- US stocks were mixed on the eve of the FOMC and US CPI release with outperformance in the Nasdaq amid firm gains in Apple (AAPL) (+7%) after an upgrade from DA Davidson in the wake of the WWDC event on Monday. Meanwhile, the morning weakness surrounding French election uncertainty had unwound once Europe had left for the day and a slump in UST yields following a stellar 10-year auction stateside underpinned US indices to session highs.
- USD was marginally firmer with early strength predominantly driven by Euro weakness rather than fresh US headlines although the DXY later gave back some of its gains as US yields softened and as participants braced for Wednesday's key events.
- Looking ahead, highlights include South Korean Unemployment Rate, Japanese PPI, Chinese CPI & PPI.
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LOOKING AHEAD
- Highlights include South Korean Unemployment Rate, Japanese PPI, Chinese CPI & PPI.
- Click here for the Newsquawk Week Ahead.
US TRADE
- US stocks were mixed on the eve of the FOMC and US CPI release with outperformance in the Nasdaq amid firm gains in Apple (AAPL) (+7%) after an upgrade from DA Davidson in the wake of the WWDC event on Monday. Meanwhile, the morning weakness surrounding French election uncertainty had unwound once Europe had left for the day and a slump in UST yields following a stellar 10-year auction stateside underpinned US indices to session highs.
- SPX +0.27% at 5,375, NDX +0.71% at 19,210, DJI -0.31% at 38,747, RUT -0.36% at 2,024.
- Click here for a detailed summary.
NOTABLE HEADLINES
- WSJ's Timiraos noted the Fed "do not want to cut without more convincing evidence their policy stance is as restrictive as they think it is...But some are uneasy it will be too late to avoid an employment downturn by the time they see the evidence". Timiraos also wrote that rarely is there a meeting where the data released in the morning of the meeting could influence the meeting and that the release of the May CPI could move one or two rate projections in the SEP. Furthermore, he said “Wednesday's unusual 'macro-doubleheader' might yield an unusual last minute change on where the median—or midpoint—of the 19 policymaker projections land if only because the line between a median of 1 or 2 cuts seems like a tossup."
- WSJ's Timiraos said inflation forecasters see the core CPI posting roughly a similar increase in May as in April and noted that an increase of 0.28% in the core CPI would lower the Y/Y rate to 3.5%.
- US President Biden's son, Hunter Biden, was convicted of all three felony charges in his federal gun trial.
FX
- USD was marginally firmer with early strength predominantly driven by Euro weakness rather than fresh US headlines although the DXY later gave back some of its gains as US yields softened and as participants brace for Wednesday's key events.
- EUR softened amid the ongoing political uncertainty, while there were multiple ECB speakers including Chief Economist Lane who noted a high level of uncertainty and still-elevated price pressures that are evident in the indicators for domestic inflation.
- GBP initially softened following disappointing jobs data and softer-than-expected average earnings but then gradually pared losses to return to relatively flat territory.
- JPY was choppy in which USD/JPY traded on both sides of the 157.00 level heading into the key events stateside, while Japanese PPI data is scheduled for Wednesday's session and participants also look ahead to the BoJ on Friday.
FIXED INCOME
- T-notes were firmer on the day after a stellar 10-year auction spurred a rally in the afternoon.
COMMODITIES
- Oil prices saw marginal upside in rangebound trade ahead of inventory data, US CPI and FOMC.
- US Private Inventory Report (bbls): Crude -2.4mln (exp. -1.05mln), Cushing -1.9mln, Distillate +1mln (exp. +1.6mln), Gasoline -2.5mln (exp. +0.9mln).
- OPEC MOMR (June) noted that demand growth for 2024 and 2025 remain broadly unchanged vs prior month at 2.2mln BPD and 1.8mln BPD, respectively.
- EIA STEO raised its 2024 world oil demand growth forecast by 180k BPD and now sees a 1.1mln BPD Y/Y increase, while it raised the 2025 world oil demand growth view by 80k BPD and now sees 1.5mln BPD Y/Y increase.
GEOPOLITICAL
MIDDLE EAST
- Israeli government official said Israel will not end the war until all objectives are achieved and the proposal enables Israel to achieve war goals of returning hostages.
- Hamas agreed to the UN Security Council ceasefire resolution and is ready to negotiate details, according to a Hamas official cited by Reuters.
- Hamas and Palestinian Islamic Jihad said they have submitted a response to the proposed Gaza ceasefire deal to Qatari and Egyptian mediators, according to a joint statement. Furthermore, the Hamas response contained amendments to the Israeli proposal such as a ceasefire and withdrawal from the entire Gaza Strip, including the Rafah crossing and the Philadelphia axis, according to Al Jazeera citing sources.
- Israeli official said Hamas has rejected the proposal for a hostage release presented by US President Biden, while the official added that Israel received the Hamas response via mediators and that Hamas changed the proposal's main parameters.
OTHER
- Russia's Kremlin said tactical nuclear weapons drills are necessary due to tensions in Europe and said regarding the US move to arm Ukraine's Azov that the US will not stop at anything to hurt Russia.
- Russian Secretary of the Security Council Shoigu said tactical nuclear weapon drills are a response to the NATO military build-up near Russia’s borders, according to Interfax.
- Russian submarine Kazan and Frigate Admiral Gorshkov are practising the use of high-precision weapons in the Atlantic, according to IFX.
- German Chancellor Scholz said maybe the Swiss peace conference could map out a path towards a process in which Russian President Putin is involved.
ASIA-PAC
NOTABLE HEADLINES
- US weighs more limits on China's access to chips needed for AI, US officials are reportedly in early talks on high-bandwidth memory curbs, according to Bloomberg.
- China said it will stabilise grain production to ensure food security, according to state media.
- BoK May meeting minutes stated one board member said the inflation aspect requirements for easing monetary tightening appear to be gradually being fulfilled.
EU/UK
NOTABLE HEADLINES
- UK PM Sunak's Conservative Party Manifesto stated they will abolish the main national insurance payroll tax for self-employed by the end of the next parliament and will cut employee national insurance payroll tax to 6% by April 2027.
- ECB's Chief Economist Lane said there is a high level of uncertainty and still-elevated price pressures that are evident in the indicators for domestic inflation, while he added the ECB is not pre-committing to a particular rate path and will be agile on interest rates.
- ECB's Makhlouf said he is not uncomfortable with market pricing of a little more than one rate cut this year and 90 bps by the end of 2025.
- ECB's Rehn said monetary policy has dampened price pressures and considerable progress has been made, while ECB's Rehn said the ECB knows the inflation path is a bumpy road, but sees stabilisation ahead.
- ECB's Simkus said it is too early to declare victory over inflation and rates can be cut more if the ECB is sure the 2% inflation target will be met.
- ECB's Villeroy said rate reduction markets are a "decisive orientation" and there is limited spill-over from Fed/ECB's difference in timing.
- Fitch Ratings said France's snap election heightens fiscal and reform uncertainty, while it has increased uncertainty around policy settings but there are no immediate implications for France's AA-/Stable rating.
DATA RECAP
- UK Employment Change (Apr) -140k vs. Exp. -100k (Prev. -177k)
- UK ILO Unemployment Rate (Apr) 4.4% vs. Exp. 4.3% (Prev. 4.3%)
- UK Average Earnings (Ex-Bonus) (Apr) 6.0% vs. Exp. 6.1% (Prev. 6.0%)
