US Futures, Global Stocks, Bond Yields Slide After Russian Turmoil

Global stocks and US equity futures are starting the week lower as investors tread cautiously after the attempted armed uprising in Russia over the weekend, and as we move towards month and quarter-end where stocks are expected to come for sale as part of sizable rebalancing. S&P 500 and Nasdaq futures swung from initial gains to modest losses this morning, declining 0.1% and 0.2% respectively as of 7:30 a.m. in New York. Bond yields are also lower, as the TSY curve steepens amid a capital flight to safety following the latest disappointing German IFO print (88.5, Exp.90.7 didn't help). The Bloomberg dollar index is slightly lower slightly while gold prices rise as investors look for havens. Oil is slightly higher as are  natgas, wheat, and gold which may be getting a lift from events in Russia over the weekend; on the other end, base metals including iron ore prices are underperforming on weaker China macro data as well as on China's growing economic gloom. This is another light macro data week before we get ISM/NFP next week; keep an eye on housing data a sector that seemingly completed its recession last year and is now poised to boost GDP growth.

In the premarket, Tesla shares fell 2% after the automaker was downgraded to neutral from buy at Goldman Sachs (full report available to professional subs). Hong Kong-listed shares of Russian aluminum producer United Rusal International PJSC fell almost 9%. Cryptocurrency stocks drop, tracking a dip across Bitcoin as the digital asset slips lower after reaching its highest level in a year last week (Riot Platforms -2.2%, Marathon Digital -2.2%, Coinbase -1.6%)> Here are some other notable premarket movers:

• Lucid rose 9% after entering a pact with UK firm Aston Martin on electric vehicle technology.
• Moderna rose as much as 3.4% after the vaccine maker was upgraded to buy from neutral at UBS on its valuation and progress with its pipeline beyond Covid.
• Brinker International shares decline 1.6% after the Chili’s owner was initiated with an underweight rating at Wells Fargo, which said a slowing macro environment could hamper the company’s turnaround progress.
• Meta Platforms shares edge 0.1% higher with UBS hiking its price target on the social media company, saying that generative AI will provide the next leg to the shares.

Investors have been growing more anxious that central banks determined to extinguish inflation will keep pushing rates higher and risk breaking fragile economies. Futures on the S&P 500 fluctuated after the index suffered its worst week since March, while yields on benchmark US Treasury yields dropped five basis points.

“As central banks remain hawkish on the back of persistent inflationary pressure, the likelihood of a soft landing is falling,” said Andrew McCaffery, global chief investment officer at Fidelity International, in a note published Monday. “Investors should be wary of taking on too much risk at this late stage of the cycle.”

Meanwhile, markets quickly absorbed the biggest threat to Vladimir Putin’s grip on power in decades. Russian officials met key partners, including in China, a day after Yevgeny Prigozhin halted the advance of his Wagner mercenary group toward Moscow.

“This weekend’s happenings make us realize is that it’s important to have geopolitical hedges in the portfolio, so we’ve always had commodities fulfil that role,” Trevor Greetham, head of multi asset at Royal London Asset Management Ltd, said in an interview with Bloomberg TV. “When there is suddenly a big military event, commodity prices can surge and you’ve got that protection.”

Gas traders braced for more market turbulence, with European gas already seeing the highest volatility since the invasion of Ukraine.

In Europe, the Stoxx 600 dropped 0.4% and on course for its sixth consecutive decline, while Germany’s 10-year benchmark yield tumbled five basis points as latest German IFO data showed the business outlook deteriorated to the lowest seen this year as Europe’s biggest economy struggles to emerge from recession. Banks are the worst-performing sector among Stoxx 600 groups Monday, with Raiffeisen -1%, OTP -0.9%, UniCredit -1.7% all down on Russia exposure fears. Here are some of the most notable European movers:

• Sainsbury gain as much as 1.4%, biggest increase in the Stoxx 600’s personal care, drug and grocery stores subgroup after Barclays raises its profit estimate before the UK grocer’s sales update next week
• SBB gains as much as 22% after the embattled Swedish landlord said it has entered talks with Brookfield to sell its remaining 51% stake in subsidiary focused on educational properties
• Maire Tecnimont jump as much as 8% in Milan after the company won new petrochemicals contracts in Saudi Arabia worth about $2 billion, with Mediobanca calling it a “large addition” to the backlog
• Aston Martin Lagonda shares jump as much as 15% to the highest level since April 2022 after the carmaker entered a strategic supply agreement with Lucid Group for high performance EVs
• Cranswick shares rise as much as 3.8%, the most in a month, after RBC upgrades the meat producer, saying it is “increasingly positive” about the firm’s long-term outlook
• Thule gains as much as 4.1% after Handelsbanken upgraded its short-term recommendation for the Swedish auto and outdoor accessory maker to buy from hold on expectations the firm’s 2Q report
• SES-imagotag jumped as much as 20% after the firm rejected every point of criticism about its finances  by short-seller Gotham City Research that triggered a 59% selloff of its shares on Friday
• European defense stocks fall, trimming yearly gains as investors assess implications of the latest developments in the Russia-Ukraine war. Meanwhile, Ferrexpo, which has mines in Ukraine, rises
• BE Semiconductor falls as much as 1.8% after being downgraded to buy from hold at Deutsche Bank, which said a rally in the Stoxx 600’s best performing stock this year “has likely run its course”
• Viaplay drops as much as 8.9% to a record low as Jefferies downgrades the stock to underperform, seeing further downside risk for earnings and valuation as the streaming service changes strategy
• Leonteq tumbles as much as 11%, most since October, after the Swiss fintech lowered its earnings expectations due to subdued levels of net trading primarily driven by reduced market volatility
• Casino shares falls as much as 7.2% after the French grocer said it will need at least €900 million ($981 million) of new equity and the conversion of at least all of its unsecured debt into stock

Earlier in the session,  Asian stocks traded subdued after Friday's losses on Wall St owing to weak global PMIs and amid a lack of fresh catalysts to spur markets with weekend newsflow dominated by the brief uprising of the Wagner Group in Russia.

• Hang Seng and Shanghai Comp were mixed with the Hong Kong benchmark kept rangebound, while the mainland underperformed on return from the Dragon Boat Festival where travel spending was below pre-COVID levels to add to the weak domestic demand and slower consumption narrative.
• ASX 200 was lacklustre with price action rangebound as weakness in the top-weighted financial sector offset the modest gains in real estate and tech.
• Nikkei 225 lacked decisiveness as participants digested the latest BoJ Summary of Opinions which mostly stuck to the dovish script as it stated it is appropriate to maintain current monetary easing and premature to shift policy, although a member suggested the BoJ must consider reviewing YCC at an early stage even as it maintains easy monetary policy.
• Indian stocks were flat on Monday amid a mixed trend across the region, while small and mid-sized firms resumed rally after profit taking last week.  The S&P BSE Sensex was little changed at 62,970 in Mumbai, while the NSE Nifty 50 Index advanced 0.1%. BSE’s Smallcap and Midcap gauges rose 0.7% and 1%, respectively after dropping over the preceding two sessions. The small and midcap gauges have surged more than 11% each this year, outperforming 3.5% rise in the benchmark Sensex. Reliance Industries was a key decliner among Sensex’s 30 stocks, of which 20 rose, while 10 fell

In FX, the Bloomberg Dollar Spot Index falls 0.1% while the Japanese yen tops the G10 intraday rankings, rising 0.4% versus the greenback after more jawboning from the government. AUDUSD was little changed at 0.6680, lagged kiwi all day on cross sales. The Norwegian krone and Canadian dollar outperformed among G-10 currencies as crude oil gained.

In rates, treasuries extended gains in early US session as 10-year note futures push through Friday session highs, following rally in core European rates and the weekend's geopolitical news.  Treasury yields richer by 4bp to 6.5bp across the curve with gains led by belly, steepening 5s30s spread by 2.5bp on the day; 10-year yields around 3.69%, richer by 4bps vs Friday close with bunds outperforming slightly in the sector. 30Y TSYs are lowest since May 12 and drop below major moving averages as the 10Y breached its 200-day average. Bunds and gilts also rise. The US auction cycle resumes with $42BN in 2Year paper sold at 1pm ET. The WI yield 4.64% ~32bp cheaper than last month’s, which stopped 1.5bp through the WI level, and exceeds 2Y stops since Feb multiyear high 4.673%. Today's auction is followed by $43 billion 5-year notes Tuesday and $35 billion 7-year notes Wednesday.

In commodities, oil turned higher, with traders alert to the risk that any prolonged turmoil in Russia could reverberate through global oil markets. The country’s war in Ukraine has already upended trade flows, with major consumers in Asia including China boosting imports of Russian energy. WTI rose 0.2% to trade near $69.30. Spot gold adds 0.6% to around $1,932.

Looking at today's calendar, there are no Fed speakers today; we will get June Dallas Fed Manufacturing Activity data at 10:30 a.m., and the US will sell $65 billion 13-week and $58 billion 26-week bills at 11:30 a.m. and another $42 billion 2-year notes at 1:00 p.m. Earnings today include Carnival.

Market Snapshot

• S&P 500 futures down 0.2% to 4,381.00
• MXAP down 0.1% to 162.71
• MXAPJ down 0.4% to 512.13
• Nikkei down 0.3% to 32,698.81
• Topix down 0.2% to 2,260.17
• Hang Seng Index down 0.5% to 18,794.13
• Shanghai Composite down 1.5% to 3,150.62
• Sensex down 0.2% to 62,880.49
• Australia S&P/ASX 200 down 0.3% to 7,078.65
• Kospi up 0.5% to 2,582.20
• STOXX Europe 600 down 0.4% to 451.51
• German 10Y yield little changed at 2.30%
• Euro little changed at $1.0891
• Brent Futures down 0.2% to $73.70/bbl
• Gold spot up 0.5% to $1,931.76
• U.S. Dollar Index down 0.12% to 102.78

Top Overnight News

• A BOJ policymaker called for an early revision to its controversial yield curve control, a summary of opinions at the June meeting showed on Monday, suggesting the central bank's ultra-loose monetary settings may be at a crossroads. RTRS
• China tourism activity during the Dragon Boat Festival rose 32.3% Y/Y and came in 12.8% higher than pre-pandemic levels from 2019; China’s government said consumer spending and tourism during the Dragon Boat Festival were strong. SCMP
• China is increasingly worried that the upcoming Taiwan election (in Jan 2024) could exacerbate tensions between Washington and Beijing as the candidate of the incumbent party is more “pro-independence” than the current president. WSJ
• Prigozhin called off his march on Moscow due to a small force of just 8K fighters and after Russian intelligence services threatened to harm the families of senior Wagner leaders. London Telegraph
• U.S. officials said Sunday that they haven’t detected any irregular activity or changes in alert levels with Russia’s nuclear forces. But the failed insurrection by Wagner head Yevgeny Prigozhin has punctured the aura of Russian President Vladimir Putin’s political invincibility, and in doing so has revived decades-old concerns about who might ultimately control Russia’s nuclear forces. WSJ
• Bundesbank may require a capital injection from the German gov’t according to a new report because of the losses incurred from the ECB’s massive QE program. FT
• Germany’s IFO survey for June falls short, with the Expectations component sliding to 83.6 (down from 88.3 in May and below the Street’s 88.1 forecast). BBG
• HFs net bought US Financials (only net bought sector in our prime book last week) but continued to pair back net length in Banks stocks. US Banks long/short ratio hit a new 5-year low last week. The Prime book is now U/W Banks vs. SPX by -2.5%, which is in the 2nd percentile vs. the past year. GSPB
• Trump’s lead over GOP rivals for the Republican nomination expands according to the latest NBC News poll, but he trails Biden by 4 points in a general election matchup. NBC
• Mega-cap stocks powered the S&P 500 aggregate index to a YTD risk-adjusted return of 1.5, while the corresponding return to the equal-weighted index was just 0.4. Although our High Sharpe Ratio basket (GSTHSHRP) since 1999 has posted a 64% hit rate of outperformance vs. the S&P 500 and an average annualized excess return of 482 basis points, the Value-tilted strategy has lagged the growth-driven market in 2023, with a risk adjusted return of 0.8. Firms in our rebalanced basket have the highest prospective risk-adjusted returns. The median constituent is forecast to post 3x the return of the typical S&P 500 stock (32% vs. 11%), with similar implied volatility (28% vs. 25%), and a higher risk-adjusted return (1.2 vs. 0.5).

A more detailed look at global markets courtesy of newsquawk

Asia-Pacific stocks traded mostly subdued after Friday's losses on Wall St owing to weak global PMIs and amid a lack of fresh catalysts to spur markets with weekend newsflow dominated by the brief uprising of the Wagner Group in Russia. ASX 200 was lacklustre with price action rangebound as weakness in the top-weighted financial sector offset the modest gains in real estate and tech. Nikkei 225 lacked decisiveness as participants digested the latest BoJ Summary of Opinions which mostly stuck to the dovish script as it stated it is appropriate to maintain current monetary easing and premature to shift policy, although a member suggested the BoJ must consider reviewing YCC at an early stage even as it maintains easy monetary policy. Hang Seng and Shanghai Comp were somewhat varied with the Hong Kong benchmark kept rangebound, while the mainland underperformed on return from the Dragon Boat Festival where travel spending was below pre-COVID levels to add to the weak domestic demand and slower consumption narrative.

Top Asian news

• Japan Chief Cabinet Secretary Matsuno said it is important for FX to move stably reflecting economic fundamentals; closely watching FX moves with high sense of urgency; sudden and one sided moves seen in FX markets according to Reuters.
• Japan's top FX diplomat Kanda said they will respond to FX moves if moves become excessive and FX should move stably reflecting fundamentals, while he will not rule out any options when asked about intervention and said they are focusing on FX moves rather than levels. It was also reported that Finance Minister Suzuki said they will continue to watch the FX market with a sense of urgency and will respond appropriately if there are excessive moves.
• SNB’s Jordan said the central bank will probably have to hike rates again and the recent interest hike was likely not enough to fully get to grips with the high inflation in Switzerland, according to an interview with SRF.
• BoJ Summary of Opinions from the June meeting stated it is appropriate to maintain current monetary easing and that wage growth is needed, not just cost-push inflation to sustainably and stably hit the price target. BoJ also stated that it is premature to shift policy as smaller firms become keen to hike wages and invest more, as well as noted that the BoJ must maintain easy policy with an eye on side-effects, as long-term risks to prices are skewed to the downside. Furthermore, it stated there was no need to make operational tweaks to YCC as the distortion in the shape of the yield curve has been resolved although a member also noted that the BoJ must consider reviewing YCC at an early stage, even as it maintains easy monetary policy.

European bourses trade on the backfoot following on from the soft close in the US on Friday with losses having picked up since the cash open. US equity futures are extending on Friday’s losses as traders continue to debate whether the pullback is a consolidation of recent gains or a more sinister reversal. Tesla is lower by some 2.1% in the pre-market after being downgraded to neutral from buy at Goldman Sachs with GS of the view that the Co.’s long-term outlook is already priced in. Equity sectors in Europe have a slight negative bias with underperformance in the banking sector. Defence names are also enduring a session of losses potentially as a read-across from events in Russia which could bring the end of the Russia-Ukraine conflict nearer.

Top European news

• UK PM Sunak defended possible curbs on UK public sector pay in which he warned that high public sector pay rises would be giving with one hand and taking with the other by fuelling inflation, according to FT.
• UK Chancellor Hunt will tell consumer watchdogs that they must use their powers to help lower prices amid concerns that supermarkets, banks and utility companies are using high inflation as a cover to boost profits, according to the Sunday Times.
• ECB published an interview with Vice-President de Guindos in which he noted that monetary policy measures are starting to have an impact on financing conditions and a contraction in credit will pass through to the real economy with dampening demand to lower inflation. De Guindos noted that the finishing line is in sight when questioned if the target is a long way off and responded that it will depend on the data when asked if an end to hikes can be expected before the summer holidays.
• ECB’s Makhluof said he is undecided regarding a rate increase beyond July and is prepared to look at the evidence, while he thinks they are near the top of the ladder, according to Irish Independent.
• Europe’s Single Resolution Board pushes policymakers to provide more protection for depositors and is said to be requesting a rethink into how lenders are wound down following recent bank failures, according to FT.
• German Ifo Economist said the likelihood that the German economy will shrink again in Q2 has increased; weak demand for industry and order backlog falling, according to Reuters.
• Bundesbank may need recapitalisation to cover bond-buying losses, potentially ruining the ECB's plans to carry out similar future plans, via FT.
• German minimum wage commission proposes raising the minimum wage to EUR 12.41 (prev. EUR 12) from January 2024, according to Reuters.
• Greek conservatives led by former PM Mitsotakis had a clear lead over former PM Tsipras’s Syriza party in the rerun election with official results showing Mitsotakis’s New Democracy party winning 40.4% of votes and a majority of 157 seats in the 300-seat parliament, according to Reuters.

FX

• DXY is caged to a tight range on either side of 102.75 with G10s mostly firmer against the Buck.
• Yen is among the outperformers amidst softer US Treasury yields and more supply from Japanese exporters, but also a notable pick-up in levels of verbal intervention.
• NZD also ranks among the notable G10 gainers after New Zealand’s Trade Minister said he had positive discussions with China on joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
• EUR lost tentative grip of the 1.0900 handle against its US rival on the back of a bleak German Ifo survey and downbeat accompanying commentary.
• CNH is on the backfoot following China's return from the Dragon Boat Festival holiday as reports indicated depressed levels of spending on travel to compound other signs of weak domestic demand and consumption.

Fixed Income

• Bunds got a big boost from Ifo given that the business climate deteriorated more than anticipated and expectations were especially weak against consensus to outweigh marginally better than forecast current conditions.
• Gilts moved higher in tandem with the German debt, albeit with a lag, between the 95.75-96.39 Liffe parameters.
• T-note futures are also bid with the 10yr contract touching 113-15 at best ahead of the US 2yr auction.

Commodities

• WTI and Brent futures are now on the backfoot following the German Ifo Survey which warned of a higher likelihood the German economy will shrink in Q2. This followed an APAC session of firmer prices in the aftermath of the weekend’s brief Russian mutiny by the mercenary Wagner Group, although this was abruptly called off on Sunday.
• Nat Gas prices gapped higher with Dutch TTF jumping over 7% as supply-side risk premium from Russia is priced in at a time countries look to replenish gas supply for the winter.
• Spot gold has risen, despite a rather rangebound Dollar, as heavens are lifted across the board (FX, Fixed Income, Precious Metals) with spot silver approaching USD 23/oz from lows of USD 22.41/oz
• Base metals are mostly and modestly firmer in what has been a choppy session thus far, with some industrial names possibly cushioned from hopes of more Chinese stimulus.
• OPEC Secretary General said they see global oil demand rising to 110mln bpd by 2045, according to Reuters.
• Saudi Aramco CEO said oil market fundamentals remain generally sound for the rest of the year and developing countries, especially China and India, are driving oil demand growth of more than 2mln bpd this year. he also stated that China's transport and petrochemical sectors are still showing signs of demand growth despite economic headwinds, while he added that renewable energy growth has not met growth in global energy consumption.
• Saudi Aramco and TotalEnergies (TTE FP) award contracts for USD 11bln Amiral project, according to Reuters.
• Qatar said the situation in Russia calls for maximum restraint and will have repercussions on energy and food supplies, according to a Foreign Ministry statement cited by Reuters.
• Eastern Libyan authorities threatened to blockade oil exports over the distribution of state energy revenue.

Geopolitics

• There were reports that the Wagner Group took control of all military facilities in two big Russian cities including Voronezh which is 310 miles from Moscow and that a convoy was headed to Moscow led by senior Wagner commander Utkin after Wagner Group Chief Prigozhin declared war against the Russian Defence Ministry.
• Russian President Putin stated during a national address that they are facing treason and internal betrayal, while he said that any differences should be dropped and that everyone that took part in a mutiny will be punished. Furthermore, he signed an order for 30 days of detainment if martial law is violated and the Russian Foreign Ministry warned Western countries against using the Wagner mutiny ‘to achieve their Russophobic goals’, according to Reuters.
• Russian Wagner Group chief Prigozhin issued a defiant message following Russian President Putin’s speech in which he officially refused to obey Putin’s orders and said he and his men would not turn themselves in on Putin’s orders, as well as stated that Putin is wrong to accuse him of treason. There were also comments in a Wagner-affiliated Telegram channel that Putin made a wrong choice and Russia will have a new president soon.
• It was later reported on Saturday that Wagner Group chief Prigozhin accepted a proposal by Belarusian President Lukashenko to stop the movement of his troops to Moscow which was said to be a profitable and acceptable proposal to solve the issue on the table in which Prigozhin will move to Belarus and the charges against him will be dropped, while Prigozhin confirmed the Wagner Group is returning its convoys to bases to avoid bloodshed and is turning the column advancing to Moscow back to bases.
• Russia’s Kremlin confirmed that Belarusian President Lukashenko helped mediate with the Wagner Group and said fighters that did not take part in the march will sign contracts with the Defence Ministry, while other fighters who took part will not be prosecuted in recognition of their service and stated that avoiding bloodshed was more important than punishing people.
• Ukrainian President Zelensky said the situation in Russia shows no one is in control and there is chaos. Zelensky also stated that Ukraine will not remain silent, will not be inactive and will defend Europe’s eastern flank, while he added that the longer Russian troops remain in Ukraine, the greater the devastation they will bring to Russia, according to Reuters.
• Ukrainian President Zelensky said he spoke with US President Biden in which they discussed the course of hostilities and processes taking place in Russia, while he called for global pressure on Russia and noted that leaders discussed a further expansion of defence cooperation with the emphasis on long-range weapons, according to Reuters.
• Russian President Putin said he is in contact with Defence Ministry officials and Russia feels confident in realising all its plans and tasks related to the special military operation to which he gave top priority to, according to Reuters.
• Ukraine’s Defence Minister Reznikov discussed recent events in Russia with Defence Secretary Austin in which he stated that Russian authorities are weak and that things are moving in the right direction, according to Reuters. It was separately reported that a Ukrainian official said there were no visible signs of a meltdown on the frontline but added that the Wagner Group turmoil could create some new opportunities.
• Ukrainian military intelligence chief General Budanov said Russia has finished preparations for a terrorist attack at the Zaporizhzhia nuclear plant with 4 out of 6 power units at the plant mined with explosives and ready to be blown, according to an interview with The New Statesman.
• US Secretary of State Blinken said the Russian turmoil is an internal matter and he doesn’t think we’ve seen the final act of the turmoil. Blinken also stated that it is too soon to say what the future holds for Wagner fighters and that there has been no change in the US nuclear posture, as well as noted that the unity to support Ukraine remains, according to Reuters.
• US, UK, German and French leaders reaffirmed their commitment to continue supporting Ukraine for as long as necessary, according to a German government spokesperson cited by Reuters.
• Germany reportedly pushed back against the EU plan to raid Russian assets, according to FT. 
• Russia’s central bank said the Moscow stock exchange, banks and other financial institutions will operate as normal on Monday despite the non-working day being observed in Moscow as banks need to ensure the continuous and smooth operation of Russian financial markets, according to Reuters.
• 3,000 elite Chechen troops were sent to protect Moscow from mutinous mercenaries if necessary, according to RIA.
• NATO's Stoltenberg said we do not see any indication that Russia is preparing to use Nuclear weapons, according to Reuters.

US Event Calendar

• 10:30: June Dallas Fed Manf. Activity, est. -20.0, prior -29.1

DB's Jim Reid concludes the overnight wrap

Markets will start the week trying to work out what to make of the volatile situation in Russia that saw a remarkable turn late Friday and into Saturday. In truth perhaps the mutiny and then truce, all within 24-36 hours means more political instability longer-term than shorter-term. At one point on Saturday though, when the Wagner group's Prigozhin had his troops march towards Moscow, it felt that there was a lot of potential global market event risk over the next few days. That has perhaps died down but this whole episode probably increases both the positive and negative tail risks a bit. It could increase the risk of escalation by Mr Putin to reinstate an air of authority, or it could leave him vulnerable which could be seen as positive or negative for Europe, Ukraine and wider markets. It's just impossible to tell at this stage.

Looking at the markets this morning, risk sentiment has remained resilient across the Asian region. As I check my screens, the KOSPI (+0.47%) is trading in the green with the Nikkei (+0.20%) and the Hang Seng (+0.12%) rebounding from its opening losses. Equities in Mainland China are sliding with the CSI (-1.00%) and Shanghai Composite (-0.81%) catching down after holidays late last week. Outside of Asia, US stock futures are regaining some ground with those on the S&P 500 (+0.29%) and NASDAQ 100 (+0.34%) edging higher after US stocks posted their worst weekly performance since March. Yields on 10yr USTs are around -1bps lower, trading at 3.72% as we go to press.

Looking forward now, the US PCE (Friday) and Eurozone CPI releases (Wednesday to Friday) are the obvious focal points this week. Rivalling these for top billing, the ECB annual forum in Sintra (Mon-Weds) will feature plenty of speakers, including the heads of the Fed, the ECB, the BoJ and the BoE on a panel together on Wednesday.

Elsewhere German IFO (today), US new home sales and durable goods (tomorrow), results of US bank stress tests (Wednesday), US jobless claims (Thursday), China PMI (Friday), and Tokyo CPI (Friday) are also important with US claims possibly the one to watch most given the recent increase. This increase hasn’t filtered through into continuing claims yet so that is the current shield to worrying about a deteriorating US labour market.

Going through some of the top tier events in a little more detail, let’s start with US PCE on Friday which comes as part of the personal income and consumption report. DB expect the core PCE deflator to soften a tenth on both the monthly (0.3% MoM vs 0.4% last month) and YoY (4.6% YoY from 4.7% last month) readings. Our economists point out that to meet the Fed’s forecast of 3.9% YoY core PCE this year we would need around 27bps of monthly prints into YE. DB actually expects 3.6%. So all else being equal these prints could be the swing factor between 1-2 Fed hikes out to YE in their own dot plots.

Something that could be interesting is the results of the annual US bank stress tests on Wednesday. Those will be closely watched following the regional banking turmoil this spring that resulted in several bank failures as well as lingering concerns over risks to the banking system tied to deposit dynamics and interest rates. For the first time, the stress test will include an "exploratory market shock component", for the largest banks. The "severely adverse scenario" will focus on the effects of "a severe global recession" coupled with turmoil in real estate markets, both commercial and residential, and corporate debt markets. These stress tests are always a double edge sword. Too onerous and they can create their own turmoil, but too loose and they lack some credibility. So an interesting one to watch.

Later in the week, Italy will kick off European CPI releases on Wednesday, followed by Germany on Thursday with France and the Eurozone on Friday. Our European economists' inflation chartbook looks at the latest trends and developments here. The team's forecast for the June Eurozone print due on Friday is 5.8% YoY for headline (vs 6.1% in May) and 5.7% for core (vs 5.3% in May). It will be the last set of inflation readings ahead of the July 27th ECB meeting. See the day-by-day calendar at the end as usual for the full week's docket.

Looking back on last week now, on Friday, we had a round of soft manufacturing PMI data that played on growing fears of recession. In the US, the composite PMI data for June came in below expectations at 53.0 (vs 53.5 expected). Although services were a touch stronger than expected at 54.1 (vs 54.0 expected), manufacturing surprised to the downside at 46.3 (vs 48.5 expected), firmly in recessionary territory after its largest down move since November 2022. The softening in manufacturing was mirrored in Europe, as the manufacturing PMI for the Eurozone in June came in at 43.6 (vs 44.8 expected). The services component also weakened to 52.4 (vs 54.5 expected), bringing the composite down to just barely a sliver above recessionary territory at 50.3 (vs 52.5 expected).

This sustained weakness in manufacturing added to the negative bias to last week’s trading. In US equities, the S&P 500 slipped -0.77% on Friday, and -1.39% week-on-week, its worst week since March. Information technology slightly underperformed on Friday, with the NASDAQ sliding -1.01% on the day, and -1.44% in weekly terms. Over the course of the week, the risk-off tone was more pronounced in Europe, as the STOXX 600 fell back -2.93% (-0.34% on Friday).

In contrast to the sell-off in equities, fixed income rallied across both sides of the Atlantic on Friday as the soft manufacturing data highlighted recession risks and pointed to easing inflationary pressures. The rally was more significant in Europe, as 10yr bund yields fell -14.1bps on Friday to 2.35%, the largest daily decline since late April, erasing gains earlier in the week to be down -12.1bps in weekly terms. US 10yr Treasury yields fell by -6.0bps on Friday to 3.735% (down -2.7bps week-on-week). With the short end rates rally less pronounced, the 2s10s slope turned more negative for the seventh week in a row, standing at -100.6bp for US Treasuries and at -75.3bp for bunds, the latter a new post-1992 low and the former only trading lower for a couple of days (earlier this year) in the last 40 plus years.

Lastly, turning to commodities, oil retreated further on Friday as recession fears revived in the latter half of last week. Brent crude fell back -3.60% last week to $73.85/bbl. This was the largest weekly decline since early May, coming despite a strong rally late on Friday from an intra-day low of $72.11 (-0.39% overall on the day). WTI crude likewise fell back -3.65% week-on-week (and -0.50% on Friday) below $70/bbl to $69.16/bbl. Copper similarly fell back last week amid concerns of soft manufacturing data, down -2.20% (and -2.22% on Friday). In other commodity news, Bitcoin hit its highest price since early June last year, breaching the $30,000 level to hit $31,105 on Friday after gaining +3.74% on the day, and +16.86% over the five working days to Friday, though it has partially reversed Friday’s rise over the weekend standing at $30,298 as we type this morning. Last week’s gains came as the cryptocurrency market speculated on the arrival of new cryptocurrency ETFs delivered by a number of key traditional financial institutions, as reported by Bloomberg.