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US stocks bounced back from disappointing PMIs as yields and commodity prices declined - Newsquawk Asia-Pac Market Open

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Thursday, Jun 23, 2022 - 09:39 PM
  • US stock markets finished higher as a decline in yields and commodity prices helped stocks recover from early selling pressure brought on by disappointing PMI data. 
  • DXY was marginally firmer on the day with price action choppy after the weaker than expected PMI data from both sides of the pond, while there was more Fed commentary in which Powell stuck to the script and Bowman joined the chorus for another 75bps hike in July.
  • Fed said all banks passed the stress test and that 34 large US banks have strong capital levels and could continue lending in an economic downturn, although banks suffered slightly more hypothetical losses in the 2022 severe test than last year with USD 612bln in projected losses as capital ratios fell to 9.7%.
  • Looking ahead, highlights include UK GfK Consumer Confidence, Japanese National CPI, Singapore Industrial Production, New Zealand Holiday.

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LOOKING AHEAD

  • UK GfK Consumer Confidence, Japanese National CPI, Singapore Industrial Production, New Zealand Holiday.
  • Click here for the Week Ahead preview

US TRADE

EQUITIES

  • US stocks were firmer but saw choppy price action as growth woes on poor PMI data were countered with the continued fall in yields and commodity prices.
  • SPX +0.97% at 3,796, NDX +1.47% at 11,697, DJIA +0.64% at 30,677, RUT +1.11% at 1,709.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • Fed Chair Powell said inflation expectations are anchored but added it is not enough as over time they will come under pressure, while Powell said he would be reluctant to cut rates when asked. Powell also said the Fed would not raise its inflation target and that the end-point for the balance sheet is roughly USD 2.5tln-3.0tln smaller than it is now.
  • Fed's Bowman (voter) said another 75bps rate hike will be appropriate in July and hikes of at least 50bps at the next few subsequent meetings. Bowman added that further rate hikes may be needed depending on how the economy evolves, while she is committed to a policy that will bring the real FFR back into positive territory.
  • Fed said all banks passed the stress test and that 34 large US banks have strong capital levels and could continue lending in an economic downturn, although it noted that banks suffered slightly more hypothetical losses in 2022 severe test than last year with USD 612bln in projected losses as capital ratios fell to 9.7%.
  • White House official said weekly US jobless data is consistent with low unemployment and is not at all what a recession labour market looks like, according to Reuters.
  • Bipartisan US gun legislation cleared the final procedural hurdle with a vote on passage expected no later than Friday.

DATA RECAP

  • US S&P Global Manufacturing PMI Flash (Jun) 52.4 vs. Exp. 56.0 (Prev. 57.0)
  • US S&P Global Services PMI Flash (Jun) 51.6 vs. Exp. 53.5 (Prev. 53.4)
  • US S&P Global Composite Flash PMI (Jun) 51.2 (Prev. 53.6)
  • US Initial Jobless Claims w/e 229k vs. Exp. 227.0k (Prev. 229.0k, Rev. 231k)
  • US Continued Jobless Claims w/e 1.315M vs. Exp. 1.315M (Prev. 1.312M, Rev. 1.310M)

FIXED INCOME

  • T-note (U2) futures settled 22 ticks higher at 117-21; Treasuries experienced another belly-led rally as troubling June flash PMI data added to hard landing/recession concerns.

FX

  • DXY was marginally firmer on the day with price action choppy after the weaker than expected PMI data from both sides of the pond, while there was more Fed commentary in which Powell stuck to the script and Bowman joined the chorus for another 75bps hike in July.
  • Euro softened and briefly fell beneath the 1.0500 status against the greenback after weak PMI data.
  • GBP was relatively flat following mixed PMI data and after stalling at resistance just shy of 1.2300
  • JPY strengthened with USD/JPY dipping beneath 135.00 amid the narrowing of US-Japan yield differentials.

COMMODITIES

  • Oil prices were lower as demand woes accentuated amid the plethora of disappointing Flash PMIs for June on both sides of the Atlantic.
  • OPEC+ is seen reconfirming plans for an oil output rise of 648k BPD in August at its meeting next week, according to Reuters sources.
  • US Energy Secretary Granholm expressed interest in lifting summertime fuel specifications during the refiners meeting and downplayed banning fuel exports as a viable short-term option to reduce gas prices, according to Reuters sources. Granholm also commented that oil companies must deliver solutions to ensure secure and affordable supply.
  • Germany declared Phase Two of the Emergency Gas Plan due to supply cuts from Russia and high prices, while it will provide EUR 15bln in credit lines for filling gas storages and will launch a gas auction model in the summer to encourage industrial gas consumers to save gas.
  • German Economy Minister said they cannot rule out the rationing of gas but hopes that decision does not need to be made. There were also comments from the German network regulator that companies and consumers must prepare themselves for significantly rising gas costs, while engineering body VDMA said the danger is real that Germany is going towards an undersupply and therefore a rationing regime.
  • Norwegian Oil Ministry said the nation will step up cooperation with the EU to ensure additional gas supplies, according to Reuters.
  • India's oil minister said oil at USD 120/bbl is not sustainable, while the minister also stated that Indian firms are looking for long term, stable oil supply arrangements and that firms are buying most of the Russian oil through traders.
  • Chile state copper miner Codelco reached an agreement with workers to end the strike, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

  • Ukraine and Moldova won candidate status in their bid to gain EU membership, as expected, while the EU agreed on a conditional path to the EU for Georgia, according to Reuters.
  • Russian Kremlin said peace is possible if Ukraine accepts all of their demands, according to Ifx. Kremlin also noted that Russia is a very reliable energy supplier to Europe and fulfils all of its obligations.
  • Russian Finance Ministry removed a ban on residents channelling funds raised via securities trading with non-residents to foreign accounts, according to Reuters.
  • Russia may gradually switch grain and sunseed exports tax to Roubles from US Dollars and considers a discount to grain export duty, according to Interfax citing sources.
  • UK PM Johnson said they are willing to consider providing government-backed insurance to help encourage ships in exporting food from Ukraine. It was also reported that UK Energy Secretary said they are fleshing out the details of a planned levy on oil and gas producers.
  • French Foreign Ministry said Moscow informed their ambassador that one member of staff was no longer welcome within Russia.

OTHER

  • Russian Foreign Minister Lavrov said Russia and Iran are cooperating as part of international efforts to stabilise oil and gas markets, while Moscow fully supports the revival of Iran's 2015 nuclear deal with major powers and that there is still full agreement within OPEC+ on the need to safeguard Iran's interests in its activities.
  • Iranian Foreign Minister hopes for a nuclear deal agreement soon, while Iran said it has been in contact with the EU on the nuclear deal, according to Reuters.
  • Turkish media reported that authorities arrested 10 members of an Iranian intelligence cell planning to assassinate Israeli tourists and kidnap a former Israeli ambassador and his wife, according to Kann.

    ASIA

NOTABLE HEADLINES

  • PBoC's Deputy Governor said monetary policy transmission was more efficient in recent years and that China has built up a structural policy tool scheme that fits China.
  • Chinese President Xi told the BRICS summit that he wants high quality cooperation, while there were also comments from Russian President Putin that Russia is ready to further develop cooperation with BRICS nations.
  • Taiwan Defence Ministry said 22 Chinese air force planes entered their ADIZ on Thursday.

EUROPEAN TRADE

  • European stock markets traded lower and the STOXX Europe 600 finished with losses of 0.7%.

NOTABLE HEADLINES

  • UK's Northern Ireland Protocol bill will return to the House of Commons on Monday.
  • ECB's Kazimir said the ECB rate could be at 1.5%-2.0% in a year, while he reiterated his call for a 25bps hike in July and 50bps in September, according to Reuters.
  • ECB's Nagel said risk is rising that inflation expectations become de-anchored and sees risks to price stability, while he added the ECB must not fall behind the curve as that would require larger rate hikes later with greater economic costs.
  • ECB's Villeroy said rate-hike pace is to be orderly and data-dependent, while the ECB must normalise monetary policy.
  • ECB officials are reportedly concerned reinvestment flexibility is not ready with the PEPP reinvestment flexibility tool not yet operational, according to Bloomberg sources.

DATA RECAP

  • UK Flash Manufacturing PMI (Jun) 53.4 vs. Exp. 53.7 (Prev. 54.6)
  • UK Flash Services PMI (Jun) 53.4 vs. Exp. 53.0 (Prev. 53.4)
  • UK Flash Composite PMI (Jun) 53.1 vs. Exp. 52.6 (Prev. 53.1)
  • German S&P Global Manufacturing Flash PMI (Jun) 52.0 vs. Exp. 54.0 (Prev. 54.8)
  • German S&P Global Services Flash PMI (Jun) 52.4 vs. Exp. 54.5 (Prev. 55.0)
  • German S&P Global Composite Flash PMI (Jun) 51.3 vs. Exp. 53.1 (Prev. 53.7)
  • EU S&P Global Manufacturing Flash PMI (Jun) 52.0 vs. Exp. 53.9 (Prev. 54.6)
  • EU S&P Global Services Flash PMI (Jun) 52.8 vs. Exp. 55.5 (Prev. 56.1)
  • EU S&P Global Composite Flash PMI (Jun) 51.9 vs. Exp. 54.0 (Prev. 54.8)
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