- SNAPSHOT: Equities mixed, Treasuries down, Crude up, Dollar flat/up
- REAR VIEW: Soft Manufacturing PMI, Prices and Employment fall; SCOTUS gives Trump a partial win; French election sees RN make gains, but odds of a hung parliament increase; Maersk issues cautious update; Soft German inflation; BA to buy SPR in an all-stock deal.
- COMING UP: Data: EZ Flash HICP, Canadian Manufacturing PMI, US JOLTS Events: RBA Minutes Speakers: Fed's Powell; ECB's Lagarde, Schnabel, de Guindos & Elderson; BCB's Neto Supply: Japan, UK & Germany Earnings: Sainsbury's.
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MARKET WRAP
Indices were predominantly firmer (SPX, NDX, and DJI closed green), although the upside was predominantly led by large caps with Tech and Consumer Discretionary stocks outperforming while the majority of sectors were red with the most downside observed in Materials, Industrials, and Real Estate. The Russell also saw notable downside as it failed to benefit from the large-cap rally while the equal-weight S&P also took a hit. NVDA managed to pare early losses but AAPL, MSFT, and AMZN saw gains of over 2%, while Tesla (TSLA) surged 6% ahead of delivery numbers due on Tuesday. T-notes bear steepened with pressure seen throughout the day as bund downside weighed while the sell-off extended after SCOTUS gave Trump a partial win. In FX, the DXY clawed back early losses as the Euro pared from best levels in the wake of the French election, which saw the National Rally make significant gains, while the odds of another hung parliament have likely increased, which is seen as the market-friendly option. Crude prices meanwhile surged throughout the session with an early start to the hurricane season supporting the move with Hurricane Beryl seen as a strong Cat 4 as it heads towards the mouth of the Gulf of Mexico. The Yen continues to see pressure with the surge in US yields today hitting rate-sensitive currencies, including the Franc. The data highlight saw US Manufacturing ISM PMI disappoint expectations, with downside in both employment and price components with attention turning to Fed Chair Powell at SINTRA on Tuesday, as well as JOLTS data.
US
ISM MANUFACTURING PMI: The ISM Manufacturing PMI data in June saw the headline post a surprise decline to 48.5 from 48.7, beneath the 49.1 forecast. The report highlights that 62% of manufacturing GDP contracted in June, up from 55% in May. It adds however that what is more concerning is the share of sector GDP registering a composite PMI calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 14% in June, up from the 4% in May. The subcomponents of the report saw prices paid ease to 52.1 from 57.0, taking it to the lowest level in 2024 so far, while employment fell into contractionary territory at 49.3 from 51.1. New Orders rose to 49.3 from 45.4, indicating a further slowdown, albeit at a slower rate than in May. Oxford Economics summarise the data by noting the manufacturing sector continues to struggle in an high interest rate environment, with tepid demand from new inventory and capital goods from businesses. The desk adds that "Boosts from the IRA and CHIPS Act related investments should support production in the near-term, but a sustained improvement in the sector is likely to wait until the Fed begins cutting rates in September."
FIXED INCOME
T-NOTE FUTURES (U4) SETTLES 26 TICKS LOWER 109-05+
T-Notes bear steepen tracking Bunds lower while bolstered Trump re-election prospects add to the downside despite soft ISM Manufacturing PMI. 2s +4.8bps at 4.768%, 3s +7.5bps at 4.587%, 5s +10.9bps at 4.440%, 7s +12.5bps at 4.449%, 10s +13.8bps at 4.481%, 20s +15.3bps at 4.758%, 30s +14.3bps at 4.645%
INFLATION BREAKEVENS: 5yr BEI +2.9bps at 2.311%, 10yr BEI +2.9bps at 2.323%, 30yr BEI +3.1bps at 2.332%.
THE DAY: T-notes were pressured throughout the session with the curve bear steepening. Overnight and throughout the European morning, T-notes tracked EGBs lower (ex OATS) as some of the upside in Bunds pre French election pared as recent election driven demand waned as the market's worst case scenario appear to have been avoided so far. Around 10am ET T-Notes saw two way price action with a knee jerk move higher in response to a softer ISM Manufacturing PMI, including a drop in prices and employment components, although a partial victory for Trump in the SCOTUS case saw the treasury pressure extend. On this, Citi highlight that the US bear steepening has been in the spotlight, and their experts see this as partly technical, but also partly driven by US election headlines. Citi adds that this reduces the likelihood of one particular trial taking place before the election. This will likely be a positive for Trump's re-election odds, particularly after the latest debate, with Citi noting this is leading markets to digest potentially more expansionary fiscal policy and higher tariffs. T-notes fell from a peak of 109-24 to lows of 109-02+ ahead of support around 109-00+, the early low June with 10y yield testing 4.50%.
STIRS:
- Market Implied Fed Rate Cut Pricing: September 18bps (prev. 18bps D/D), November 27bps (prev. 26bps), December 46bps (prev. 45bps).
- NY Fed RRP op demand at USD 452bln (prev. 665bln) across 67 counterparties (prev. 93).
- SOFR at 5.33% (prev. 5.34%), volumes at USD 2.024tln (prev. 1.888tln).
- EFFR at 5.33% (prev. 5.33%), volumes at USD 67bln (prev. 83bln).
CRUDE
WTI (Q4) SETTLES USD 1.84 HIGHER AT 83.38/BBL; BRENT (U4) SETTLES USD 1.60 HIGHER AT 86.60/BBL
Crude prices advanced throughout the session despite the Dollar paring from lows with focus turning to Hurricane season with close attention on Cat 4 Hurricane Beryl, which appears headed to the mouth of the Gulf of Mexico. Oil prices hit highs ahead of settlement with WTI trading between 81.38-83.52/bbl, and Brent trading within 84.85-86.76 parameters. Geopolitics in the Middle East also remain in focus with tensions between Israel and Hezbollah rising, while Netanyahu reiterated Israel will continue to "destroy the remnants of Hamas military". There were reports that there are estimates that an end to the war in its current form will be announced within 10 days, at which point the IDF would move into phase 3, and negotiations for a settlement will begin regarding the Lebanon northern border. However, an official cited said "The war will not end. We will act wherever there is intelligence about Hamas activity" and that raids and airstrikes would continue in Gaza. Outside of Hurricane's and geopolitics, Saudi Arabia's energy minister announced the discovery of seven oil and gas deposits, "two unconventional oil fields, a reservoir of light Arabian oil, two natural gas fields and two natural gas reservoirs. Meanwhile, re. OPEC, the latest Bloomberg survey saw OPEC June output steady as some members exceeded limits.
EQUITIES
CLOSES: SPX +0.27% at 5,475, NDX +0.66% at 19,812, DJI +0.13% at 39,170, RUT -0.86% at 2,030.
SECTORS: Technology +1.30%, Consumer Discretionary +0.73%, Financials +0.22%, Communication Services +0.10%, Energy +0.02%, Health -0.56%, Consumer Staples -0.67%, Utilities -0.69%, Real Estate -0.99%, Industrials -1.10%, Materials -1.55%.
EUROPEAN CLOSES: DAX +0.47% at 18,322, CAC 40 +1.09% at 7,561, AEX -0.09% at 923, PSI +1.76% at 6,594, FTSE 100 +0.03% at 8,167, FTSE MIB +1.70% at 33,717, Euro Stoxx 50 +0.74% at 4,930, IBEX 35 +1.04% at 11,057, SMI +0.50% at 12,053.
STOCK SPECIFICS:
- Spirit AeroSystems (SPR): Boeing (BA) agreed to acquire SPR in a USD 4.7bln deal, paying USD 37.25/shr in an all-stock deal.
- Meta Platforms (META): EU antitrust regulators charging the company for failing to comply with landmark tech rules.
- Amazon (AMZN): To invest more in data-centre infrastructure than retail warehouses, and plans to spend over USD 100bln in the next decade on AI and cloud computing, WSJ reported.
- Tesla (TSLA): Ahead of releasing its production and delivery numbers for Q2 24 tomorrow, (exp. 438,019).
- Apple (AAPL): JPMorgan said May data continued to show an improving trajectory for iPhone shipments in China, supported by the recovery in the broader China smartphone market.
- Merck (MRK): Co. and Orion announced a mutual exercise of option providing MRK exclusive rights to opevesostat.
- Gartner (IT): Board of Directors appointed CEO Eugene Hall, to the additional role of chair of the board of directors, effective immediately.
- Chewy (CHWY): Keith Gill, or Roaring Kitty, announced a 6.6% state in the stock, according to a filing.
- Nomura Holdings (NMR): CEO said it was seeking global acquisitions to expand its wealth management business as savers become more adventurous, FT reported.
- US Banks (KBWB, JPM, GS, MS, WFC, C, BAC etc.): Announced plans on Friday to increase dividend payouts after passing the Fed's annual stress tests, details available within the research suite or headline feed.
- Paramount (PARA) reportedly hunting for a streaming partner and could kick off a wave of deals, via CNBC, Warner Bros. Discovery (WBD) has interest in merging Max and Paramount+ as a joint venture, according to CNBC citing sources.
- Nvidia (NVDA): French anti-trust regulators are reportedly preparing to charge Nvidia (NVDA) over alleged anti-competitive practices, via Reuters citing sources.
- Spruce Point announced a short in Floor & Decor (FND), noting they are still short Boot Barn (BOOT), MSCI (MSCI) and Zillow (ZG), via CNBC interview.
US FX WRAP
The Dollar was ultimately bid with DXY finding resistance at 106.00. The Dollar had started the session on the back foot with upside in Euro keeping pressure on the buck but with UST yields rising throughout the session, the buck managed to claw back the earlier losses. Weakness in the Yen was also supportive. The US highlight was the ISM Manufacturing PMI data, which came in softer than expected with easing prices and employment metrics and although new orders improved, it remained in contractionary territory.
The Euro was ultimately flat on Monday but initial upside was seen in response to the 1st round of French Elections which saw the National Rally party make significant gains but the odds of another hung parliament have likely increased, which was seen as the more market-friendly outcome in the short term. Aside from politics, the PMI final Manufacturing PMI data saw a slight revision higher, with upside revisions seen in Germany, France, and Italy. German inflation data also came in on the softer side of expectations. EUR/USD peaked at 1.0776 but as the Dollar staged a comeback the Euro hit a low of 1.0724. Note, there were several ECB speakers ahead of SINTRA too, Nagel said the German economy is regaining its footing, while Simkus said two more rate cuts for 2024 are possible if data comes in as expected, but noted that the case for a July rate cut has gone. Wunsch said that market pricing on rates looks reasonable, and while a July cut is an option in theory, in practice the ECB must be cautious.
The Yen continued its decline with firmer US yields adding to the Yen woes. USD/JPY peaked at 161.73, another multi-decade high with traders cognizant of potential Yen intervention but analysts suggest the new line in the sand is around 165.00. Focus overnight was on the Japanese Tankan survey, which saw its large manufacturers' index rise to 13.0 in Q2 from 11.0 in Q1 (analysts had expected 12.0). Manufacturers’ sentiment improved as the weak yen boosted earnings from overseas sales. Large manufacturers output prices rose to 29.0 from 25.0; large non-manufacturers output price index rose to 29.0 from 27.0. Large non-manufacturers business conditions fell to 33.0 from 34.0. Across all industries and firm sizes, business conditions were steady at 12.0. Capital Economics noted that price pressures rose despite unchanged capacity utilisation. Employment conditions improved slightly, but job openings continued to decline. The yen's weakening drove up output prices, prompting firms to revise their currency forecasts. CapEco added that the Tankan supports expectations for the BoJ to hike rates to 0.3% ahead.
The Franc also saw notable weakness vs the Dollar and the Euro with EUR/CHF briefly rising above 0.9700 while USD/CHF rose above 0.9000. The firmer yields (USTs and EGBs ex Oats) weighed on the currency while the latest Swiss manufacturing PMI data also disappointed expectations.
The Yuan was relatively flat vs the dollar, both onshore and offshore, but overnight the China Caixin manufacturing PMI for June was revised up to 51.8 from 51.7, despite expectations for a slip to 51.2. The revision higher took it to the highest level since June 2021.
Cyclical currencies were mixed with CAD underperforming while AUD and NZD saw weakness but GBP was flat vs the Dollar with UK players keeping eyes on the UK election on 4th July. There was little reaction in response to the aforementioned Caixin China PMIs in the Antipodean currencies with AUD/USD trading either side of 0.6650 throughout the session with technicians eyeing 0.6700 to the upside as potential resistance. Meanwhile, NZD/USD traded either side of 0.6100, but failed to hold above the key level.
EMFX was mixed, COP posted gains on account of rising oil prices while MXN was slightly softer vs the stronger buck but BRL and CLP were the laggards with CLP downside coming despite slight gains in copper prices as downbeat economic activity data weighed. Note, in Mexico, the latest Banxico private sector analyst poll saw analysts revise up their year-end interest rate forecast to 10.25% from 10.00%, whilst the Peso is seen ending the year around 18.73 vs the buck, vs the prior 17.80 estimate, as the latest survey incorporates recent election results.
