North American News
US equity close: Late rebound loses momentum
Closing changes for the main North American indexes
US stocks were sluggish for most of the day before embarking on a comeback in the final hour of trading led by Nvidia. That comeback ultimately fell flat with some heavier selling in the last half-hour.
- S&P 500 -0.8%
- Nasdaq Comp -0.6%
- DJIA -0.8%
- Russell 2000 -1.0%
Fed minutes: Officials generally agreed that extent of further hikes less certain
- Comments from Fed officials
- Participants ‘generally agreed’ that the extent to which further hikes may be appropriate was less certain
- Many participants focused on need to maintain optionality
- ‘Several’ said that if economy evolved along the lines of their outlooks, further hikes might not be needed
- Some participants said additional hikes would likely be needed
- Some stressed that it was crucial that policy not signal likelihood of cuts late this year or rule out further hikes
- Participants agreed that inflation was unacceptably high and declining slower than they had expected
- Staff continue to forecast a recession later this year followed by modestly-paced recovery
Fed officials also expressed judgment that banking sector stress would likely weigh on economic activity, albeit to an uncertain extent. The potential impact of stressed financial institutions on the broader economy was a topic of discussion, highlighting the risks associated with potential disruptions in the financial system and tighter financial conditions.
“Participants noted that risks associated with the recent banking stress had led them to raise their already high assessment of uncertainty around their economic outlooks,” the minutes said.
US sells 5-year notes at 3.749% vs 3.763% WI
- Results of the $43 billion sale
- Prior was 3.500%
Yesterday’s 2-year sale stopped through by 1.4 bps and so did this one. Real money is still buying bonds, especially at the front end and we’ve seen some follow through after this auction in the cash market.
US MBA mortgage applications for the week ending 19 May -4.6% vs -5.6% prior
- Latest data from the Mortgage Bankers Association for the week ending 19 May 2023
- Prior -5.7%
- Market index 205.0 vs 214.9 prior
- Purchase index 158.3 vs 165.4 prior
- Refinance index 443.0 vs 468.2 prior
- 30-year mortgage rate 6.69% vs 6.57% prior
Fed’s Waller: Need to maintain flexibility on best policy decision for June meeting
Federal Reserve Governor Christopher Waller said on Wednesday that the Fed needs to maintain flexibility on the best policy decision for the June meeting, as reported by Reuters.
“I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective,” Waller explained. “Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks.”
Additional takeaways
“Prudent risk management may suggest skipping a hike in June, leaning toward July hike depending on inflation data and if banking conditions haven’t tightened excessively.”
“More loosening of very tight labor market needs to be seen to help take heat off high inflation.”
“Concerned about lack of progress on inflation.”
“Concerned inflation won’t come down much unless growth of average hourly wages nears 3%.”
“April PCE inflation, May CPI data will be critical.”
“There is higher-than-usual uncertainty about credit conditions.”
“Fighting inflation continues to be my priority.”
Key line:
Let me cut to the chase—in my view, data since the last meeting of the Federal Open Market Committee (FOMC) has not provided sufficient clarity as to what we should do with our policy rate at the next meeting. We still have some major data releases coming up in the next three weeks and I’ll also be learning more about evolving credit conditions, both factors which will inform me on the best course of action. Between now and then, we need to maintain flexibility on the best decision to take in June.
Commodities
Gold bears move in and eye critical support near $1,950
- Gold price is attempting to move lower into support following FOMC minutes.
- Fed minutes show officials split on support for more hikes.
The Gold price is mixed around the Federal Open Market Committee minutes that showed that the board members agreed that inflation risks are still unacceptably high but officials also generally agreed that the extent of further hikes are less certain. Gold price has ranged between a low of $1,961 and a high of $1,965 so far around the event but has traveled in a wider range of between $1,956.77 and $1,985.39 on the day so far.
Oil gains after largest US inventory drawdown since 2020
- WTI crude oil up 43-cents on the day but lower than pre-inventory levels
Oil fundamentals and global macro are pulling in opposite directions, leaving the market undecided.
Crude has benefited from Saudi warnings along with a huge US inventory draw this week but it’s struggling to make real headway because much of the market doesn’t want to buy ahead of a possible recession.
That’s setting up a continued period of uncertainty that will ultimately lead to a violent break higher or lower.
EIA crude oil stocks draw of -12.456M vs 0.775M build
- Weekly will inventory data from the EIA
- Crude oil -12.456M draw versus expectations of 0.775M build
- distillates draw of -0.562M vs expected build of 0.385M build
- gasoline draw of -2.053M vs expected drop -1.051M draw
- weekly crude oil imports -1.249M versus -0.127 million last month
- weekly refinery utilization -0.3% versus expected 0.6%. Last week 1.0%
Copper: Sluggish demand from China points to lower prices – ING
Copper has now lost all of the gains it made this year. Economists at ING believe there are more downside risks in the near term.
Copper prices to average $8,970/t in 2023
“In the near term, copper prices are likely to continue to be dictated by the pace of China’s economic recovery as well as the Fed’s interest rate hiking path.”
“We expect Copper prices to remain volatile as the market will continue to react to any policy change from China. We expect prices to average $8,970/t in 2023.”
“In the longer term, Copper’s fundamentals as an EV and green energy metal will support higher prices over the next few years, but for now, the market will remain focused on the disappointing demand picture from China.”
EU News
European equity close: Inflation worries lead to a deep slump
- Closing changes for the main European bourses
It was a tough day in European stock markets:
- Stoxx 600 -1.9%
- UK FTSE 100 -1.9%
- German DAX -2.0%
- French CAC -1.7%
- Italy MIB -2.4%
- Spain IBEX -1.1%
UK April CPI +8.7% vs +8.2% y/y expected
- Latest data released by ONS – 24 May 2023
- Prior +10.1%
- CPI +1.2% vs +0.8% m/m expected
- Prior +0.8%
- Core CPI +6.8% vs +6.2% y/y expected
- Prior +6.2%
- Core CPI +1.3% vs +0.7% m/m expected
- Prior +0.9%
Germany May Ifo business climate index 91.7 vs 93.0 expected
- Latest data released by Ifo – 24 May 2023
- Prior 93.6; revised to 93.4
- Current conditions 94.8 vs 94.8 expected
- Prior 95.0; revised to 93.1
- Expectations 88.6 vs 91.9 expected
- Prior 92.2; revised to 91.7
UK May CBI trends total orders -17 vs -20 prior
- Latest data released by CBI – 24 May 2023
- Prior -20
Bank of America now sees three more Bank of England rate hikes
- Sees terminal rate at 5.25% vs 4.75% previously
There has been a parade of boosts to Bank of England rate hike forecasts today following hot inflation data. The CPI report showed prices up 8.7% y/y compared to 8.2% expected.
Bank of America is the latest to raise their estimate of the terminal rate as they now see 5.25% compared to 4.75% before the data. The current rate is 4.25% and they now see a series of hikes through September.
BOE Bailey says projections show government will meet inflation target this year
- BOE’s Bailey speaking on the economy
- Our projections show government will meet inflation target this year
- Will not speculate on where April inflation data leaves us in terms of forecasts (below the forecasts perhaps)
- Quite a lot of inflation is imported.
- Our commitment to bring inflation to target is absolute.
- Today’s numbers showed a welcome fall below double digits
- We have to focus on food and core inflation.
- Food inflation is taking longer to fall than was expected.
- Energy prices are contributing to food inflation.
- Producers have booked in higher costs for longer than usual.
- I don’t think “spiral” is the right word to use when asked about core inflation in wages.
- Inflation expectations are coming down.
- The question for us is how sticky and stubborn is the process down for inflation.
- We have a tight labor market
- This is not a good era for forecasting given the huge shocks in the global economy
Other News
China president Xi says wants to take Russia cooperation to a higher level
- Remarks from China president, Xi Jinping, via state media
- Wants to increase collaboration with Russia on investment, trade, economy
This comes as he meets with Russian prime minister Mishustin in Beijing. The visit by Russian officials to China is a symbolic one, as it reaffirms that both countries are still keeping close ties despite the challenging optics globally.
McCarthy: I think we can make progress today
- Comments from House majority leader Kevin McCarthy
- There are still differences over spending
- Can we get to yes? Yes
- They have to spend less than last year
- On a number of places we are still far apart
- Says it will take 72 hours to pass a bill once a deal is reached
- We’re not going to default, we’re going to solve this problem
Treas. Sec Yellen: Bidens commitment that US will not default is important
- Treasury Secretary Yellen speaking on the debt ceiling
- Early June as the debt ceiling default deadline
- Will update Congress shortly about government finances
- Biden’s commitment that all US will not default is important
- Will try to increase the level of precision on date
- believes a deal as possible to avoid debt limit default.
- Biden has offered changes and that will result in 1 trillion in deficit reduction.
- Treasury and Pres. Biden will face tough choices if Congress doesn’t act to raise debt ceiling.
- If we get to X-date without debt ceiling deal, there will be some obligations we will be unable to pay.
- There is no outcome that will be acceptable
- Payment prioritization is not operationally feasible. We are seeing some stresses in financial markets over debt ceiling citing some bills coming due in early to mid June trading at higher interest rates
GOP negotiator Graves says there is not been any progress on talks
- Mr. Negative is in the house
- GOP negotiator Garret Graves says there is not been any progress on talks
Graves said yesterday:
“There is a significant gap between where we are and where they are on finances… and unless and until the White House recognizes that this is a spending problem, we’re going to continue to have a significant gap”. GOP, Patrich McHenry, Graves and the Republican leadership have criticized the White House for not empowering negotiators Steve Ricchetti, the counselor to the president, and Office of Management and Budget Director Shalanda Young to cut a deal.
Cryptocurrency News
Ethereum price takes a turn for the worse, flirts with 10% correction
- Ethereum price fails to hit bull target and heads substantially lower.
- ETH could risk dropping below $1,700 if support at $1,815 snaps.
- Expect a nosedive to move below $1,700 once thin support gives way.
Ethereum (ETH) price is shedding some value this Wednesday as cryptocurrencies dive lower in synchrony. Risk assets are not in the sweet spot with both equities and cryptocurrencies printing red numbers as a safe haven flow unfolds in the markets. The stalemate in the US debt ceiling negotiations, the Fed Minutes later on Wednesday and a 50% of yet another US rate hike in July are just a few elements that are making Ethereum price likely to drop below $1,800.
Ethereum price under pressure from global woes in the markets
Ethereum price was already crashing together with European stocks on Wednesday rather dramatically after comments emerged that the US debt ceiling debate is not going as smoothly as presumed. Add to that increasing inflation worries that might force the Fed to hike again, and US equities are on their back foot as well. Cryptocurrencies did not have many rebuttals against that framing and went along for the ride lower.
ETH already lost 2% intraday and is currently testing support at the ascending trendline. Once the level at $1,815 snaps, expect to see a quick nosedive move that could easily sink below $1,800. The best guess is that $1,740 would be able to halt the decline, while $1,690 would make more sense as a historically important level. That event would print a new low for April and May in the process.
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