Round up of today’s market news

North American News

Nasdaq and S&P 500 Hit Record Highs, Dow Edges Lower

In a holiday-shortened session, the Nasdaq Composite (+0.9%) and S&P 500 (+0.5%) surged to new record highs, driven by robust gains in mega-cap tech stocks. The Russell 2000 (+0.1%) and S&P Mid Cap 400 (+0.3%) also posted gains. However, the Dow Jones Industrial Average (-0.1%) closed slightly lower, impacted by a decline in United Healthcare (UNH 489.89, -8.35, -1.7%).

Notable performers included NVIDIA (NVDA 128.28, +5.61, +4.6%), Broadcom (AVGO 1729.22, +71.74, +4.3%), Tesla (TSLA 246.39, +15.13, +6.5%), Apple (AAPL 221.55, +1.28, +0.6%), Microsoft (MSFT 460.77, +1.49, +0.3%), and Alphabet (GOOG 187.39, +0.78, +0.4%). Their gains propelled the S&P 500 information technology sector to lead the market, rising 1.5%. Materials (+0.8%) and utilities (+0.6%) sectors were also strong performers.

The health care sector (-0.7%) lagged, with declines in UNH and Eli Lilly (LLY 898.10, -8.61, -1.0%) dragging it down.

Falling Treasury yields created an upside catalyst for stocks, with the 10-year note yield dropping nine basis points to 4.35% and the 2-year note yield falling four basis points to 4.70%. This move in Treasuries responded to weaker-than-expected economic data, including the ADP Employment Change Report, which showed slowing payroll growth, and the ISM Non-Manufacturing Index, which indicated a contraction in service sector activity.

Key Economic Data:

• Weekly MBA Mortgage Applications Index: -2.6% (Prior: 0.8%)
• June ADP Employment Change: 150K (Consensus: 163K; Prior revised to 157K from 152K)
• Weekly Initial Claims: 238K (Consensus: 235K; Prior revised to 234K from 233K); Continuing Claims: 1.858 million (Prior revised to 1.832 million from 1.839 million)
  • Key Takeaway: Initial jobless claims increased but remain below recession levels, although continuing claims suggest finding new employment is becoming more challenging.
• May Trade Balance: -$75.1 billion (Consensus: -$76.0 billion; Prior revised to -$74.5 billion from -$74.6 billion)
  • Key Takeaway: Both exports and imports declined, indicating softer trade demand in May.
• June S&P Global US Services PMI – Final: 55.3 (Prior: 55.3)
• May Factory Orders: -0.5% (Consensus: 0.3%; Prior revised to 0.4% from 0.7%)
  • Key Takeaway: Business spending dropped in May, aligning with a slowdown in manufacturing activity seen in the advance report for durable goods.
• June ISM Non-Manufacturing Index: 48.8% (Consensus: 52.5%; Prior: 53.8%)
  • Key Takeaway: The contraction in the nation’s largest sector reinforces market expectations that the Fed will start cutting rates before the end of the year.

As a reminder, US markets will be closed tomorrow in observance of Independence Day.

Year-to-Date Performance:

• Nasdaq Composite: +21.2%
• S&P 500: +16.1%
• S&P Midcap 400: +4.9%
• Dow Jones Industrial Average: +4.3%
• Russell 2000: +0.5%

Atlanta Fed GDPNow growth estimate for 2Q falls to 1.5% from 1.7%

• Suddenly the growth is below trend growth near 2%

The Atlanta Fed GDPNow growth estimate for 2Q falls to 1.5% from 1.7% after recent data.In their own words:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2024 is 1.5 percent on July 3, down from 1.7 percent on July 1.After this morning’s releases from the US Census Bureau, the US Bureau of Economic Analysis, and the Institute for Supply Management, the nowcasts of second-quarter real personal consumption expenditures growth and second-quarter real gross private domestic growth decreased from 1.5 percent and 6.9 percent, respectively, to 1.1 percent and 6.5 percent, while the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from -0.94 percentage points to -0.78 percentage points.

ISM nonmanufacturing PMI for June 48.8 versus 52.5 estimate

• ISM nonmanufacturing PMI for June 2024

• Prior month 53.8
• business activity index 49.6 versus 61.2 last month
• employment 46.1 versus 47.1 last month
• new orders 47.3 versus 54.1 last month
• prices paid 56.3 versus 58.1 last month

S&P global services PMI index for June (final) 55.3 versus 54.8 last month

• S&P global services and composite indices for June 2024

• Global services PMI last month 54.8
• S&P global services PMI index for June 55.3 vs 51.1
• S&P global composite PMI index for June 54.8 versus 54.6 preliminary
• Prior month composite index 54.5

Details from the service sector:

• Growth momentum in the US service sector improved in June, with sharper increases in business activity and new orders.
• Workforce numbers increased for the first time in three months despite growing backlogs.
• Rates of input costs and output prices eased but remained above pre-pandemic levels due to higher labor costs.
• S&P Global US Services PMI® Business Activity Index rose to 55.3 in June from 54.8 in May, marking the highest expansion since April 2022.
• Increase in customer numbers and successful marketing contributed to new order growth.
• New business expanded at the fastest pace in a year despite weak demand from abroad, particularly Europe.
• Employment in the sector rose, ending a two-month decline, with job creation at its highest since May 2023.
• Service providers faced capacity challenges due to job cuts and quicker inflow of new business, leading to a slight increase in outstanding business.
• Input cost inflation softened but remained above pre-pandemic levels, mainly due to staff pay increases.
• Service providers increased selling prices in response to higher operating costs, continuing a trend since June 2020.
• Business confidence reached a five-month high, driven by new order increases and expectations of lower interest rates.
• Some firms anticipated that post-election stability would further support growth by ending client hesitancy to commit to new projects.

Comments from Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:

• “US service sector companies reported an encouragingly solid end to the second quarter, with output rising at the fastest rate for over two years. Both new order inflows and hiring have also accelerated, the latter buoyed by firms taking on more workers in response to rising backlogs of work.”Technology, which saw a decline.
• “With additional – albeit more muted – support coming from the manufacturing sector, the survey data point to GDP rising at an annualized 2.0% rate in the second quarter, with a 2.5% rate seen for June. Forward momentum is therefore gathering pace.”
• “There is some nervousness creeping in regarding the post-election business environment, but for now at least confidence about the outlook for the coming year remains elevated by recent standards and supportive of businesses investing in expansion.”
• “Some of this optimism relates to ongoing convictions that interest rates will start to fall before the end of the year. In this respect, a further cooling of price pressures in the survey – notably in the services sector – adds to signs that inflation should trend lower in the coming months to open the door further for rate cuts.”

US initial jobless claims 238K versus 235K estimate

• The weekly US initial and continuing jobless claims

• Prior week 233K revised to 234K
• initial jobless claims 238K versus 235K estimate
• 4-week moving average of initial jobless claims 238.5K vs 236.25K last week
• Continuing jobless claims 1.858M versus 1.840M estimate
• Continue claims last week 1.839M revised to 1.832M
• 4-week moving average of continuing claims 1.831M versus 1.814M . This is the highest level since December 4, 2021

US factory goods orders for May -0.5% versus 0.2% estimate

• US factory goods orders for May 2024 details

• Prior month 0.7%
• Factory goods orders MoM -0.5% versus 0.2% estimate
• Factory orders ex transportation MoM -0.7% vs 0.7% last month revised 2+0.5%
• Durable goods orders +0.1% vs the preliminary 0.1% gain (released six days ago). Prior month 0.2%
• Durable goods ex- transportation -0.1% vs -0.1% preliminary. Prior month 0.4%
• Durable goods nondefense capital expenditures/ex air -0.6% vs -0.6% preliminary. Last month +0.3%
• Durable goods ex-defense -0.2% vs -0.2% preliminary. Last month -0.5%

ADP National employment data for June 150K versus 160K estimate

• ADP National employment data for June 2024 details

• Prior month 152K revised higher to 157K
• goods +14 K
• services it was 138K
• small firms +5K
• median +88K
• large companies +58K
• leisure and hospitality 63K
• construction 27K
• professional and business services +25K
• trade and transportation/utilities +15K
• natural resources/mining -8K
• The median wage for job stayers came in at 4.9% YoY versus 5.0% last month. For job changers, the wages rose 7.7% versus 7.8% last month.

US MBA mortgage applications w.e. 28 June -2.6% vs +0.8% prior

• Latest data from the Mortgage Bankers Association for the week ending 28 June 2024

• Prior +0.8%
• Market index 206.5 vs 212.0 prior
• Purchase index 142.9 vs 147.8 prior
• Refinance index 544.1 vs 552.4 prior
• 30-year mortgage rate 7.03% vs 6.93% prior

US international trade deficit for May $-75.1 billion versus -$76.2 billion estimate

• US international trade deficit for May 2024

• Prior month $-74.6B
• US international trade $-75.1B vs $-76.2 billion estimate.
• Goods trade balance $–99.37B vs $-100.68 prior month
• services trade surplus $25.1 billion
• export $261.7 billion or -0.7%
• imports $336.7 billion or -0.3%

US June Challenger layoffs 48.79k vs 63.82k prior

• Latest data released by Challenger, Gray & Christmas, Inc. – 3 July 2024

US-based employers announced 47,786 job cuts in June, which is roughly 20% higher than the same month a year ago. The monthly pace of layoffs has been easing a touch since February, so that’s a slight positive.

FOMC meeting minutes: vast majority saw growth gradually cooling

• Discover insights from the latest FOMC meeting minutes where the majority of participants anticipate a slowdown in economic growth. Find out how policy may respond to unexpected weaknesses and inflation challenges.

The FOMC meeting minutes have been released from the June meeting:

• Vast majority of participants at Fed’s June 11-12 meeting assessed U.S. economic growth appeared to be gradually cooling, minutes show
• Most participants saw current policy stance as restrictive
• A number of participants said policy should stand ready to respond to unexpected economic weakness
• Several specifically emphasized further demand weakening could generate a larger unemployment response than in recent past
• Several participants said if inflation were to persist at elevated level or rise further, funds rate might need to be raised
• Participants saw ‘modest further progress’ toward committee’s 2% inflation objective in recent months
• May’s CPI reading was seen by participants as providing additional evidence of progress toward inflation goal
• Participants suggested a number of developments in product and labor markets supported their judgment that price pressures were diminishing
• Fed staff economic projection similar to that of previous policy meeting
• Participants saw ‘modest further progress’ toward committee’s 2% inflation objective in recent months
• Several participants said if inflation were to persist at elevated level or rise further, funds rate might need to be raised
• May’s CPI reading was seen by participants as providing additional evidence of progress toward inflation goal
• Participants suggested a number of developments in product and labor markets supported their judgment that price pressures were diminishing
• Fed staff economic projection similar to that of previous policy meeting

Fed’s Williams casts doubt over rise in neutral rate

• Williams doesn’t touch on monetary policy, just mainly talking about the real neutral rate of interest

• The value of R-Star is always highly uncertain
• But the case for a sizable increase has yet to meet two important tests
• Recent data reinforce the continuation of pre-pandemic trends in global demographics and productivity growth
• One should not overly rely on estimates of R-Star in determining appropriate monetary policy setting at a given point in time

Reminder: US markets will be closed tomorrow

• It is the 4th of July celebrations

Deutsche Bank’s four key risks for H2 of the year

• Data, fiscal policy, sticky inflation, tighter policy to impact still further

DB on key risks ahead for the second half of 2024, with a more general warning mixed in that “surprises can be just around the corner”

1. Economic data has been surprising on the downside over recent weeks
2. Investors are becoming more nervous about fiscal policy given higher levels of debt and interest rates
3. Inflation lingering above target
4. Monetary policy lags that are still working through
5. central banks such as the Fed are still running down their balance sheets
6. fixed-rate borrowers are refinancing at higher rates

Canada trade balance for May C$-1.93 billion versus C$-1.2 billion estimate

• Canada trade balance

• Prior month C$-1.32 billion revised from C$-1.05 billion. The deficit has been negative for three consecutive months
• Trade balance for May 2024 C$-1.93 billion versus C$-1.20 billion
• exports Canadian dollars C$62.45 billion versus C$64.11 billion last month
• imports C$64.37 billion versus C$65.43 billion last month

Commodities

Gold Climbs as FOMC Minutes Leave USD Steady

Gold prices rose sharply on Wednesday, driven by weak US economic data and increasing expectations of a Federal Reserve rate cut. The latest FOMC minutes revealed a readiness to hike rates if inflation persists, though the current policy is viewed as restrictive.

Gold Jumps on Soft US Data and Fed Rate Cut Bets

Gold prices climbed over 1% to trade around $2,356, following softer-than-expected US economic data that bolstered bets on a Federal Reserve rate cut by September. The FOMC minutes showed that several participants were prepared to raise rates if inflation remained high, but acknowledged that the current policy is restrictive and that the economy is cooling.

The ISM Services PMI for June fell sharply to 48.8, its lowest level since May 2020, indicating recessionary conditions. Additionally, US Initial Jobless Claims for the week ending June 29 rose to 238,000, surpassing estimates of 235,000, and the ADP Employment Change for June came in at 150,000, missing expectations of 160,000 and down from May’s 157,000.

Federal Reserve Chair Jerome Powell noted on Tuesday that the disinflation process has resumed but emphasized the need for further progress before considering rate cuts. He stated, “Because the US economy is strong and the labor market is strong, we have the ability to take our time and get this right.”

The FedWatch Tool now shows a 66% chance of a 25-basis-point rate cut in September, up from 63% on Tuesday. Futures for the December 2024 fed funds rate imply a 38 basis point policy easing by the end of the year.

As investors turn their attention to Friday’s Nonfarm Payrolls report, US markets will be closed on Thursday for Independence Day.

Oil Climbs by $1, Closing at $83.88 Amid Strong Travel Demand and Huge Inventory Draws

WTI crude oil rose by $1.07, closing the day at $83.88 per barrel, marking its fourth consecutive week of gains. The increase was driven by strong US travel demand during the extended 4th of July weekend, which saw record-breaking air bookings. Additionally, a substantial drawdown in US oil inventories and a hurricane in the Atlantic contributed to the price boost.

Initially, there was a ‘sell the fact’ reaction following the report of a 12 million barrel inventory draw. However, WTI crude stabilized at $82.50 and subsequently climbed over $1.30, ending the day at its peak.

US crude oil inventories show a larger than expected drawdown of -12.157M vs -0.680M est.

• Weekly EIA crude oil inventory data

The weekly EIA oil inventory data shows :

• Crude stocks down 12.157 million barrels to 448.54 million, vs forecast of 0.7 million barrel draw
• Gasoline stocks down 2.214 million barrels to 231.67 million, vs forecast of 1.3 million barrel draw
• Distillate stocks down 1.535 million barrels to 119.73 million, vs forecast of 1.2 million barrel draw
• Cushing up 345,000 barrels to 34.24 million.Last week -0.226M
• Heating oil stocks down 572,000 barrels to 7.14 million
• Net crude imports down 555,000 barrels per day to 2.15 million barrels per day
• Ethanol output up 21,000 barrels per day to 1.06 million barrels per day
• Crude exports up 491,000 barrels per day to 4.4 million barrels per day
• Ethanol stocks up 171,000 barrels to 23.59 million

Oil: Private survey of inventory shows a much larger headline crude oil draw than expected

• This is from the privately surveyed oil stock data ahead of official government data tomorrow morning out of the US.

• Crude -9.163 million (Exp -150,000)
• Gasoline +2.468 million
• Distillates -740,009
• Cushing +404,000
• SPR +0.4 million

Massive crude oil inventory draw supports case for higher Brent

• To USD90 and beyond

Analysts at Standard Chartered have a US$90 target, and beyond, in sight:

• From a fundamental viewpoint, we still think the rally can be sustained well past USD 90/bbl given our projected Q3 and Q4 global oil balances

EU News

European shares closed today with solid gains

• Major indices up over 1% (sans the UK FTSE 100 ahead of the election tomorrow)

Closing numbers:

• German DAX, +1.16%
• France CAC, +1.24%
• UK FTSE 100, +0.61%
• Spain’s Ibex +1.32%
• Italy’s FTSE MIB +1.09%

Eurozone June final services PMI 52.8 vs 52.6 prelim

• Latest data released by HCOB – 3 July 2024

• Prior 53.2
• Composite PMI 50.9 vs 50.8 prelim
• Prior 52.2

Both the services and composite readings are three-month lows, reaffirming a slowdown in the economy towards the end of Q2. Of note, demand for euro area goods and services decreased for first time since February. The good news is that as a whole, price pressures are seen cooling a bit more but are still above pre-pandemic levels. Looking to individual performances, the German economy is seen more sluggish in June and is the main drag but should rebound back in July amid the Euro 2024 tournament. HCOB notes that:

“Growth in the Eurozone can be attributed fully to the service sector. While the manufacturing sector weakened considerably in June, activity growth in the services sector continued to be nearly as robust as the month before. Considering the upward revision versus the preliminary flash PMI figures, the chances are good that service providers will remain the decisive force keeping overall economic growth in positive territory over the rest of the year.

“Encouragingly, the recovery in the service sector is mostly broad-based when considering the top four Eurozone economies. In June, Spain was again well ahead of Germany and Italy, but both showed a fast growth pace. Only France’s service providers were unable to increase their activity. In a sign of optimism, companies hired more people in all top four euro countries, which is in line with the view from survey respondents that activity will be much higher in a year from now, especially in Italy, where the mood has improved from an already good level.

“The European Central Bank (ECB), which cut interest rates in June, is getting some support for this decision from theHCOB Services PMI price indices. Input prices and the prices charged to clients increased at the slowest pace in three years. Looking forward, the ECB will remain cautious, as the price increases are still way above pre-pandemic averages and still unusually high given the fragile state of the economy.

“The service sector, in our opinion, is supported by the high number of tourists. The New Export Index, which includes tourism, has been on an almost continuous upward trend for six months and is now nearly two points above the long-term average. According to private statistics, arrivals of travelers to Europe, including an unusually high number from the USA, increased by 7.2% in the first quarter of 2024 compared to the same period last year and is now above the pre-COVID-19 level. In Germany, tourism is getting an additional boost from the European Football Championship. For the next few months, tourism is likely to remain an important growth factor for the Eurozone.”

Eurozone May PPI -0.2% vs -0.1% m/m expected

• Latest data released by Eurostat – 3 July 2024
• Prior -1.0%

If you strip out energy prices, producer prices were actually up 0.1% in May. Here is the breakdown on the month:

Germany June final services PMI 53.1 vs. 53.5 prelim

• The final reading from HCOB – 3 July 2024

• Final Services PMI 53.1 vs. 53.5 prelim and 54.2 prior.
• Final Composite PMI 50.4 vs. 50.6 prelim and 52.4 prior.

Key findings:

• HCOB Germany Services PMI Business Activity Index at 53.1 (May: 54.2).3-month low.
• HCOB Germany Composite PMI Output Index at 50.4 (May: 52.4).3-month low.
• Cost inflation lowest since March 2021.

Comment:

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“The services sector is keeping Germany’s economy afloat. Despite a slight loss in momentum, activity in services continues to expand at a solid rate. New business is coming in steadily, and companies are still hiring, albeit more cautiously than in May.”

“It’s a bit worrisome that outstanding business has come down after having stayed more or less constant over the last two months. We are inclined not to over-interpret this figure as the slowing down of consumer price inflation and higher wage agreements are supporting the purchasing power of the people.”

In addition, the European Football Championship, which already provided positive effects according to some respondents, will reach its “hot phase” in July. In this context, new export business, which includes tourism, is trending up since May.Thus, we are optimistic that growth in the service sectorwill be maintained.”

“While the European Football Championship likely supported activity last month, it may also explain why respondents are less optimistic about activity in June 2025, anticipating the absence of such a significant event. Despite this, the majority of respondents remain optimistic about activity levels a year from now.”

“On the price front, input costs, including wages, are still rising faster than the long-term average, but there’s been a slowing trend over the past four months. This could suggest that wages and salaries, which official data showed grew at a rate of 6.3% in the first quarter, will see a much lower rate of increase in the second quarter.”

The ECB would certainly welcome this, as it could open the door for new rate cuts. However, the ECB will also keep an eye on the prices charged in the eurozone’s largest economy. These have picked up pace again, sending a note of caution to the central bankers. This fits to our view that a rate cut will only happen in September.”

France June final services PMI 49.6 vs 48.8 prelim

• Latest data released by HCOB – 3 July 2024

• Prior 49.3
• Composite PMI 48.8 vs 48.2 prelim
• Prior 48.9

The higher revision means that the French services sector only marginally contracted in June, as the sharpest fall in new orders since January weighed on output. Besides that, there’s also softening in sentiment amid the elections with business confidence easing alongside jobs growth. HCOB notes that:

“Election uncertainty stalled the French services sector in June. The HCOB Business Activity Index showed a little improvement compared to the previous month but still stayed below 50, signaling contraction. Some panel members linked the drop in business activity to election-related uncertainty. It’s thinkable that the upcoming elections were the decisive factor, particularly because new orders have suddenly dropped. French service companies completed more backlogs of work in response to weaker demand, which explains the gap between the indices for output and new orders.

“Upcoming elections have made service providers less optimistic about future activity. In addition to business confidence being at a five-month low, it is also clearly below its historic average. In accordance with this, employment growth weakened.

“Service prices inflation continues to ease but still poses a risk. The latest rise in input prices was historically high, with companies noting greater salary costs and raw material price increases. On the other hand, output prices in the French service sector edged further towards the neutral threshold, meaning that companies did not fully pass on higher input costs to clients. According to anecdotal evidence, some companies were able to offer discounts due to lower interest rates.”

Italy June services PMI 53.7 vs. 53.7 expected

• The latest data from HCOB – 03 July 2024

• Services PMI 53.7 vs. 53.7 expected and 54.2 prior.
• Composite PMI 51.3 vs. 52.3 prior.

Key findings:

• Growth of activity and new business ease, but are solid overall.
• Cost pressures abate slightly.
• Strongest optimism towards the year-ahead outlook since early 2022.

Comment:

Commenting on the final PMI data, Dr Tariq Kamal Chaudhry, Economist at Hamburg Commercial Bank, said:

“Italian services remain the economic powerhouse of the nation. Despite a slight decline from the previous month, the HCOB Services Business Activity Index remains robust at 53.7, indicating significant growth. The data does reveal some underlying concerns such as rising prices and fading growth momentum in output and new business, which should be taken in to account when assessing the outlook. Nevertheless, the surveyed companies maintained an optimistic view regarding future activity.”

“Growth of employment and total orders remain historically strong. Despite a slight moderation from the previous month, Italian service providers continued to hire robustly. However, companies report that economic conditions, especially on the international front, are becoming increasingly more challenging, which led non-domestic sales growth to cool.”

“Cost pressures threaten the momentum of the services sector. Despite historically robust demand for Italian services, firmsseem hesitant to fully to pass on input price inflation to their customers, which implies margin erosion.”

“Optimism is unwavering among service providers. It’s unmistakable from the data that Italian service companies view future activity quite positively. The degree of confidence is approaching its historical average. Newly acquired customers, improved economic conditions including lower interest rates, and new projects have been cited as reasons by surveyed companies for their optimistic outlook.”

Spain June services PMI 56.8 vs 56.4 expected

• Latest data released by HCOB – 3 July 2024

• Prior 56.9
• Composite PMI 55.8
• Prior 56.6

The reading is just marginally softer than the 13-month high in May, reaffirming that business activity remains robust in Spain’s services sector. The only downside is that the trend in prices is still strong, so that’s not too comforting on the inflation front. HCOB notes that:

“The Spanish services sector remains unshaken. After the PMI for Spain’s manufacturing sector lost some growth momentum in June following the European elections, the services sector maintains its pace. The growth results from continued high demand, which has been further strengthened, exclusively from abroad. Expectations for the future dipped a bit but still remained solid. Some panelists believe that activity is still going to increase due to lower inflation and interest rates in a year’s time. Supported also by these high expectations for the future, companies are trying to hire more workers. The efforts also seem to be yielding initial results, as workloads can increasingly be managed.

“The increase in employment in June came with the added expense of increasing average wage levels. Despite somereports of rising food and energy prices, anecdotal evidence indicates that higher wages are the key factor in the further risein input costs. Companies are managing to pass on these increased costs to consumers.

“The Spanish economy continues to perform strong. Overall, the Composite PMI for Spain fell slightly from 56.6 to 55.8 in June, but this should not overshadow the current strength, as activity increased in both sectors in June, albeit slightly moderated in manufacturing. Therefore, we expect growth above the historical average in the second quarter – after the strong GDP prints of the last two quarters were revised upwards again.”

UK June final services PMI 52.1 vs. 51.2 prelim

• The final reading from S&P Global – 03 July 2024

• Final Services PMI 52.1 vs. 51.2 prelim and 52.9 prior.
• Final Composite PMI 52.3 vs. 51.7 prelim and 53.0 prior.

Key findings:

• UK Services Business Activity Index falls to seven- month low.
• Demand for services improves, but at relatively soft pace.
• Confidence dips slightly amid general election uncertainty.

Comment:

Joe Hayes, Principal Economist at S&P Global Market Intelligence:

“We are seeing some evidence of a pre-general election seize up across the UK services economy, with growth in business activity slowing to a seven-month low in June as the prospect of a change in government led to the adoption of a “wait-and-see” approach by some, restraining sales.”

“Nevertheless, we’re on track for another quarter of GDP growth, according to Composite PMI data for the three months to June, albeit one that will be less punchy than the first quarter’s 0.7%.”

“Prices still continue to show a high degree of stickinessacross the UK service sector, although input cost inflation once again trended lower in June. The directionof travel here is encouraging for the Bank of England, butour survey’s gauge of prices charged actually rose on the month as some companies noted their pricing power was strong enough to raise their fees.”

“While costs, mostly from wages, have been the major driving force behind strong services inflation, the recovery of the UK economy from it’s late-2023 lull adds another dynamic for policymakers to consider should stronger economic conditions motivate more companies to raise their prices.”

ECBs Stournaras: Two more rate cuts in 2024 seems reasonable

• ECB’s Stournaras suggests two rate cuts this year, data supports more; Rates still tight, service inflation not alarming. Dive into the dovish stance.

ECBs Stournaras is saying:

• Two more rate cuts this year it seems reasonable
• Recent data strengthens the case for more cuts a little
• Rates will still be restrictive, after two more cuts
• Service inflation shouldn’t be over-interpreted

ECBs Vasle: ECB must be mindful of inflation risks and not rush into next rate cut

• ECBs Vasle speaking

• ECB must be mindful of inflation risks and not rush into next rate cut.
• If inflation falls as projected, then market rate cut expectations are broadly in line with my views

ECB sources: Policymakers are urging a review of consequences of QE policies

• ECB sources

An ECB sources report on Reuters is saying:

• ECB policymakers are urging a review of consequences of QE policies
• policymakers question the commitment to especially forceful or persistent action at the lower bound
• The debate is expected be held at the strategy review which is expected to commence soon and and at some point in 2025

Asia-Pacific-World News

China Caixin June services PMI 51.2 (expected 53.4, prior 54.0)

• Chine data

These are the privately surveyed PMI results from China for June.

Caixin PMI Services 51.2

• expected 53.4, prior 54.0

Composite 52.8

• prior 54.1

The Key points made in the report:

• Export business growth remains solid despite slowing in line with overall new business
• Staffing levels fall marginally in June
• Charges rise only fractionally as input price inflation declines

PBOC sets USD/ CNY mid-point today at 7.1312 (vs. estimate at 7.2633)

• PBOC CNY reference rate setting for the trading session ahead

In open market operations:

• PBOC injects 2bn via 7-day RR, sets rate at an unchanged 1.8%

• 250bn mature today
• thus a bn drain

Note for the diary – China’s plenum meeting in July will focus on the economy

• Expectations for big stimulus are low

China’s ruling party will hold its third plenary session of the 20th Communist Party of China (CPC) Central Committee on 15-18 July.

The focus will be on the reform of the economic system.Expectations for additional stimulus measures remains low though.

Key areas of focus include:

• stimulating domestic demand
• enhancing the efficiency and quality of economic growth
• addressing issues such as insufficient demand, high pressure on enterprises, and various risks in key sectors
• further opening up the economy, fostering innovation, and supporting private sector development

Bloomberg reports on China making lethal attack drones for Russia

• Years ago China and Russia pledged a ‘no limits’ partnership

Bloomberg have the report (may be gated):

• Chinese and Russian companies are developing an attack drone similar to an Iranian model deployed in Ukraine, European officials familiar with the matter said, a sign that Beijing may be edging closer to providing the sort of lethal aid that western officials have warned against.

ICYMI – Taiwan says China seizes fishing boat near Chinese coast

• Tensions in the Taiwan Strait are not going anywhere positive

AP had the report:

• Taiwan said the Chinese coast guard boarded a Taiwanese fishing boat Tuesday before steering it to a port in mainland China, and demanded that Beijing release the vessel.
• boat had six crew onboard
• vessel was just over 20 kilometers (12 miles) away from Jinjiang in mainland China when it was boarded, Taiwanese authorities said.

Australia data – Retail Sales May 2024: +0.6% m/m (exp +0.2%)

• Retail Sales with an impressive beat

Comments from the Australian Bureau of Statistics playing down the strong results:

• “Retail turnover was boosted this month by watchful shoppers taking advantage of early end-of-financial year promotions and sales events.
• “Retail businesses continue to rely on discounting and sales events to stimulate discretionary spending, following restrained spending in recent months.
• “Despite the seasonally adjusted rise, underlying spending remains stagnant with retail turnover flat in trend terms. Compared to May 2023, trend is only up 1.5 per cent.”

Australia data – Building permits, May 2024: +5.5% m/m (expected +1.6%)

• This is a volatile data set
• prior -0.3%

Australia final June PMI: Services 51.2 (prior 52.5)

• Judo Bank S&P Australian PMI’s for June 2024

Australian Judo Bank PMI, the final readings for June 2024:

• Services 51.2 (prior 52.5)
• Composite 50.7 (prior 52.1)

New Zealand data – ANZ Commodity Price Index, June 2024: +1.5% m/m (prior +1.1%)

• The index tracks the prices of 17 of New Zealand’s major commodity exports, including dairy products, meat, wool, forestry products, and seafood.

In New Zealand dollar terms, the index lifted 0.3% m/m as the NZD Trade Weighted Index rose 1.4% in June.

As part of the report are comments from ANZ on shipping prices:

Global shipping prices continued to firm over the month, particularly impacting bulky low-value goods such as logs. Global shipping routes remain subject to disruption.Ships are being forced to wait to unload due to congestion at some international ports, containers are in tight supply, and there are more sailings being cancelled.Thus far, there have not been significant disruptions to New Zealand exports and imports.

Japan reportedly to issue new floating-rate bonds to help investors if BOJ hikes rates

• Reuters reports, citing two government sources on the matter

The Japan Ministry of Finance is said to be looking to introduce a new type of floating-rate bond in the market, in order to help investors mitigate the risks from rising bond yields. This comes as Japanese officials are gearing up for more rate hikes by the BOJ.

The sources say that the government will aim to issue the new note from fiscal year 2026 with two-year and five-year bonds seen as among the possible options.

Japan June Services PMI 49.4 (prior 53.8)

• Collapsed from the previous reading

Japan June Services PMI 49.4, first contraction for nearly two years

• flash 49.8, prior 53.8

Composite 49.7

flash was 50.0 prior 52.6

Commentary from the report:

• The Japanese service sector’s recent strong upturn in business activity ended abruptly in June
• Business Activity Index fell by 4.4 points during the month, the largest downward movement since January 2022 and among the biggest on record
• Looking beyond the headline figure, the picture is less concerning. Although the new business index also fell steeply since May, it merely signalled a pause in new business growth as opposed to an outright decline in demand. This was partly explained by the weak yen continuing to boost international new business. Moreover, the 12-month outlook and pace of job creation both remained relatively strong.

Cryptocurrency News

Is Ethereum the Next Nvidia? ETFs May Surge on High-Growth Tech Appeal

Ethereum ETFs could potentially defy analyst forecasts by positioning Ethereum as a high-growth tech asset akin to Nvidia. Despite a 3% decline on Wednesday, triggered by a broader market downturn and concerns over Mt. Gox-related Bitcoin supply, there are promising projections from Bitwise.

Ethereum ETFs: The Next Big Tech Investment?

Matt Hougan, CIO of Bitwise, suggests that Ethereum ETFs could attract up to $15 billion in net flows by the end of 2025 if investors perceive Ethereum as a high-growth tech investment similar to Nvidia and Meta. Hougan believes that it might be easier for investors to allocate a portion of their existing tech investments to ETH rather than creating a new portfolio segment for it.

For this shift in perception to happen, investors need to recognize Ethereum’s distinct advantages over Bitcoin and the growing ecosystem of applications on its network. Hougan envisions scenarios such as stablecoins expanding from $160 billion to $1.6 trillion in assets, the rise of decentralized finance (DeFi) applications, and companies like BlackRock developing tokenized funds on Ethereum.

In May, the SEC approved the 19b-4 filings for spot ETH ETF issuers, but the S-1 registration statements still need to be greenlighted before trading can begin.

Furthermore, Ethereum leads all blockchain networks in annual revenue, generating $2.728 billion compared to Bitcoin’s $1.302 billion. This significant revenue indicates strong user activity and a bullish sentiment for Ethereum’s future.

Market Insights: Ethereum’s Potential as a High-Growth Tech Asset

The narrative of Ethereum as a high-growth tech play could transform the market dynamics, making ETH ETFs highly attractive to investors. With robust revenue and expanding applications, Ethereum might well be on its way to becoming the next big tech investment, potentially mirroring Nvidia’s success. If investors buy into this vision, Ethereum ETFs could experience substantial inflows and drive significant growth in the sector.

Bitcoin price falls amidst German government transfers, miners activity

• U.S. spot Bitcoin ETFs registered slight outflows on Tuesday.
• The German Government transferred another 832.7 BTC, valued at $52 million, on Tuesday.
• On-chain data shows that Bitcoin miners have increased their selling activity at the beginning of this week.

Bitcoin (BTC) extends correction on Wednesday and hovers around $61,000 after finding resistance near the $64,000 level on Monday. Recent on-chain data indicates heightened selling activity from Bitcoin miners early in the week. Meanwhile, U.S. spot Bitcoin ETFs experienced minor outflows on Tuesday, coinciding with the German Government transferring an additional 832.7 BTC, valued at $52 million, on the same day.

Bitcoin price declines as German government transfers weigh

• According to data from Lookonchain, the German Government transferred 832.7 BTC, valued at $52 million, from its wallet on Tuesday. Of this, 282.7 BTC, worth $17.65 million, were transferred to Coinbase, Bitstamp and Kraken exchanges.
• Over the past week, German authorities have moved 2,240 BTC worth $142 million to Coinbase, Bitstamp, Flow Traders, and Kraken. This significant transfer activity may have fueled FUD (Fear, Uncertainty, Doubt) among traders, potentially influencing Bitcoin’s 2.5% price decline this week.
• On Tuesday, U.S. spot Bitcoin ETFs recorded outflows totaling $13.70 million.Grayscale (GBTC) and Bitwise (BITB) saw decreases of 515.12 BTC and 108.14 BTC, respectively, while Blackrock (IBIT), Fidelity (FBTC), ARK 21Shares (ARKB), and VanEck (HODL) added 224.22 BTC, 85.87 BTC, 39.76 BTC, and 55.66 BTC, respectively. 
• This decline suggests a slight weakening in investor confidence, potentially indicating a temporary downturn in Bitcoin’s price.ETF net inflow data is crucial in assessing investor sentiment and market dynamics in Bitcoin ETFs.Together, the 11 spot BTC ETFs hold reserves totaling $54.65 billion in Bitcoin.
• On Monday, miners transferred 9,096.67 BTC to exchanges, followed by 6,751.91 BTC on Tuesday. Selling was subdued over the weekend but picked up as the week began. This uptick in transfers may reflect miners’ efforts to cover operational costs or capitalize on perceived price overvaluation, contributing to selling pressure. Such actions typically signal a bearish sentiment in the market, potentially foreshadowing a price decline.

PEPE price set for 16% crash after breaking below ascending trendline support

• Pepe price revisits an ascending trendline support on Wednesday.
• On-chain data shows PEPE’s negative funding fee and lower long-to-short ratio, signaling a bearish move.
• A daily candlestick close above $0.0000121 would invalidate the bearish thesis.

Pepe (PEPE) price is down 7.5% on the day at $0.0000107 as it revisits an ascending trendline support on Wednesday.On-chain data reveals a negative funding fee and a decreased long-to-short ratio for PEPE, indicating potential bearish momentum that could lead to a price decline in the coming days.

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