North American News
The close: The value trade leads the way as US stocks hit new highs
- Closing changes in North America
The S&P 500 continued to break through the August 2022 high after a soft CPI kneecapped Fed hike expectations for tomorrow:
- S&P 500 +0.7%
- Nasdaq Comp +0.8%
- Russell 2000 +1.2%
- DJIA +0.4%
US May CPI 4.0% y/y versus 4.1% expected
- US May 2023 consumer price index data
- CPI MoM +0.1% vs +0.2% expected
- Prior MoM reading was +0.4%
- CPI YoY 4.0% vs 4.1% expected.
- Core CPI MoM +0.4% versus +0.4% expected
- Core YoY 5.3% versus 5.3% expected
- Shelter +0.6% versus +0.4% last month
- Real weekly earnings -0.1% vs +0.1% prior (revised to 0.0%)
- Food +0.2% vs 0.0% prior
- Energy -3.6% m/m vs +0.6% prior
- New vehicles -0.1% vs -0.2% prior
- Used cars and trucks +4.4% vs +4.4% prior
- Core services ex-shelter +0.1% m/m
- Core services ex-shelter 3-month annualized +2.9%
The shelter index increased 8.0% over the last year, accounting for over 60% of the total increase in all items less food and energy.
U.S. Treasury auctions off $18 billion of 30 year bonds at a high yield of 3.908%
- WI level at the time of the auction
- High yield 3.908%
- Tail: -1.1 basis points 6-month average 0.5bps
- Bid-to-Cover: 2.52X versus 6 month average 2.35X
- Directs (a measure of domestic demand): 18.13% versus 6-month average 19.2%
- Indirects (a measure of foreign demand): 72.91% versus 6-month average 68.9%.
- Dealers: 8.96% 6-month avg. 11.8%
BofA fund manager survey shows “the pain trade for risk assets is still up”
- How are fund managers positioned?
Here’s what Bank of America’s fund manager survey reveals.
Bottom line: pain trade for risk assets still up; true FMS cash levels lowest (5.1%) since Jan 22 but investors cut commodities to 3-year lows, still UW stocks, exclusively long IG bonds (8-year high) & tech as start of “soft” recession/Fed cuts punted to Q4/Q1 and inflation expectations sink to 28-year low; BofA Bull & Bear Indicator up to 3.7.
Al: Impact of Al adoption next 2 years – bullish…40% say higher profits, 2% say more jobs, 14% higher profits & Jobs, 29% say Al won’t increase profits or jobs.
Macro: growth expectations (net -62%) v low, China flip-flops back to pessimism but just 2% think inflation up next 12 months…consensus = “soft” landing (64%) not “hard” (26%) or “no” (3%); note Fed not done hiking say 59% (61% said opposite in May).
AA: allocators cut cash (19-month low), but also stocks (to 5 month low) despite FOMO bull price action, cut commodities (37-month low), raise real estate & alternatives.
Stocks: most crowded trade-long Big Tech (55%), then short China; Investors now long Japan (19-month high), reduce UW in US (6-month high), stay long tech, rotate to health care, banks, value>growth, and cut exposure to energy & staples.
FOMC Preview: Banks expect the Fed to take a break, but signal higher rates ahead
Markets expect rates to be kept steady after several Fed officials highlighted a skip. Forward guidance will be key.
Danske Bank
We expect the Fed to maintain rates unchanged. Focus will be on communication around potential hike in July & the updated dots. The Fed is unlikely to close the door for hikes, but we doubt they will materialize.
TDS
We maintain our long-held view that the Fed will tighten rates by a final 25 bps in June to a range of 5.25%-5.50%. If the Fed decides to ‘skip’ the June meeting, we expect the decision to be accompanied by communication that leans hawkish, signaling a likely hike for July. While a surprise Fed hike might provide some immediate knee-jerk support for the USD, the fact that it is likely the Fed’s last hike should reinforce that we’re nearing the end of the tactical rally.
Nordea
A pause is likely for the FOMC to digest economic data. Chairman Powell will likely stress at the press conference that the Fed is data-dependent but that it also has a hiking bias. We believe the Fed will raise the Fed funds rate at least one more time this year.
Rabobank
Given Powell’s bias toward a pause in June, we expect the FOMC to keep the target range for the federal funds rate unchanged this month. However, we expect the FOMC to leave the door to a July rate hike wide open to convince the hawks to skip June. Because of the reacceleration of the economy, and the modest impact of the banking turmoil on credit conditions, we now expect the FOMC to resume the hiking cycle in July in order to get inflation under control. For now, we expect one rate hike of 25 bps before the FOMC takes a pause for the remainder of the year.
RBC Economics
The Fed looks likely to pass on raising interest rates – though policymakers are talking about a ‘skip’ rather than a pause. The US unemployment rate ticked higher in May, and job openings have continued to fall. But labour markets are still exceptionally tight and have been more resilient than expected despite higher interest rates. Still, it takes time for tighter monetary policy to impact the economy and there are signs that inflation pressures are easing, even if it’s happening more slowly than policymakers would like.
Deutsche Bank
We expect the Fed to hold but raise rates in July. We expect the meeting statement, Summary of Economic Projections (SEP), dot plots, and Chair Powell’s press conference to skew hawkish, signalling the likely need for further policy tightening as soon as the July 26 meeting.
Wells Fargo
We see the most likely outcome for this week’s meeting as the FOMC making no change to its policy rate but making clear that another hike at its July 26 meeting remains a distinct possibility. If the Committee does decide to leave the fed funds rate unchanged, we would expect the statement to emphasize the significant amount of policy tightening undertaken in a little over a year and to keep the door open to potentially more tightening. The clearest indication that FOMC participants believe some further tightening is more likely than not probably will come from the Summary of Economic Projections (SEP). We think the median ‘dot’ for year-end 2023 will shift up by 25 bps relative to the March SEP. If so, then most FOMC members would be indicating that the target range for the federal funds rate needs to go at least 25 bps higher from its current setting of 5.00%-5.25%. We think the median dots for 2024 and 2025 will also rise by 25 bps each to reflect a similar pace of eventual policy easing as was the case in the March projections.
Credit Suisse
The FOMC appears likely to ‘skip’ hiking the Fed Funds rate at its June 14 meeting, but still signal that further hikes remain possible if not likely at subsequent meetings. The hawks probably need higher-than-expected CPI data on June 13 to shift the vote in favor of a June hike. If the FOMC does pause this month, we see a meaningful chance it will hike 25 bps in July.
ANZ
The resilience of recent activity data and ongoing sticky inflation suggest the FOMC should consider raising the fed funds rate (FFR) by 25 bps to 5.50%. However, based on recent Fed communication we think the central bank is leaning toward skipping a rate hike at this meeting and potentially tightening more later. We expect the FOMC to upgrade its GDP and inflation forecasts for 2023, and thus a higher terminal rate view is a possibility. The resilience of recent activity data has resulted in us upgrading our 2023 GDP forecast by 0.2ppt to 1.5%. We maintain our terminal FFR view of 5.50% and continue to see risks to the upside. We now expect peak rates to hold to mid-2024 from Q1 previously.
White House: We are starting to see a cooling in the housing market
- The White House talks about the housing market
I’m not sure what kind of timeline the White House is talking about here but the American Enterprise Institute’s housing center today upgraded its base case for US home prices to rise 4% this year and another 6% in 2024.
Cleveland Fed median CPI +0.4% vs +0.4% prior
- Underlying inflation data from the Cleveland Fed
- Prior was +0.4%
- 16% trimmed mean: +0.2% vs +0.3% prior
US May NFIB small business optimism index 89.4 vs 89.0 prior
- Latest data released by NFIB – 13 June 2023
- Prior 89.0
Commodities
Silver bears are making their moves ahead of the Fed
- Silver price is under pressure as traders await Fed.
- US CPI was mixed and Silver turns lower and eyes key support.
The Silver price was offered on Tuesday. Silver sold off following a mixed inflation report from the US and ahead of the Federal Open Market Committee’s interest rate decision, statement, projections and Chairman Jerome Powell’s press conference on Wednesday. At the time of writing, Silver was trading down some 1.60% after dropping $24.407 to a low of $23.668 so far.
Silver was sold off when traders noted the implications for sticky core inflation in the US. While the US Consumer Price Index edged up 0.1% last month after increasing 0.4% in April, core CPI increased 0.4% in May, rising by the same margin for the third straight month. The Greenback pared back initial knee-jerk losses as this is a number that is too high to be compatible with the Fed’s 2% inflation target, thus there are still chances that the FOMC will justify another 25-bp rise at the outcome of the FOMC meeting. Nevertheless, the money markets are pricing in a 95% chance the US central bank will decide to forgo an 11th straight interest-rate hike and keep the benchmark rate at 5.00% to 5.25% on Wednesday. Moreover, the rate futures market also trimmed bets on a Fed rate hike in July following today’s CPI report.
Gold could even trade lower if Fed leaves door open to further hikes – Commerzbank
Stage is set for the central banks. Strategists at Commerzbank discuss how the Fed meeting could impact Gold price.
Will the Fed meeting point the way for Gold?
No matter what decision is taken regarding interest rates, some market participants will be caught wrong-footed and will revise their view, which in turn means the Gold price could be in for a volatile session.
Because our economists believe that the Fed has concluded its rate hike cycle, we see more of an upside risk for Gold as far as its initial response to this week’s interest rate decision is concerned. Nonetheless, it is perfectly possible that the Fed will not yet clearly signal an end to the rate hikes but will leave itself the option of further tightening monetary policy for the time being.
Depending on how widely the Fed leaves the door open to future rate hikes, the price-positive effect of any decision not to raise interest rates just now could evaporate very quickly.
In March, only 7 of the 18 FOMC members regarded higher interest rates than the current level as appropriate. If this number rises significantly, the market is likely to bet increasingly on a rate hike in July. In this case, Gold could even end up trading lower than it was before the meeting.
Crude oil is higher on the day but still stays below the $70 level
- 38.2% retracement of the move down from last week’s high at $69.96
The price of crude oil did rally sharply today with the price settling at $69.42 up $2.30 or 3.43%.The high price extended to $69.83. The low was at $67.15.
Looking at the hourly chart above, the run to the upside today stalled just short of the 38.2% retracement of the run down from the June 5 high (at high was at $75.05). The 38.2 retracement level comes in at $69.96 – just short of the natural resistance at $70.
US to buy about 12 million barrels of oil in 2023
- Continuing to search for opportunities to add to reserves
The US government is in the oil trading business now.
The 12 million barrels includes the 3 million already announced for Aug and Sept.
US State Dept says it’s completely false that there is an interim nuclear deal with Iran
- Maybe some word play at work here
Oil prices sank last week on a pair of reports in the Middle Eastern press that there was an interim deal on the table. There was never a report that an interim deal was done.
OPEC maintains demand outlook for the year but warns on economic risks
- OPEC comments in its latest monthly report on the oil market
- World oil demand to rise by 2.35 mil bpd in 2023 (no change to previous forecast)
- China oil demand to rise to 840k bpd (up from 800k bpd previously)
- Sees world economic growth at 2.6% this year
- But there are rising uncertainties amid high inflation, rising interest rates
- It is also still unclear how and when Easter Europe geopolitics might be resolved
EU News
European equity close: Everyone in the boat
- Closing changes
- Stoxx 600 +0.6%
- German DAX +0.8%
- UK FTSE 100 +0.4%
- French CAC +0.7%
- Spain IBEX -0.1%
- Italy MIB +0.7%
Germany June ZEW current conditions -56.5 vs -40.0 expected
- Latest data released by ZEW – 13 June 2023
- Prior -34.8
- Economic sentiment -8.5 vs -13.1 expected
- Prior -10.7
Germany May final CPI +6.1% vs +6.1% y/y prelim
- Latest data released by Destatis – 13 June 2023
- Prior +7.2%
- HICP +6.3% vs +6.3% y/y prelim
- Prior +7.6%
Spain May final CPI +3.2% vs +3.2% y/y prelim
- Latest data released by INES – 13 June 2023
- Prior +4.1%
- HICP +2.9% vs +2.9% y/y prelim
- Prior +3.8%
BOE’s Dhingra: Inflation still far too high relative to our target
- Comments from BOE dove Swati Dhingra
- There is no doubt that inflation, whilst beginning to ease off its peak last year, is still far too high relative to our two per cent target
- Monetary policy’s effects on inflation are not immediate due to transmission lags, necessitating careful economic monitoring to adjust the stance in the medium term.
- The improved collection of mortgage data aids in understanding monetary policy’s influence on the housing market.
- Despite the overall effectiveness of policy transmission to retail borrowing rates, the current cycle is likely to be slower due to a high stock of fixed-rate mortgages, which delays the effects of a higher Bank Rate.
- Current economic data suggests a slow recovery from major supply shocks, accompanied by ongoing hardship for the most disadvantaged in society.
- Monetary policy, although unable to directly address structural and distributional issues, aims to sustainably return inflation to target in the medium term, and developing a robust data and analytic infrastructure is essential for understanding and addressing transmission of shocks.
BOE appointee Greene: It is reasonable to expect inflation to come down fairly quickly
- Remarks by incoming BOE policymaker, Megan Greene
- Inflation should come down over the next year
- Important not to allow inflation expectations to become de-anchored
- Engaging in stop-start monetary policy can end up with a worse outcome
UK May payrolls change 23k vs -135k prior
- Latest data released by ONS – 13 June 2023
- Prior -135k; revised to 7k
- April ILO unemployment rate 3.8% vs 4.0% expected
- Prior 3.9%
- April employment change 250k vs 162k expected
- Prior 182k
- April average weekly earnings +6.5% vs +6.1% 3m/y expected
- Prior +5.8%; revised to +6.1%
- April average weekly earnings (ex bonus) +7.2% vs +6.9% 3m/y expected
- Prior +6.7%; revised to +6.8%
BOE’s Bailey: Latest jobs data shows a very tight labour market
- Comments from Bailey after today’s jobs report
- Labour supply is recovering very slowly
- Firms are reluctant to make people redundant
Other News
China May M2 money supply +11.6% vs +12.1% y/y expected
- Latest Chinese credit data for May 2023 has been released
- Prior +12.4%
- New yuan loans ¥1,360.0 billion vs ¥1,600.0 trillion expected
- Prior ¥718.8 billion
China reportedly considering broad stimulus package to bolster economic support
- Bloomberg reports, citing people familiar with the matter
The package is said to include at least a dozen stimulus measures, encompassing interest rate cuts to support the property sector as well as spur domestic demand. It is reported that a key part of the proposed package is to support the real estate market but the plan is yet to be finalised and may be subject to change.
Trump booked in Florida court room ahead of arraignment
- Donald Trump arrives at federal courthouse in Miami to face secret document charges
Trump is facing 37 charges including the wilful retention of national defense information, conspiracy to obstruct justice and concealing a document in a federal investigation. The charges carry a threat of significant prison time if he is convicted.
Trump is not expected to be handcuffed or have his mugshot taken.
Update: Trump pleads ‘not guilty’ to all counts
The two-day FOMC meeting gets underway in Washington
- Fed officials begin the meeting
- The meeting got underway at 10:30 am ET as scheduled
The market is pricing just a 4.7% chance of a hike, given the miss on headline CPI. The big question now is: How forcefully will Powell push towards hiking again in July. He can’t pre-commit given the data uncertainty so I think he will come off as dovish. At the same time, the dot plot could offer a strong indication of a hike and a higher-for-longer scenario.
Cryptocurrency News
SEC vs. Binance update: Judge attempts to broker a compromise
- The Judge presiding on the hearing issued a new order, attempting to get the entities to compromise on Binance-related assets in the US.
- The US SEC and Binance have both presented their understanding of a negotiated temporary freeze or expedited discovery plan.
- A court hearing is likely by 2 PM EDT and the SEC vs. Binance case remains on a fast track.
Binance, the largest cryptocurrency exchange by volume, argues that the Securities & Exchange Commission’s (SEC) temporary restraining order would effectively end the exchange’s business in the US.
In an unexpected move, the Judge set to preside over the hearing on Tuesday ordered the two entities to compromise and present a negotiated temporary freeze plan.
Binance and SEC submit an expedited discovery plan ahead of June 13 hearing
The US financial regulator is keen on freezing Binance US funds, while the exchange argues that the SEC’s move is “draconian” and will effectively end BAM Trading Services’ operations. Binance urged the court to deny the SEC’s motion to freeze the exchange’s funds.
In an unprecedented move, the judge asked both entities to come to an agreement on a negotiated temporary freeze or an expedited discovery plan and present their understanding by 1 PM EDT. The two parties worked on the tight deadline and are still awaiting a hearing, likely to occur at 2 PM EDT.
Follow our recently launched pages. Join our community and never miss a beat in the dynamic world of trading.
https://www.facebook.com/BilalsTechLtd
https://www.linkedin.com/company/bilals-tech/
