- US stocks marginally edged higher in rangebound trade amid a softer yield environment as participants digested mixed data including disappointing Retail Sales and better-than-expected Industrial Production, while price action was contained ahead of the Juneteenth holiday and the deluge of comments from Fed officials largely toed the line with what Fed Chair Powell had previously stated.
- USD was ultimately flat on the day after recovering from the early pressure triggered by US Retail Sales which was softer than expected but returned to expansion territory, while there was a deluge of Fed speakers although all seemed to conform to the view that there was progress on inflation but more confidence was needed for an interest rate cut.
- Looking ahead, highlights include New Zealand Current Account, Japanese Trade Data, BoJ Minutes from the April Meeting, Supply from Australia, US markets are closed on Wednesday for Juneteenth.
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LOOKING AHEAD
- Highlights include New Zealand Current Account, Japanese Trade Data, BoJ Minutes from the April Meeting, Supply from Australia, US markets are closed on Wednesday for Juneteenth.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks marginally edged higher in rangebound trade amid a softer yield environment as participants digested mixed data including disappointing Retail Sales and better-than-expected Industrial Production, while price action was contained ahead of the Juneteenth holiday and the deluge of comments from Fed officials largely toed the line with what Fed Chair Powell had previously stated.
- SPX +0.25% at 5,487, NDX flat at 19,909, DJIA +0.15% at 38,835, RUT +0.16% at 2,025.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed's Barkin (Voter) said they are clearly on the back side of inflation and it is hard to know how much signal to take from inflation last year, or this quarter, or the last couple of weeks. Barkin also said they are still hearing from firms that annual merit increases are more like 3-4% and are hearing that productivity is a little higher than before as well.
- Fed's Kugler (Voter) said it is likely appropriate to begin easing policy sometime later this year if the economy evolves as expected, while she added that monetary policy is sufficiently restrictive and economic conditions are moving in the right direction. Kugler said policy has more work to do and judgement will be guided by data, as well as noted that inflation is too high but she is encouraged by renewed recent progress. Furthermore, Kugler said they have seen an increase in delinquencies indicating that households are being stretched and stated that how much they cut will be a question they continue to assess as more data comes in and is not an answer they can give today.
- Fed's Williams (Voter) said the rate cut path will depend on the data and the US economy is doing well which is in better balance. Williams added things are moving in the right direction for monetary policy and he expects interest rates to come down gradually as inflation eases, while he added that interest rates will come down over the next few years, according to Fox Business News.
- Fed's Collins (Non-Voter) said it is appropriate for the Fed to remain patient on monetary policy and cautioned against overreacting to recent inflation data. Collins said she remains a ‘realistic optimist’ on the economy and monetary policy but stated it is soon to note if inflation is retreating again to 2%.
- Fed's Logan (Non-Voter) said she is optimistic about generative AI's effect on productivity and understanding how much effect AI will have takes time to know and will have implications for monetary policy. Logan said inflation is still too high but may have made tremendous progress and that May CPI data was welcome news but will need to see several more months to have confidence leading to 2%. Logan also stated she will be watching data in the coming months quite closely and they are in a good position to be patient on policy.
- Fed's Goolsbee (Non-Voter) said the inflation number that came out during last week's meeting was 'excellent' and hopefully "we'll" see more data like that, while he added they will get to 2% inflation.
- Fed's Musalem (Non-Voter) said he needs to observe a period of favourable inflation, moderating demand and expanding supply before he will have confidence for an interest rate cut, while he added these conditions could take months and more likely quarters to play out. Musalem said if inflation becomes stuck meaningfully above 2% or moves higher, he would support additional policy tightening although he noted potential early signs of continued progress on inflation and said the PCE price index should show a welcome downshift of inflation in May.
- CBO forecasts US fiscal 2024 federal deficit at USD 1.915tln which is up USD 408bln from the February forecast.
DATA RECAP
- US Retail Sales MM (May) 0.1% vs. Exp. 0.3% (Prev. 0.0%, Rev. -0.2%)
- US Industrial Production MM (May) 0.9% vs. Exp. 0.3% (Prev. 0.0%)
- US Manufacturing Output MM (May) 0.9% vs. Exp. 0.3% (Prev. -0.3%, Rev. -0.4%)
FX
- USD was ultimately flat on the day after recovering from the early pressure triggered by US Retail Sales which was softer than expected but returned to expansion territory, while there was a deluge of Fed speakers although all seemed to conform to the view that there was progress on inflation but more confidence was needed for an interest rate cut.
- EUR returned to flat territory against the dollar after gradually fading the advances from the soft US Retail Sales, while the recent data releases from the Eurozone were mixed.
- GBP lacked firm direction with price action choppy on both sides of the 1.2700 level with participants now awaiting Wednesday's inflation data from the UK.
- JPY initially weakened in which USD/JPY briefly climbed above 158.00 but then faded majority of the earlier moves as US yields softened post-retail sales.
FIXED INCOME
- T-notes were bid across the curve after softer-than-expected retail sales data.
COMMODITIES
- Oil prices were firmer in an extension of Monday's extensive gains amid thin energy-specific newsflow and lingering geopolitical risks.
- US Private Inventory Data (bbls): Crude +2.3mln (exp. -2.2mln), Distillate +0.5mln (exp. +0.3mln), Gasoline -1.1mln (exp. +0.6mln), Cushing +0.5mln.
GEOPOLITICAL
MIDDLE EAST
- Israel military said operational plans for an offensive in Lebanon were approved and validated.
- Lebanon's Hezbollah published drone footage that claims to show surveillance of Haifa in Israel which is 27km from the border.
- US Secretary of State Blinken said the US is still trying to bridge the gaps in ceasefire talks and Hamas continues to move the line.
- US President Biden's senior adviser Amos Hochstein's paper seeks a truce agreement with Israel after removing Hezbollah forces from the border, according to Al Hadath citing Lebanese press
ASIA-PAC
NOTABLE HEADLINES
- China's securities regulator said they will enrich policy tools to manage market fluctuations and will resolutely prevent abnormal stock market volatility, while they are to strengthen strategic reserves and the market stabilisation mechanism.
- A senior US official is set to visit Japan and the Netherlands to ask the two countries to add fresh restrictions on China’s semiconductor sector including on its ability to make the high-end memory chips needed for AI, according to Bloomberg.
- US House of Representatives is launching a bipartisan critical minerals working group to address China's dominance of key materials.
- RBI Governor Das said strong momentum of economic activity has continued in Q1 FY25 which is well sustained and inflation is moderating but at a very slow pace, while the last mile of disinflation is proving to be very sticky, arduous, and very slow. Furthermore, he is quite confident of inflation moderating to 4% but noted they need clear evidence that inflation should moderate and perhaps a little faster for a re-think on policy stance.
EU/UK
NOTABLE HEADLINES
- ECB's de Guindos said the best time for rate decisions is every 3 months when macro projections are released and the next release will be in September.
- ECB's Knot said inflation might start climbing again and should not pre-empt future rate developments.
- ECB/Bank of France’s Villeroy said they owe citizens respect and that means not running bigger deficits that cannot be financed, while he added that also means quickly clarifying economic and budget strategy.
DATA RECAP
- German ZEW Economic Sentiment (Jun) 47.5 vs. Exp. 50.0 (Prev. 47.1)
- German ZEW Current Conditions (Jun) -73.8 vs. Exp. -65.0 (Prev. -72.3)
- EU ZEW Survey Expectations (Jun) 51.3 (Prev. 47.0)
- EU HICP Final YY (May) 2.6% vs. Exp. 2.6% (Prev. 2.6%)
