Goldman Sachs, raised their dividends in response to passing this year's Fed stress test. In regular trading Monday, the Dow fell 0.2%, the S&P 500 fell 0.3%, and the Nasdaq Composite fell 0.7%.
- EU: Speaking at the European Central Bank's annual forum in Portugal, President Lagarde said the ECBwouldl continue its policy normalization path and try to bring eurozone inflation back to its 2 percent target. Lagarde confirmed that net asset purchases will end on July 1 and that interest rates will also rise by 25 basis points in July, the first hike in 11 years. At the same time, Lagarde stressed that when net asset purchases end, the central bank will remain flexible and may reinvest some of the redemption funds in bond markets where there is an orderly transmission risk. In addition, the European Central Bank is preparing a new anti-secession tool to help tighten widening interest rate differentials between Italy and Spain. Bond yields in Italy and Spain have surged since the central bank took a more hawkish stance in June. Nonetheless, the new instrument must be practical, proportionate, and contain sufficient safeguards to keep member countries motivated for sound fiscal policy.
- SW: In May 2022, Swedish retail trade fell by 0.6% from the previous month, in contrast to the last month's growth of 0.4%. It was the first decline in retail sales since December, with sales of consumer goods excluding state-owned alcohol specialty stores down 1.1 percent, while durable goods sales fell 0.3 percent. As a result, retail trade fell 2.3% annually after rising 2.4% in the previous month.
- SW: In May 2022, Sweden had a trade deficit of SEK 1.9 billion, compared with a surplus of SEK 3.5 billion a year earlier. It was the second straight month of trade deficits as domestic demand strengthened and imports surged as regular economic activity resumed following the COVID-19 outbreak. As a result, exports rose 27% year-on-year to SEK 169.8 billion, while imports surged 32% to SEK 171.7 billion. In the first five months of this year, imports and exports were SEK 80.20 billion, and net trade was SEK 0 billion.
- EU: European futures edged lower on Tuesday, retreating from a two-week high hit in the previous session, as optimism waned and fears of higher prices and a recession resurfaced. Meanwhile, the latest data showed German consumer confidence fell to a record low, and French consumer data may also offer drop-in French morale. On the corporate front, Volkswagen will be in the spotlight after The Wall Street Journal reported that Volkswagen is about to sell a minority stake in its U.S. electric vehicle charging business to a Siemens unit.
- CA: Canada's 10-year government bond yield climbed above 3.62%, cementing a rebound in the previous session as higher commodity prices and China's gradual reopening curbed recession-induced disaster and inflation risks returned. On the domestic front, rate hikes are betting on a 75-basis point increase in the target O/N rate at the Bank of Canada's July meeting, which would be the largest in 24 years, along with the highest inflation and extreme nervousness in nearly 40 years. Bond yields fell 7.5 basis points last week as investors worried that an aggressive tightening cycle by the Bank of China and other major central banks would tip the economy into recession while inflation fears were fading.
STOCK MARKET SECTORS:
- High: Energy, Utilities, Financials, Industrials, Real Estate.
- Low: Consumer Discretionary, Information Technology, Communication Services, Health Care.
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
- USD: The U.S. dollar index regained its footing near 104.60, rebounding from a daily low of 103.70 after hawkish comments from New York Fed President John Williams while allaying fears of a possible recession. Williams said the U.S. central bank must act aggressively to rein in inflation, the highest since 1981, and cut rates to between 3% and 3.5% by the end of the year. Still, he noted, the world's largest economy remains resilient to withstand such a contraction. With no new information on the central bank's policy outlook from ECB President Christine Lagarde, the most apparent buying activity was on the euro.
- CAD: The Canadian dollar was little changed, around $1.29 after hitting a two-week high of $1.282 earlier in the session, as investors continued to assess the prospect of a rate hike and whether the Bank of Canada would lose out to the Fed in the tightening race. At home, an extremely tight labor market, unemployment at its lowest level since records began in 1976, and inflation at its highest in 40 years have increased bets on the Bank of Canada, raising interest rates by 75 basis points at its July meeting. Still, the prospect of the Fed possibly tightening its fund's rate by 75 basis points has prevented further gains. The release of the PCE price table later this week should clarify what will happen to U.S. monetary policy.
- RUB: The Russian ruble rose to 53 rubles per dollar, near a seven-year high of 50 rubles hit last week, as a Russian sovereign default had little impact on the rouble's strength. Western sanctions blocked financial institutions from processing interest payments on $100 million in euro bonds due in May, triggering Russia's first sovereign default since 1918. The ruble is the best-performing currency this year as the Russian economy becomes increasingly isolated from the West. Demand for Russian oil and gas surged in Asia as prices rose, supporting the Russian currency at an intense level. In addition, the collapse in import activity due to sanctions halted domestic demand for dollars, exacerbating high fees and negative interest rates for banks’ deposits in currencies of “unfriendly” countries.
- CNY: The offshore yuan traded at around 6.68 to the dollar, holding steady even after People's Bank of China Governor Yi Gang said China's monetary policy would remain accommodative to support economic recovery. That contrasted sharply with the hawkish stance of other major central banks, raising fears of increased capital outflows and further currency weakness. Analysts, however, don't expect the yen to depreciate as much as the yen as long as the People's Bank of China does not resort to the Bank of Japan-style ultra-loose easing. Previously, the People's Bank of China carried out its most significant daily cash injection since March, injecting seven-day reverse repos worth 100 billion yuan in a market operation on June 27 to maintain "stable liquidity at the end of the half-year."
CHART OF THE DAY:
The euro failed to hold on to gains, falling to $1.05 in the last week of June, near a five-year low of $1.04 hit in May, as the gap between U.S. and European interest rates and growth widened. European Central Bank President Christine Lagarde said that the central bank intends to raise policy rates by 25 basis points on July 21, the first-rate hike in 11 years and that the normalization path will go as far as possible to ensure stable inflation at 2% in the medium term. Target. Another hike in the key rate is expected in September without providing a magnitude. Preliminary inflation data for major countries in the eurozone will be released this week, with price increases set to hit another record in 19-euro zone countries. Meanwhile, the Federal Reserve raised funds rate by 75 basis points in June, the highest level since 1994, and Chairman Powell said a similar move was likely at the next meeting, making it clear that the central bank will go all-in on soaring inflation.
- EURUSD - D1, Resistance (consolidation) around ~ 1.07720, Support (consolidation) around ~ 1.02962.