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US stocks lacked direction and dollar strength persisted heading into month-end - Newsquawk Asia-Pac Market Open

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Wednesday, Jun 29, 2022 - 09:24 PM
  • US stock markets finished somewhat mixed after choppy range-bound trade as equity markets struggled for direction heading closer to month-end and following downward revisions to Q1 GDP into deeper negative territory, with participants also awaiting upcoming releases including PCE data on Thursday and ISM Manufacturing PMI on Friday.
  • DXY remained strong and rose above 105.00 as the bid continued on month-end flows, despite lower treasury yields and a downward GDP revision, while USD/JPY resumed its upward momentum and approached just shy of the 137.00 handle where it then hit resistance and retraced some of the advances.
  • Looking ahead, highlights include Australian Private Sector Credit, New Zealand Business Confidence, South Korean Industrial Production & Retail Sales, Japanese Industrial Production & Housing Starts, Chinese Official PMIs.

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LOOKING AHEAD

  • Australian Private Sector Credit, New Zealand Business Confidence, South Korean Industrial Production & Retail Sales, Japanese Industrial Production & Housing Starts, Chinese Official PMIs.
  • Click here for the Week Ahead preview

US TRADE

EQUITIES

  • US stocks finished mixed amid choppy range-bound trade with equity markets struggling for direction heading closer to month-end and following downward revisions to Q1 GDP into deeper negative territory, while participants also await upcoming releases including PCE data on Thursday and ISM Manufacturing PMI on Friday.
  • SPX -0.07% at 3,819, NDX +0.18% at 11,658, DJIA +0.27% at 31,029, RUT -1.12% at 1719.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • Fed Chair Powell said the job for policymakers is to find price stability even during the new forces of inflation and that a reversal of globalisation could mean lower growth in place, while he added the US economy is in strong shape and can withstand monetary policy moves. Powell added the aim is to have growth moderate and there is a risk that the Fed could go too far but it is not the largest risk as the biggest risk would be a failure to restore price stability.
  • Fed's Mester (2022, 2024 voter) said on a path towards restrictive interest rates and the July debate between 50bps and 75bps hike. Mester also said if inflation expectations become unanchored, monetary policy would have to act more forcefully and noted the current inflation situation is very challenging.
  • US Democrats are said to be weighing paring a tax hike to win over moderate Democrat Senator Manchin and discussions include scaling back minimum levies for corporations, according to Bloomberg.

DATA RECAP

  • US GDP Final* (Q1) -1.6% vs. Exp. -1.5% (Prev. -1.5%)
  • US Core PCE Prices Final* (Q1) 5.2% vs. Exp. 5.1% (Prev. 5.1%)

FIXED INCOME

  • T-note (U2) futures settled 26 ticks higher at 117-16; Treasury's were bid across the curve with supply in the rear view and as month-end flows dominated, while attention shifts to PCE data on Thursday.

FX

  • DXY rose above 105.00 as the bid continued on month-end flows, despite lower treasury yields and a downward GDP revision.
  • Euro gave ground to the dollar strength which follows mixed inflation data with German CPI printing softer than expected, while there was another slew of ECB rhetoric and sources noted PEPP reinvestments did not have targets for now but the rules may evolve in due course.
  • GBP softened against the greenback with the attention today on central bank rhetoric in which Governor Bailey noted that the UK was being hit by a very large real income shock and warned the MPC would have to act more forcefully if he saw a greater persistence of inflation, while incoming MPC member Dhingra said there was room for a very gradual approach and newer data suggested a slowdown may be much more imminent than previously thought.
  • JPY saw further weakness in which USD/JPY approached just shy of 137.00 where it met resistance and retraced some of the advances.

COMMODITIES

  • Oil futures gave up gains after a turn in the risk mood, as well as remarks from the US Special Envoy who welcomed a "major change in attitude from OPEC+", while other news updates tilted to the bullish side for crude but were overshadowed by the prevailing risk mood.
  • US EIA Weekly Crude Stocks (w/e 24 Jun) -2.762M vs. Exp. -0.569M.
  • OPEC meeting was said to involve discussions about lots of admin issues and nothing on the future policy of the group in September, according to Energy Intel.
  • US Special Envoy Hochstein said the US welcomes the major change in attitude from OPEC+ and hopes OPEC+ will move to step two of the supply boost, while he added the US remains in talks with OPEC nations and can reassess more SPR releases after October, according to Reuters.
  • Exports of Ecuador's Oriente Crude are reportedly suspended after a force majeure was declared due to anti-government protests, according to Reuters sources, while PetroEcuador confirmed it activated a force majeure over Oriente crude exports due to declining production.
  • Libya's NOC suspended oil exports from two key ports including the Es Sider port amid the worsening political crisis, according to Bloomberg.
  • Canada's Foreign Minister said Canada is in talks with European partners including Spain and Germany about how to step-up energy exports from the East Coast, according to Reuters.
  • Switzerland is readying plans to address a possible shortage of natural gas this winter and said it could resort to rationing, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

  • Head of the Donetsk Republic said they conducted a prisoner swap with Kyiv in which 144 people were swapped, according to Reuters.
  • IAEA said it has once again lost connection to its safeguards surveillance systems at Ukraine's Zaporizhzhia nuclear plant and it is also facing a partial loss of remote safeguards data transmission from Chernobyl, according to Reuters.
  • Russia will reportedly look to export its gold supplies to other countries after a US ban, according to Tass citing sources. It was also reported that Russia’s Foreign Minister told the UN Secretary-General that Russia is committed to fulfilling its grain and fertiliser export obligations. Furthermore, the Russian Foreign Ministry said there are no contacts with Canada and Germany via diplomatic channels over Nord Stream 1 turbine issues, according to Reuters.

OTHER

  • NATO formally invited Finland and Sweden to join NATO. NATO also said it will significantly strengthen deterrence and defence, while it added that China challenges NATO interests, security and values. It was separately reported that the Russian Deputy Foreign Minister said Russia views negatively the plans by Finland and Sweden to join NATO, according to Ifx.
  • Iranian official said nuclear talks in Qatar are to end without a deal as expected, according to AP.

ASIA

NOTABLE HEADLINES

  • PBoC will step up implementation of prudent monetary policy and will keep liquidity reasonably ample, while it will provide more forceful support to the real economy and will keep consumer prices "basically stable". Furthermore, it stated that monetary policy will be proactive and boost confidence, as well as reiterated it will increase flexibility of CNY and keep CNY basically stable, according to Reuters.
  • China said it will further extend the tariff exemption period for 124 goods from the US.
  • Shanghai will gradually reopen museums and scenic sports from July 1st, while it will gradually reopen movie theatres and performance venues from July 8th, according to state media.
  • Japan’s government is to issue a power supply shortage warning for a fourth consecutive day on Thursday, according to a statement.
  • Maersk (MAERSKB DC) said the situation in Shanghai is stabilising and in general, all ports in China are working well, while it sees demand from Asia to all major markets (incl. North America, Europe) remaining firm in the approaching peak season.

EUROPEAN TRADE

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

NOTABLE HEADLINES

  • BoE Governor Bailey said the task is to return to low inflation and that they are being hit by a very large real income shock, while he added that if they see a greater persistence of inflation, they will have to act more forcefully. Bailey responded that they will leave options on the table (when questioned on 50bps) and said there are circumstances where the bank will have to do more, as well as noted that rate increases are "not the only thing on the table", according to Reuters.
  • BoE incoming MPC member Dhingra said there is room for a very gradual approach and newer data suggests a slowdown may be much more imminent than previously thought. Dhingra also noted that dissent on the MPC reflects a lot of uncertainty and that UK economic problems will continue or even accelerate and have knock-on effects for domestic prices, while she added the BoE still has levers to act and it is best to take a gradual approach when it comes to QT and "learn as we go along", according to Reuters.
  • EU's Sefcovic said the EU's doors are open for negotiations with the UK on the Northern Ireland protocol but they need to be constructive, according to Reuters.
  • ECB's Lagarde said they are unlikely to return to an environment of low inflation and that inflation expectations are much higher than they were before. Lagarde stated that a recovery in services is underway and supporting the economy, while she added that normalisation can be flexible if needs be, according to Reuters.
  • ECB's Wunsch said government aid may spell more rate hikes and 150bps of hikes by March 2023 is reasonable, while he sees a 25bps hike in July as a done deal, according to Bloomberg.
  • ECB’s Reinesch sees gradual interest rate increases after September.
  • ECB PEPP reinvestments do not have targets or thresholds for now and rules may evolve in due course but will not allow front-loading of PEPP purchases, according to sources cited by Bloomberg.

DATA RECAP

  • German CPI Prelim MM * (Jun) 0.1% vs. Exp. 0.3% (Prev. 0.9%)
  • German CPI Prelim YY * (Jun) 7.6% vs. Exp. 8.0% (Prev. 7.9%)
  • German HICP Prelim MM * (Jun) -0.1% vs. Exp. 0.4% (Prev. 1.1%)
  • German HICP Prelim YY * (Jun) 8.2% vs. Exp. 8.8% (Prev. 8.7%)
  • EU Economic Sentiment (Jun) 104.0 vs. Exp. 103.0 (Prev. 105.0)
  • EU Services Sentiment (Jun) 14.8 vs. Exp. 12.5 (Prev. 14.0, Rev. 14.1)
  • EU Industrial Sentiment (Jun) 7.4 vs. Exp. 4.6 (Prev. 6.3, Rev. 6.5)
  • EU Consumer Confidence Final (Jun) -23.6 vs. Exp. -23.6 (Prev. -23.6)
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