- SNAPSHOT: Equities mixed, Treasuries mixed, Crude flat, Dollar up.
- REAR VIEW: UoM misses across the board, with inflation expectations mixed; Dovish US trade data as Import/Export prices surprisingly decline; French Finance Minister alludes to political turmoil turning to economical; BoJ holds rates, but no decision on bond trimming; BA told suppliers it's delaying key 737 production target; MSM pre-announced weak earnings.
- COMING UP: Data: Japanese Machinery Orders, Chinese Retail Sales, Italian CPI, EZ Labour Costs, US NY Fed Manufacturing, PBoC MLF Speakers: ECB’s Lane, Lagarde, de Guindos, Cipollone; Fed’s Harker, Cook Supply: Belgium Earnings: Lennar.
- WEEK AHEAD: Highlights include PBoC MLF/LPR, Chinese Activity Data, RBA, US Retail Sales, UK Inflation, BoE, SNB, Norges, Japanese CPI, Flash PMIs. To download the full document, please click here.
- CENTRAL BANK WEEKLY: Previewing PBoC MLF/LPR, RBA, BoE, SNB, Norges; Reviewing FOMC, BoJ. To download the full document, please click here.
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MARKET WRAP
Stocks were mixed (SPX flat, NDX +0.4%) in broad risk-averse conditions with distinct underperformance in the small-cap Russell 2000 (-1.6%) as it continued on its sell-off from Thursday. Sectors were largely in the red, with only Tech and Communications firmer as Industrials lag after a downbeat MSC Industrial Direct (MSM) (-10.5%) earnings pre-announcement in addition to Boeing (BA) (-2%) telling suppliers it is delaying 737 production target by three months. As alluded to above, sentiment was dampened in the European morning after French Finance Minister Le Maire sparked a rout in European assets, after he answered "yes", when asked if the current political crisis could result in a financial crisis. As such, it sparked significant strength in non-OAT EGBs with some spillover to USTs. Treasuries bear flattened, and hit highs around further dovish US data, albeit not a consequence of, just more a coincidence, but did come off best levels after Mester (voter, retiring in June) said they want a few more months of ebbing inflation data. Goolsbee (2025 voter) later spoke noting if the Fed get more months like they just saw on inflation, the Fed can cut rates. On the data footing, US import/export provided the latest indication inflation may be cooling as they both suprisingly declined, while prelim UoM for June disappointed, with 1yr inflation expectations unchanged at 3.3% with the 5-10yr ticking higher to 3.1% from 3.0%. The crude complex saw two-way action on Friday, but ultimately ended flat, as geopolitical headlines took a back seat amid political angst out of Europe. Looking ahead, traders await a slew of Fed speak next week, amongst US Retail Sales (Tues), Flash PMIs (Fri), auctions, and a raft of central bank decisions.
US
MICHIGAN: University of Michigan prelim June data missed across the board, highlighted by the headline tumbling to 65.6 from 69.1, well beneath the expected 72.0 and the lower bound of the forecast range, 68.0. Current conditions and forward-looking expectations sharply fell to 62.5 (exp. 71.0, prev. 69.6) and 67.6 (exp. 70.0, prev. 68.8), respectively. Regarding the inflation expectations, 1yr ahead was unchanged at 3.3%, while the longer term 5-10yr edged higher to 3.1% from 3.0%. On the headline, Oxford Economics quips it was driven by a worse outlook on personal finances. In addition, higher prices, delayed interest rate cuts, and weakening income growth are weighing on consumers, although recent positive inflation news could offer support in the coming months. Looking ahead, Oxford notes “Consumer sentiment has not been an important driver of consumer spending in recent years, so the implications for our forecasts are limited.”
IMPORT/EXPORT PRICES: Another dovish US data print this week, where trade data provided the latest indication inflation may be cooling. On the figures, import prices surprisingly declined -0.4% (exp. +0.1%, prev. +0.9%) while export prices fell 0.6% (exp. 0.0%, prev. +0.6%). Overall, and as Oxford Economics alludes to, "the fall in import prices was partly due to lower fuel prices, though continued deflationary pressure from China is also exerting more lasting downward pressure." Looking ahead, along with the strong dollar, the consultancy expect import price inflation to remain subdued over the coming months.
FED: Goolsbee (2025 voter), speaking after blackout, said CPI data this week was very good, and if they got a lot of months like May's CPI data, they would be feeling very good. Furthermore, he noted they have got to see more progress and his feeling was relief. Looking forward, Goolsbee said if the Fed get more months like they just saw on inflation, the Fed can cut rates. Continuing on inflation, he noted if it behaved as it did in Q1, the Fed would have a hard time cutting rates. Mester (voter) spoke, and although she is retiring in June, she noted she wants to see a few more months of ebbing inflation data and it is important not to wait too long to cut. In later remarks in a separate interview, she added the median SEP projections is close to hers.
FIXED INCOME
T-NOTE (U4) FUTURES SETTLED 4 TICKS HIGHER AT 110-27
Treasuries were mixed, with the curve bear flattening. At settlement, 2s +0.2bps at 4.690%, 3s +0.2bps at 4.428%, 5s -0.5bps at 4.230%, 7s -1.8bps at 4.209%, 10s -2.7bps at 4.213%, 20s -2.7bps at 4.466%, 30s -5.2bps at 4.349%.
INFLATION BREAKEVENS: 5yr BEI -3.3bps at 2.133%, 10yr BEI -2.6bps at 2.188%, 30yr BEI -2.1bps at 2.233%.
THE DAY: Overall, the long-end of the Treasury curve saw gains in contrast to the flat short-end. In the EZ morning, Treasuries were in demand, albeit with magnitudes more limited than Bunds, after French Finance Minister Le Maire sparked broad-based risk-off conditions after intimating that a political crisis could turn into a financial one. As such, it sparked significant strength in non-OAT EGBs, with a spillover to USTs to see T-Notes hit an intraday high of around 110-25. Nonetheless, T-Notes continued to see a bid to reach a peak of 111-01 around US import/export prices data which served as another dovish lead into PCE after CPI and PPI. Thereafter, Treasuries came slightly off highs through the NY afternoon and into settlement in light newsflow as traders await the weekend. Furthermore and sparking ever so modest pressure in Tsys, Fed's Mester (voter, retiring in June) said they want a few more months of ebbing inflation data, while Goolsbee (2025 voter) later noted if the Fed get more months like they just saw on inflation, the Fed can cut rates. Back to data, prelim UoM for June was weak with 1yr inflation expectations unchanged at 3.3%, with the longer-term 5-10yr ticking higher to 3.1% from 3.0%. For the record, US 10yr yield is on pace for its largest weekly drop YTD. Looking ahead, traders await a slew of Fed speak next week, amongst US Retail Sales (Tues), Flash PMIs (Fri), and auctions.
STIRS
- Market Implied Fed Rate Cut Pricing: September 20bps (prev. 19bps D/D), November 30bps (prev. 29bps), December 51bps (prev. 49bps).
- NY Fed RRP op demand at USD 386bln (prev. 429bln) across 68 counterparties (prev. 77).
- SOFR at 5.31% (prev. 5.31%), volumes at USD 2.035tln (prev. 1.957tln).
- EFFR at 5.33% (prev. 5.33%), volumes at USD 99bln (prev. 93bln).
CRUDE
WTI (N4) SETTLED USD 0.17 LOWER AT 78.45/BBL; BRENT (Q4) SETTLED USD 0.13 LOWER AT 82.62/BBL
The crude complex saw two-way action on Friday, but ultimately ended flat, as geopolitical headlines took a back seat amid political angst out of Europe. As such, broad-based risk aversion was seen across markets through the EZ morning after French Finance Minister Le Maire said "yes", when asked if the current political crisis could result in a financial crisis. Nonetheless, WTI and Brent climbed off lows of USD 77.73/bbl and 81.92/bbl, respectively, and into positive territory despite hampered sentiment elsewhere. WTI and Brent eventually reached highs of USD 79.15/bbl and 83.39/bbl, albeit settling off those levels. Back to geopols, tensions continue to remain elevated between Israel and Lebanon with the latest headlines noting a "rocket barrage" from the latter to the former. Lastly, in the weekly Baker Hughes rig count (w/e 14th June), the total declined 4 to 590, led by oil falling 4 to 488, with nat gas unchanged at 98.
EQUITIES
CLOSES: SPX flat at 5,432, NDX +0.42% at 19,660, DJIA -0.15% at 38,589, RUT -1.61% at 2,006.
SECTORS: Industrials -1.03%, Materials -0.94%, Energy -0.81%, Consumer Discretionary -0.66%, Financials -0.29%, Utilities -0.26%, Real Estate -0.16%, Consumer Staples flat, Health flat, Technology +0.51%, Communication Services +0.56%.
EUROPEAN CLOSES: DAX: -1.34% at 18,021, CAC 40: -2.66% at 7,503, PSI: -0.42% at 6,538, FTSE 100: -0.21% at 8,147, IBEX 35: -0.67% at 10, 992, FTSE MIB: -2.81% at 33,665, SMI: -0.44% at 12,043, Euro Stoxx 50: -1.96% at 4,839.
STOCK SPECIFICS
- Adobe (ADBE): EPS and revenue beat, with next quarter profit guidance better-than-expected and raising FY view.
- Tesla (TSLA): Shareholders supported CEO Musk's USD 56bln pay package.
- Zscaler (ZS): Upgraded at JPM; said Zscaler is “a best-of-breed Zero Trust Network Security vendor” and is trading at a discount.
- MSC Industrial Direct (MSM): Downside pre-announcement for the next quarter and also lowered FY guidance
- RH (RH): Deeper loss per share than expected.
- Boeing (BA): FAA is investing in recently manufactured BA and Airbus (EADSY) jets for using titanium sold using counterfeit documentation to verify the titanium's authenticity, according to NYT.
- Nucor (NUE): Issued weak guidance for the next quarter - Q2 EPS between 2.20-2.30 (exp. 2.99). Added Q2 steel products segment are expected to have decreased vs. Q1.
- Meta Platforms (META): Said it will not launch Meta AI in Europe at the moment, adding it's a step backwards for European innovation and competition in AI development. Meta's decision is in response to a request from an Irish Privacy Regulator to delay training its LLM using public content shared by adults on Facebook and Instagram.
- Apple (AAPL) & Meta Platforms (META): Set to be the first Big Tech group to face charges under EU digital law, according to FT.
- Boeing (BA): Told suppliers it's delaying the key 737 production target by three months. The new BA supplier schedule calls for 737 output to reach 42 a month in September (prev. June).
- Arm Holdings (ARM): Nasdaq announced ARM will join the Nasdaq-100 index, and will replace Sirius XM Holdings (SIRI) on June 24th.
US FX WRAP
The Dollar was firmer on Friday, and supported by weakness in the Euro after French Finance Minister Le Maire sparked broad EUR selling after he noted the political issue could turn into an economic one. US data releases for the session included lower-than-expected import and export prices M/M print, which both fell for the first time since December 2023; UoM missed across the board, notably, the headline fell to 65.6 (prev. 69.1, exp. 72), its lowest value since November 2023. Meanwhile, 1-yr inflation expectations remained unchanged M/M at 3.3%, and 5-year inflation ticked higher to 3.1% (prev. 3.0%). In Fed speak, Mester wants to see a few more months of ebbing inflation data and she does not think they will get back to the inflation target until 2026, that said, Mester is retiring in June, so it is unlikely her remarks are to have a long-lasting impact; Goolsbee noted if the Fed get more months like they just saw on inflation, the Fed can cut rates. The DXY opened the session at 105.23 peaking at highs of 105.80, as the DXY experienced its second consecutive week of gains ahead of US Retail Sales on Tuesday next week.
The Euro weakened against the buck following remarks from France's Finance Minister Le Marie, responding "yes" when asked if the current political crisis could result in a financial crisis. The Euro dropped below 1.07, bottoming at 1.0669, near May's low of 1.0649, though, it bounced off session lows in line with the close of European equities; OAT/Bund spreads peaked at ~82.5bps.
Cyclical currencies' performance was mixed against the greenback. CAD outperforms, albeit still flat, while Antipodeans and the Pound saw selling. The Pound started the week off strong but ultimately failed to break this 200WMA (1.2851), and finished the week in the red. Meanwhile, the AUD/USD opened the session at circa 0.6634 and troughed at 0.6592 in a weak session ahead of the RBA rate decision next week on Tuesday, where rates are expected to remain unchanged at 4.35%, since last hiking rates in November 2023.
Haven FX performance was mixed, with the Franc, the sole G10FX currency in the green against the Dollar, markedly outperforming its peers amid haven flows ahead of SNB's rate decision on Thursday next week; with a focus on whether they will cut or hold rates (at 1.5%), and if any fresh narrative regarding the CHF is brought to life. Elsewhere, the JPY lags in the space, after the BoJ maintained rates at 0.0-0.1%, and said it will trim bond buying but decide on a specific reduction plan for next 1-2 years at next meeting. USD/JPY initially jumped by c. 45 pips, peaking at 158.257, yet, pared the majority of weakness later in the session.
SEK is down against the buck, despite a headline M/M coming in hotter than expected at 0.2% (prev. 0.2% exp. -0.1%), and CPIF M/M at 0.2% (prev. 0.3%, -0.1%). Data suggested that some inflationary pressures arose from the presence of Taylor Swift and Eurovision in restaurants, recreation, transport, and rentals.
In EMFX, performance was mainly to the downside with little exception. ZAR's strong week thus far, pauses in the final session, following South Africa's Alliance Leader saying the DA has reached an agreement on the government of national unit after negotiations. INR and COP outperform.
