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US stocks were choppy as recession fears weighed on cyclicals but duration-sensitive staged a comeback on lower yields, while oil suffered a near-record slump - Newsquawk Asia-Pac Market Open

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Tuesday, Jul 05, 2022 - 09:46 PM
  • US stock markets finished mixed with early selling pressure as participants returned from the long weekend and were met by ongoing recession fears which pressured cyclicals, although the major indices then rebounded off their lows and the Nasdaq staged a strong recovery as duration-sensitive stocks benefitted from the lower yield environment.
  • DXY strengthened with the advances devoid of any news catalysts but instead was driven by the early risk-off tone amid growth slowdown and recession fears, while safe haven JPY kept up the pace with the greenback amid the risk-off positioning.
  • Oil prices slumped by the most since March 9th which was a near-record decline, as growth woes catalyse capitulation in a volatility-ridden commodity market, overshadowing strike action in Norway and Saudi hiking OSPs.
  • Looking ahead, highlights include Hong Kong Manufacturing PMI and Australian Supply.

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LOOKING AHEAD

  • Hong Kong Manufacturing PMI and Australian Supply.
  • Click here for the Week Ahead preview

US TRADE

EQUITIES

  • US stocks were choppy and finished the session mixed in little fresh newsflow with the NDX prospering in the face of sustained global growth woes that pressured cyclical sectors. Energy was the worst-hit sector after oil prices saw their largest decline since March 9th and suffered a near-record drop in which WTI lost the USD 100/bbl handle as the recession fears catalysed capitulation - overshadowing Saudi hiking OSPs and the strike action in Norway that has since been resolved.
  • SPX +0.17% at 3,831, NDX +1.68% at 11,779, DJIA -0.42% at 30,967, RUT +0.63% at 1,738.
  • Click here for a detailed summary.

DATA RECAP

  • US Factory Orders MM * (May) 1.6% vs. Exp. 0.5% (Prev. 0.3%, Rev. 0.7%)
  • US Durable Goods, R MM * (May) 0.8% (Prev. 0.7%)

FIXED INCOME

  • T-note (U2) futures settled 21 ticks higher at 119-29; Treasuries bull-flattened in keeping with the global risk aversion and commodity price tumble.

FX

  • DXY was significantly firmer as US players returned from the long weekend with the advances devoid of any news catalysts but instead was driven by the cautious risk tone amid growth slowdown and recession fears.
  • Euro underperformed amongst the G10 currencies amid the firmer greenback with analysts citing mounting European recession fears and technicians noting the single currency had breached many significant lows.
  • GBP weakened amid further political tremors for UK PM Johnson following the resignations of high-profile government ministers Chancellor Sunak and Health Minister Javid.
  • JPY strengthened and kept up the pace against the Greenback with the Japanese currency underpinned by the risk-off positioning.

COMMODITIES

  • Oil prices saw their largest decline since March 9th, near a record decline, as growth woes catalyse capitulation in a volatility-ridden commodity market, overshadowing strike action in Norway and Saudi hiking OSPs.
  • Saudi Aramco increased all oil prices for customers in August in which it set Aug light crude OSP to Asia at +9.30/bbl vs Oman/Dubai average, while it set prices to NW Europe at +USD 5.30 vs. ICE Brent and to the US at +USD 5.65 vs. ASCI, according to Reuters sources.
  • ICE cut Brent crude oil futures margins by 12.5%.
  • Norway oil strike union leader announced an end to the strike with oil and gas workers to return to work as soon as possible and that the government imposed forced settlement, according to Reuters.
  • Russian Deputy Chair of the Security Council Medvedev said the Japanese proposal to cap Russian oil prices would lead to higher global prices and that oil prices could increase to over USD 300-400/bbl, according to Reuters.
  • Germany is poised to create a tool to pass on gas costs to all consumers, according to Bloomberg.
  • Goldman Sachs said the full restoration of Nordstream One flows following upcoming maintenance no longer appears to be the most probable scenario, given a lack of resolution regarding required turbine repairs and a prolonged reduced flow rate at Nordstream One is more likely going forward.

GEOPOLITICS

RUSSIA-UKRAINE

  • Separatist forces are being moved in the Donetsk direction after claiming victory in Luhansk, according to Tass citing the regional leader, while a separatist official said Ukrainian forces should be pushed back to the Kyiv-region, so their missiles cannot strike Donbas, according to Reuters citing Ria.
  • Russian President Putin signed a decree which prevents Russian residents from transferring funds abroad if they were received via Russian company dividends, according to Bloomberg.
  • Russian Parliament approved the first reading of laws obliging businesses to support the military effort in Ukraine, according to Reuters.
  • Head of the Russian-imposed administration in Ukraine's Zaporizhzhia region said an agreement was reached to sell grain overseas, mainly to nations in the Middle East, according to Tass.
  • Turkish President Erdogan said a deal for Ukrainian grain is expected to be done in ten days, according to a press conference.

OTHER

  • EU's Borrell spoke with the Iranian Foreign Minister in which he said decisions are needed now if they want to conclude an agreement and that it is still possible, but the political space to revive the JCPOA may narrow soon, according to Reuters.
  • Iranian official said Tehran did not see any American change during the Doha negotiations regarding Iran's interests in the nuclear agreement and there is no direct and influential relationship between US President Biden's visit to the region and the issue of nuclear negotiations, via Al Jazeera.
  • US envoy to Iran nuclear talks said Iran has enough enriched uranium to make a bomb but noted there is still time to resolve issues which the US is committed to, according to an interview with National Public Radio.
  • Israel's PM Lapid said the current Iranian nuclear stalemate will result in a Middle East arms race and threaten world peace, while French President Macron said they need to defend the Iran nuclear deal and take interests of regional partners into account such as Israel, according to Reuters.
  • Israeli Defence Minister said there are 4 Iranian warships in the Red Sea, which is the largest Iranian military presence in the last decade, via Sky News Arabia.

ASIA

NOTABLE HEADLINES

  • US President Biden could lift tariffs on just USD 10bln worth of Chinese goods under a plan being discussed within the admin and the Biden administration is expected to announce the USTR will open a new exclusion process for Cos. to win exemptions from tariffs on China, according to Politico.
  • US Secretary of State Blinken will meet with Chinese Foreign Minister Wang this week, according to Washington Post.

EUROPEAN TRADE

  • European stock markets traded lower and the STOXX Europe 600 finished with losses of 2.1%.

NOTABLE HEADLINES

  • BoE Governor Bailey said global financial conditions have tightened significantly and that the UK banking system remains strong, according to Reuters.
  • BoE's Tenreyro said she would expect QE unwind to have no material impact on the UK economy and stated that experience so far supports that, according to Reuters.
  • BoE Financial Stability Report stated they will raise the counter-cyclical capital buffer rate to 2% in July 2023 and are prepared to adjust the counter-cyclical capital buffer rate in either direction. It also noted that 2022 stress tests will start in September with results due mid-2023 and that risky assets remain vulnerable to sharp adjustments.
  • UK Health Minister Javid announced his resignation and UK Chancellor Sunak also resigned in which he stated the public rightly expects the government to be conducted properly, competently and seriously which is the reason he is resigning, via Twitter.
  • UK PM Johnson reportedly plans to stay on and appoint new Cabinet ministers, according to Bloomberg sources. It was later reported that UK Education Minister Zahawi was appointed as the new Chancellor and Michelle Donelan was appointed as the Education Minister, while Steve Barclay was appointed as the new Health Minister, according to Reuters citing a government statement.
  • UK Foreign Secretary Truss said she is 100% behind PM Johnson and minister Rees-Mogg said PM Johnson is carrying on "business as usual" after the resignations, while it was then reported that PM Johnson loyalist Jonathan Gullis also resigned.
  • UK's 1922 Committee rebels plan a rule change to oust PM Johnson and it was suggested that the departures of Chancellor and Health Secretary will "concentrate minds" to allow a second confidence vote, according to The Telegraph
  • UK's Unite said union members employed by Aviation Fuel Services at Heathrow Airport announced strikes for later this month in a dispute over pay, according to Reuters.

DATA RECAP

  • UK Services PMI Final (Jun) 54.3 vs. Exp. 53.4 (Prev. 53.4)
  • UK Composite PMI Final (Jun) 53.7 vs. Exp. 53.1 (Prev. 53.1)
  • EU S&P Global Services Final PMI (Jun) 53.0 vs. Exp. 52.8 (Prev. 52.8)
  • EU S&P Global Composite Final PMI (Jun) 52.0 vs. Exp. 51.9 (Prev. 51.9)

 

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