- US stocks were pressured and bonds were also hit as participants digested several firm data releases including hot ADP employment, sub-250k jobless claims and a spike in ISM Services which further spurred hawkish Fed pricing and resulted in particular weakness in the cyclical/value areas.
- USD weakened despite a slew of firm data releases including ADP jobs and ISM Services, while Jobless Claims were mixed and JOLTS printed below estimates. The pressure in the greenback coincided with risk aversion which benefitted haven currencies, although the DXY has held on to the 103.00 level as the focus now turns to the upcoming Non-Farm Payrolls report.
- Looking ahead, highlights include Japanese Household Spending, Average Cash Earnings & Leading Index.
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LOOKING AHEAD
- Highlights include Japanese Household Spending, Average Cash Earnings & Leading Index.
US TRADE
- US stocks were pressured and bonds were also hit as participants digested several firm data releases including hot ADP employment, sub-250k jobless claims and a spike in ISM Services which further spurred hawkish Fed pricing and resulted in particular weakness in the cyclical/value areas.
- SPX -0.79% at 4,412, NDX -0.75% at 15,089, DJI -1.07% at 33,923, RUT -1.64% at 1,842.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed's Logan (voter) said she would have been okay with a June hike and more hikes will likely be necessary, while she is very concerned as to whether inflation will cool quickly enough and said it is important for the Fed to deliver on the June rate outlook projections. Logan also commented that underestimating inflation did not blunt the impact of the tightening process and noted the Fed has room to shrink the balance sheet for quite some time.
- US President Biden’s administration is expected to propose a new regulation cracking down on short-term health insurance plans on Friday, according to Politico sources.
DATA RECAP
- US ISM Services PMI (Jun) 53.9 vs. Exp. 51.0 (Prev. 50.3)
- US S&P Global Services PMI Final (Jun) 54.4 (Prev. 54.1)
- US S&P Global Comp Final PMI (Jun) 53.2 (Prev. 53.0)
- US International Trade (USD)(May) -69.0B vs. Exp. -69.0B (Prev. -74.6B)
- US Initial Jobless Claims w/e 248.0k vs. Exp. 245.0k (Prev. 239.0k)
- US Continued Jobless Claims w/e 1.72M vs. Exp. 1.745M (Prev. 1.742M)
- US ADP National Employment (Jun) 497.0k vs. Exp. 228.0k (Prev. 278.0k, Rev. 267.0k)
- US JOLTS Job Openings (May) 9.824M vs. Exp. 9.935M (Prev. 10.103M)
- US Challenger Layoffs (Jun) 40.709k (Prev. 80.089k)
FIXED INCOME
- US Treasuries were sold further after hot ADP, sub-250k jobless claims, and hot ISM Services, with the belly ultimately weakest after the front-end recovered significantly.
FX
- USD weakened despite a slew of firm data releases including ADP jobs and ISM Services, while Jobless Claims were mixed and JOLTS printed below estimates. The pressure in the greenback coincided with risk aversion which benefitted haven currencies, although the DXY has held on to the 103.00 level as the focus now turns to the upcoming Non-Farm Payrolls report.
- EUR gained amid the softer dollar but with the upside in EUR/USD capped by resistance at 1.0900.
- GBP ultimately strengthened against the greenback after wavering around the 1.2700 level.
- JPY gained amid the risk-aversion which saw USD/JPY briefly dip beneath the 144.00 handle but with downside stemmed by the upside in US yields.
COMMODITIES
- Crude prices were choppy as bullish EIA inventory data unwound the earlier losses that were spurred by hawkish Fed repricing in reaction to strong US employment data.
- US EIA Weekly Crude Stocks w/e -1.508M vs. Exp. -1.3M (Prev. -9.603M)
- OPEC will maintain an upbeat view on oil demand growth for next year when it publishes its outlook on July 13th and is predicting a slowdown from this year but will still be at an above-average increase, according to Reuters sources.
- Saudi Arabia raised Arab Light OSP to Asia by USD 0.20/bbl for August, while it also lifted Arab Medium and Heavy OSP to Asia. Furthermore, it set Arab Light OSP to NW Europe at +USD 3.80/bbl vs ICE Brent (prev. +USD 3.00/bbl M/M) and set Arab Light to US set at +USD 7.25/bbl to ASCI (prev. +USD 7.15/bbl M/M).
- UAE reiterated that voluntary oil supply cuts are enough to balance the market and said it has not been asked to conduct any voluntary oil production cuts. UAE Energy Minister also stated that oil demand growth is high this year at around 2% and OPEC+ quota tweak is to happen in 2025.
- Iraqi Oil Minister said Iraq's oil production capacity is at 5.4mln BPD and total production is currently at 4.43mln BPD, while they aspire to raise production to 6mln BPD.
GEOPOLITICAL
- Ukraine said tension had eased over the Zaporizhia nuclear plant, according to Al Arabiya. It was also later reported that the Ukrainian military spy chief said the threat is receding at the Zaporizhzhia nuclear power plant, according to Reuters.
- US is expected to announce it will provide Ukraine with cluster munitions, according to NYT citing a senior Biden administration official, while Russia's delegate to the UN said the US sending of cluster munitions to Ukraine is a new step towards escalation, according to Al Arabiya.
- Russian Kremlin said no date has been confirmed for a meeting between President Putin and Belarusian President Lukashenko, while it declined to comment on whether a decision has been taken to deploy Wagner fighters to Belarus.
- Belarusian President Lukashenko said Russia will consult with Belarus in case nuclear weapons are used and they are not going to attack anyone with nuclear weapons, but if aggression is shown, the response will be immediate and targets have been determined. Lukashenko also said nuclear weapons will not be used during the special military operation and its use is only possible in case of NATO aggression, while he said that talks on Ukraine hit a dead end but later commented that Ukraine peace talks may start by Autumn, according to Tass.
- NATO Secretary General Stoltenberg said Belarus is preparing to host a large number of troops.
- US President Biden and Turkish President Erdogan may meet at the NATO Summit.
- Sweden’s Foreign Minister said they made progress today in the meeting between Sweden, Finland, Turkey and NATO, while they are looking for a positive decision next week but added it is a Turkish decision at the end of the day.
- US Navy said Iran's Revolutionary Guards seized a commercial ship in the Gulf’s international waters which was possibly engaged in smuggling activity, while the US Navy deployed maritime assets to monitor but did not respond to the event.
- Chinese President Xi said it is necessary to deepen planning for war and fighting, and improve the ability to win, according to Al Arabiya.
ASIA-PAC
NOTABLE APAC HEADLINES
- PBoC said it has been actively supporting construction in Shanghai and supports the healthy development of the offshore bond market in the Shanghai free trade zone, while it added that Shanghai's free trade zone bond market should live up to its name and adhere to offshore positioning.
- Chinese Premier Li said China will implement policy measures to stabilise growth, employment and prevent risks. Li added that the domestic economy is rebounding and they will establish normalised communication mechanisms between government and foreign private companies, according to state media.
- Chinese Commerce Ministry spoke on the US restricting chip exports to China in which it said the US approach is detrimental to Chinese companies’ legitimate interests, as well as hinders global, economic, trade exchanges and cooperation.
- Senior US official expects discussions on China's move to require licences for exports of gallium and germanium, while the official said the move by China is something they see as concerning and an example of why diversifying supply chains is needed.
- US Treasury Secretary Yellen is to meet with Chinese Premier Li and US business leaders on Friday, according to a senior US official. Furthermore, the US has been clear that it does not support decoupling of the Chinese and US economies, while Yellen is to address unfair practices by China including recent punitive actions against US firms and barriers to market access.
- US Climate Envoy Kerry is to visit China in July, according to Bloomberg citing sources.
- BoJ Deputy Governor Uchida urged a "balanced decision" on yield curve control and said they will continue it for the time being, while he tempered expectations for a swift adjustment in policy and said there are no plans to change the 2% inflation target.
EU/UK
NOTABLE HEADLINES
- BoE Governor Bailey expects a marked fall in inflation but said it will be hard for borrowers and that he cannot provide a date for when interest rates will begin to come down, according to BBC.
- BoE Decision Maker Panel stated one-year ahead CPI inflation expectations fell to 5.7% in June from 5.9% in May and year-ahead output price inflation is expected at 5.3% vs prev. 5.4% view.
- UK PM Sunak tapped German Chancellor Scholz to help delay the EU EV tariff, according to Bloomberg.
- UK trade union RMT said rail workers will take a week of strike action on the London Underground from July 23rd in a dispute over pensions and working conditions.
- ECB's Nagel said rates will have to remain high for a longer period and he does not see the threat of excessive tightening currently but cannot say yet where interest rates will peak.
DATA RECAP
- UK S&P Global/CIPS Cons PMI (Jun) 48.9 vs. Exp. 51.0 (Prev. 51.6)
- German HCOB Construction PMI (Jun) 41.4 (Prev. 43.9)
- EU HCOB Construction PMI (Jun) 44.2 (Prev. 44.6)
- EU Retail Sales MM (May) 0.0% vs. Exp. 0.2% (prev. 0.0%) -EU Retail Sales YY (May) -2.9% vs. Exp. -2.7% (Prev. -2.6%)
