North American News
US Equities End on a Challenging Note as Value Stocks Face Difficulties
- Closing changes for the main US indexes
- S&P 500 -0.2%
- Nasdaq Comp -0.2%
- Russell 2000 -1.3%
- DJIA -0.4%
US May factory orders +0.3% vs +0.8% expected
- US May 2023 factory orders data
- Orders up in 5 of the past 6 months
- Prior was +0.4% (revised to +0.3%)
- Ex transport -0.5% vs -0.2% prior (revised to -0.6%)
Revisions to durable goods:
- Durable goods orders +1.8% versus +1.7% preliminary.Last month +1.2%
- Durable goods ex-defense +3.0% versus +3.0% preliminary.Last month +-0.5%
- Durable goods ex-transportation +0.7% vs +0.6% preliminary.Last month -0.6%
- Nondefense capital goods ex-air +0.7% vs +0.7% preliminary. Last month -0.2% (revised to -0.6%)
FOMC Minutes: Some participants favored or could have favored 25 bps hike
- The minutes of the June 13-14 FOMC decision
- Those favoring hike noted tight labor market, stronger economic momentum and little evidence of inflation on path to 2%
- Fed staff saw mild recession likely to start later this year
- Almost all participants jusuged it appropriate or acceptable to leave rates unchanged
- A few participants noted potential for upward pressure on money market rates as Treasury increased bill issuance
- Almost all participants stated that upside risks to inflation might become unanchored
- The staff’s inflation forecast was little revised relative to the previous projection with inflation at 3.0% this year, with core inflation at 3.7%
- On balance, the staff saw the risks around the baseline inflation forecast as tilted to the upside
- In 2025, both total and core PCE price inflation were expected to be close to 2 percent.
Notable lines:
A few participants mentioned that while, overall, the household sector still retained much of the excess savings it had accumulated during the pandemic, there were signs that consumers were facing increasingly tighter budget constraints, given high inflation and, especially for low-income households, depleted savings.
a few participants noted that their District contacts reported less difficulty in hiring and retaining workers, lower turnover rates, and some layoffs.
a few participants pointed to upside risks to the outlook for housing services inflation associated with near-record low inventories of homes for sale, solid housing demand, and less-than-expected deceleration recently in measures of rents for leases signed by new tenants
Fed’s Williams says he is not happy with where inflation is at present
Federal Reserve New York head Williams
- I’m not content with where inflation is right now
- Fighting inflation remains Fed’s main job
- Sees progress on inflation but price pressures still too high
- Pandemic factors driving inflation have eased
- Economy still has strong demand for labor
- ‘A bit of a surprise” to see resilience of housing market
- Economy has handled rate hikes ‘reasonably well’
- Surprised by the stability of natural rate level
- Inflation’s ultimate fate is up to the fed
- Inflation expectations have been “remarkably well anchored”
- Fed still has work ahead to balance demand and supply
- Fully supported fed’s decision to hold steady on rates at June FOMC
- Slowing down on rate rises makes sense right now
- Is data dependent when it comes to future Fed actions
Commodities
Gold plunges below the 20-day EMA post-Fed hawkish minutes
- Gold prices take a hit, dropping below the 20-day EMA, after the Federal Reserve hints at a potential rate hike in July.
- The resurgent US Dollar and soaring Treasury bond yields further tighten the screws on the precious metal’s bullish momentum.
- Despite a unanimous decision for a June pause, officials’ concerns over a tight labor market point to a looming rate increase.
- Market expectations for July rate hikes remained high, with odds at 88.7%
Gold price snaps three days of gains, tumble below the 20-day Exponential Moving Average (EMA), after the US Federal Reserve (Fed) release of June’s monetary policy meeting minutes, which were tilted hawkish, with officials worried about the tightness of the labor market. Although most officials agreed to a June pause, a July rate hike is almost inevitable. At the time of writing, the XAU/USD exchanges hands at $1916.80, down 0.44% after reaching a high of $1934.97
Crude oil settles at $71.79
- Up $2 or 2.87%
WTI crude oil futures are settling at $71.79. That’s up an even $2 on the day or 2.87%. The high price today reached $72.17. The low price was at $69.90. The high price from June 21 reached $72.72. That is the next upside target. Above that the high price from June 8 reached $73.28, and the falling 100-day moving average at $73.98 would be targeted.
Oil holds gains above $70, and that’s where Morgan Stanley expects it to stay
- Range trade in oil through 2024?
The API private oil inventory data is due out later today and will be the next market mover for crude; though it usually leaks early. We’re now past the period of seasonal strength for oil but we’re into a period of voluntary production cuts from Saudi Arabia and Russia. The US SPR release are now finally done.
A deficit in the oil market is now widely expected to persist for the next few months, and potentially further if the voluntary cuts continue.
The risks are mostly to the downside if OPEC+ cracks or decides to squeeze shale once again.
Morgan Stanley lowers oil price forecast, sees surplus for first-half of next year
- The firm cuts its Brent crude forecast for Q3 to $75 from $77.50 previously
They also lowered the forecast for Q4 by $5 to $70 per barrel. Meanwhile, they cut the forecasts for 2024 by $5 across the board as well with Q1 being $70, Q2 being $72.50, and Q3 and Q4 being $75 and $80 respectively.
“Despite low investment, non-OPEC+ supply has been growing robustly and supply from Iran and Venezuela has been creeping higher. We still model stock draws in Q3 but expect oil price softness to continue as the market’s focus shifts to 1H 2024 when balances look in surplus.”
Kuwait wants to pump more oil
- Al Arabyia report
Oil came under some pressure after an Al Arabyia report said Kuwait, citing the oil minister, said the country looked to increase its production quotas, but will abide by OPEC decisions.
EU News
European equity close: Steady selling all day
- Closing changes in Europe
- Stoxx 600 -0.8%
- German DAX -0.7%
- FTSE 100 -1.0%
- French CAC -0.9%
- Italy MIB -0.6%
- Spain IBEX -1.2%
Eurozone May PPI -1.9% vs -1.8% m/m expected
- Latest data released by Eurostat – 5 July 2023
- Prior -3.2%
- PPI -1.5% vs -1.3% y/y expected
- Prior +1.0%; revised to +0.9%
Eurozone June final services PMI 52.0 vs 52.4 prelim
- Latest data released by HCOB – 5 July 2023
- Prior 55.1
- Composite PMI 49.9 vs 50.3 prelim
- Prior 52.8
Germany’s Scholz backs the ECB in tackling inflation
- Scholz says that they cannot keep carrying on with 0% interest rates
Well, this is what you’d expect from Germany as they have always took the more hawkish position when voicing their policy stance.
Germany June final services PMI 54.1 vs 54.1 prelim
- Latest data released by HCOB – 5 July 2023
- Prior 57.2
- Composite PMI 50.6 vs 50.8 prelim
- Prior 53.9
France June final services PMI 48.0 vs 48.0 prelim
- Latest data released by HCOB – 5 July 2023
- Prior 52.5
- Composite PMI 47.2 vs 47.3 prelim
- Prior 51.2
UK June final services PMI 53.7 vs 53.7 prelim
- Latest data released by S&P Global – 5 July 2023
- Prior 55.2
- Composite PMI 52.8 vs 52.8 prelim
- Prior 54.0
Italy June services PMI 52.2 vs 53.0 expected
- Latest data released by HCOB – 5 July 2023
- Prior 54.0
- Composite PMI 49.7
- Prior 52.0
Spain June services PMI 53.4 vs 55.5 expected
- Latest data released by HCOB – 5 July 2023
- Prior 56.7
ECB’s Nagel: Interest rates must rise further
- Remarks by ECB policymaker, Joachim Nagel
- Too early to say how far
- Wary of proclaiming a new era of high interest rates
- Price stability won’t come about by itself
ECB’s Visco: I don’t agree with idea of tightening too much over tightening too little
- Further remarks with Visco
- Can also aim to maintain rates adequately high for a sufficient period of time
- Rate decision is taken on a meeting by meeting basis, depending on incoming data
That’s as clear a message that he does not support the idea of a rate hike beyond July (or maybe even the July move itself). He says that he does not understand the sentiment by his colleagues who would prefer the risk of tightening too much rather than tightening too little.
Eurozone consumers lower inflation expectations for the year ahead – ECB poll
- But prices are still seen growing faster than the ECB would like
The consumer inflation expectations for the next 12 months is seen dropping to 3.9% in May, down from 4.1% previously in April. Meanwhile, the consumer inflation expectations for 3 years ahead remains stable at 2.5%.
Citi slashes euro area 2023 GDP growth forecast to 0.8% from 1.1% previously
- German growth cut to near stagnation as the outlook darknes
Of note, the firm is revising lower the GDP growth forecast for Germany to 0.2% from 1.0% previously. That is somewhat offset by a revision higher for Italy to 1.3% from 0.4% previously though. But with Germany being the backbone of the euro area economy, the cut there hurts more.
Other News
The good news is that there is spare capacity at another germanium mine
- The bad news is that it’s in Russia
China this week announced restrictions on germanium and gallium in retaliation for US restrictions on AI chips. That’s set off fears of a tit-for-tat escalation that some fear could include lithium production, which is dominated by China.
Regarding germanium, some of the largest available reserves are owned by Russian state conglomerate Rostec and it notes that its holdings are operating at just 30% of capacity. It says it’s ready to speed up production, but only to cover Russia’s internal demand.
More broadly, there will surely be a bonanza in exploration and development of rare earth metals.The US already revealed a subsidy program and it will likely be expanded and accelerated.
Japan sees biggest average wake hike since 1993
- According to Japan’s largest trade union confederation, Rengo
This just confirms what we already knew from the spring wage negotiations back in March, with Rengo noting that the average wake hike for 2023 is seen at 3.58% – the biggest increase since 1993.
Singapore’s central bank head says fight against inflation not over yet
Managing Director of the Monetary Authority of Singapore (MAS) Menon says the fight against inflation is not yet over.
Comments from Menon and the MAS’ report
- Growth will remain weak in the near term
- MAS not switching from inflation-fighting mode to growth-supporting mode
- Singapore well-positioned for a second GST hike in 2024 if inflation falls to 2.5%-3% in q4
- MAS lowers forecastrange for 2023 headline inflation to 4.5% to 5.5%, vs previous 5.5%to 6.5%
- Singapore should see further reductions in inflation by year-end
- Singapore’s growth prospects have dimmed, economy to operate slightly below underlying capacity
- MAS recorded net loss of S$30.8 bln for FY 22/23, reflecting effects of monetary policy tightening
- MAS stands ready to provide liquidity to ensure Singapore’s financial system remains stable
- Core inflation expected to end the year significantly lower at 2.5% to 3.0%
- Monetary policysteadfastly focused on medium-term price stability
- 2023 GDP growth is projected at the midpoint of 0.5% to 2.5% range,moderating from 3.6% in 2022
Cryptocurrency News
Valkyrie updates spot Bitcoin ETF filing, partners with Coinbase to challenge SEC’s criticism
- Valkyrie joined the band of asset managers after updating its filing for a spot Bitcoin ETF on Wednesday, naming Coinbase as its SSA counterpart.
- Just this Monday, BlackRock, as well as exchange CBOE, refiled their applications following the SEC’s comments of the previous filings being unclear and incomplete.
- Bitcoin price slipped below $31,000 after marking a 13-month high but is holding above $30,000.
Valkyrie, an asset management firm, was among the first few applicants for a spot Bitcoin exchange-traded fund (ETF) last month.These applicants included the likes of BlackRock, the biggest asset manager in the world, as well as Fidelity and many more. However, the US Securities and Exchange Commission (SEC) came down on the applicants, virtually rejecting them.
Valkyrie goes for Bitcoin ETF again
Valkyrie is set to challenge the SEC’s comments of the previous spot Bitcoin ETF filings being unclear and incomplete. The regulatory body noted that the applications were inadequate, leading the applicants to look for a surveillance-sharing agreement (SSA) counterpart. The surveillance partner enables sharing of information with regulators to prevent market manipulation and other unwanted behaviors.
Coinbase emerged as the solution as BlackRock, Chicago Board Options Exchange (CBOE), and now Valkyrie, too, opted to choose the exchange as the SSA counterpart.
This decision came despite the fact that the SEC is actively pursuing a lawsuit against Coinbase for violating Securities law.
Valkyrie stood out of the pack as the asset manager chose to update its earlier filing. The rest of the applicants submitted a fresh 19b-4 filing addressing the SEC’s concerns.
Analyst predicts XRP price rally to new all-time high of $9
- XRP price is recovering from its decline post-SEC crackdown in June, while holders await verdict in SEC vs. Ripple lawsuit.
- A crypto analyst has identified the formation of a bullish pattern in the XRP chart that could trigger a massive price rally.
- The analyst has set a bullish target of $9 in the event that XRP price follows the historical trend.
XRP price suffered a steep decline in response to the Securities and Exchange Commission’s (SEC) lawsuit against Ripple in 2020 and took another hit after the financial regulator’s crackdown on cryptocurrencies in June 2023.
The altcoin’s price plummeted 10.42% in the week following the SEC’s crackdown in June.
Since then, XRP price recovered to the $0.4876 level.
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