- US stocks mostly tumbled with tech and semis leading the declines after recent reports that the US warned allies of stricter trade rules in a China chip crackdown and after ASML (ASML NA) provided weak Q3 guidance, while Presidential Candidate Trump's warning on China tariffs (between 60-100%) and suggestions that Taiwan should pay for defence also weighed on sentiment. This pressured most US stock indices with the Nasdaq the worst hit as the losses were highly concentrated in Tech, Communication, and Consumer Discretionary, while Consumer Staples, Energy, and Financials saw decent gains and the Dow bucked the trend to print fresh record highs.
- USD weakened and the DXY retreated beneath 104.00 owing to strength in its major peers, in particular, haven currencies, while better-than-expected US data including Industrial Production, Housing Starts and Building Permits did little to spur a recovery. There were also several Fed speakers including Waller who said the time to cut policy rates is getting close and outlined three scenarios in which the most likely one is for uneven inflation data ahead but to continue showing progress which makes a cut in the near future more uncertain.
- Looking ahead, highlights include Japanese Trade Data, Australian Employment Change & Unemployment Rate, Malaysian Trade Data, Supply from Japan.
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LOOKING AHEAD
- Highlights include Japanese Trade Data, Australian Employment Change & Unemployment Rate, Malaysian Trade Data, Supply from Japan.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks mostly tumbled with tech and semis leading the declines after recent reports that the US warned allies of stricter trade rules in a China chip crackdown and after ASML (ASML NA) provided weak Q3 guidance, while Presidential Candidate Trump's warning on China tariffs (between 60-100%) and suggestions that Taiwan should pay for defence also weighed on sentiment. This pressured most US stock indices with the Nasdaq the worst hit as the losses were highly concentrated in Tech, Communication, and Consumer Discretionary, while Consumer Staples, Energy, and Financials saw decent gains and the Dow bucked the trend to print fresh record highs.
- SPX -1.39% at 5,588, NDX -2.94% at 19,799, DJI +0.59% at 41, 198, RUT -1.06% at 2, 240
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed Beige Book stated that prices increased at a modest pace overall with a couple of Districts noting only slight increases, while on balance, employment rose at a slight pace in the most recent reporting period. Furthermore, economic activity maintained a slight to modest pace of growth in a majority of Districts this reporting cycle and seven Districts reported some level of increase in activity, while five noted flat or declining activity.
- Fed's Barkin (voter) said expectation of a recession as needed to slow inflation has not played out and it is remarkable how strong consumer spending has remained, while he added that the US is clearly on the "back end" of inflation. Furthermore, Barkin said he is sure the Fed will debate at the July meeting whether it is still appropriate to describe inflation as elevated, as well as noted that no single 25bp cut matters one way or the other and the issue is on when to change the narrative.
- Fed's Waller (voter) said the time to cut policy rates is getting close based on the analysis of potential scenarios including an optimistic scenario with a "significant but not high probability" in which they will see more good inflation data and could mean an interest rate cut in the not-too-distant future. Furthermore, his second and more likely scenario is for uneven inflation data ahead but to continue showing progress which makes a cut in the near future more uncertain, while the third scenario with low probability is for a significant resurgence in inflation in the second half of the year. Furthermore, Fed's Waller said the exact timing of a rate cut does not matter a lot and the key to easing is when conditions justify it.
- Fed's Williams (voter) said the Fed is closer but not ready to cut and a rate cut will be appropriate in the coming months, while more data will help provide confidence on inflation and they are seeing broad-based declines in inflation.
- WSJ's Timiraos noted that the comments from Fed's Waller are a notable shift from two months ago when he suggested the Fed need not cut rates until December, and that now he's clearly open to a September cut.
- US President Biden is to consider dropping his presidential bid if a medical condition emerged, according to NY Post.
DATA RECAP
- US Industrial Production MM (Jun) 0.6% vs. Exp. 0.3% (Prev. 0.9%, Rev. 0.9%)
- US Manufacturing Output MM (Jun) 0.4% vs. Exp. 0.2% (Prev. 0.9%, Rev. 1.0%)
- US Capacity Utilization SA (Jun) 78.8% vs. Exp. 78.4% (Prev. 78.7%, Rev. 78.3%)
- US Housing Starts Number (Jun) 1.353M vs. Exp. 1.3M (Prev. 1.277M, Rev. 1.314M)
- US Building Permits: Number (Jun) 1.446M vs. Exp. 1.395M (Prev. 1.399M)
FX
- USD weakened and the DXY retreated beneath 104.00 owing to strength in its major peers, in particular, haven currencies, while better-than-expected US data including Industrial Production, Housing Starts and Building Permits did little to spur a recovery. There were also several Fed speakers including Waller who said the time to cut policy rates is getting close and outlined three scenarios in which the most likely one is for uneven inflation data ahead but to continue showing progress which makes a cut in the near future more uncertain.
- EUR gained and reclaimed the 1.0900 status against the greenback during the European morning then proceeded sideways throughout US trade.
- GBP was underpinned from after UK CPI data which printed in-line or slightly firmer-than-expected and Services CPI remained elevated, while the attention for the UK shifts to Employment and Average Earnings data due on Thursday morning.
- JPY outperformed alongside CHF with haven demand supported by the risk-off mood following Trump's protectionist rhetoric against China, while some desks were attributing today's price action to a reassessment of the JPY's role as a funding currency and a Reuters reports suggested intervention could be playing a role.
FIXED INCOME
- T-notes initially saw marginal selling pressure following recent Trump tariff commentary, hot UK CPI, better-than-expected US data, and a marginally hawkish Waller, although pared the losses heading into the settlement as stocks plummeted.
COMMODITIES
- Oil prices gained throughout the session with prices seemingly supported by the weaker dollar, while inventory data also showed a notable surprise draw in crude stockpiles.
- US EIA Weekly Crude Stocks -4.87M vs. Exp. 0.8M (Prev. -3.443M)
- Qatar set the September Al-Shaheen crude term price at USD 1.88/bbl above Dubai quotes which is the highest premium in three months, according to Reuters sources.
- Greek navy this week extended an advisory effectively banning ship traffic off the coast of the southeastern Peloponnese and further, in a bid to deter ship-to-ship transfers of Russian oil off Greece, according to Reuters sources.
GEOPOLITICAL
MIDDLE EAST
- Israeli PM Netanyahu said they are progressing systematically towards achieving the goals of the war, according to Al Arabiya.
- Israeli Defence Minister told his US counterpart that military operations in Gaza have made the conditions required to reach a hostage deal.
- Israeli delegation arrived in Cairo for fresh hostage-ceasefire talks, according to Times of Israel.
- US military said it is ending its Gaza temporary pier operation and that the mission is "complete", while the US is to transition from the temporary pier off the Gaza coast for aid to the Ashdod Port.
- US reportedly privately warned Iran over suspicious nuclear activities, according to Axios.
OTHER
- Russia Foreign Minister Lavrov said Russia is ready to work with any US leader who is willing to engage in 'equitable, mutually respectful dialogue'. Lavrov added there was still dialogue underway in Trump's administration despite serious sanctions.
ASIA-PAC
NOTABLE HEADLINES
- There were unconfirmed rumours circulating in Chinese social media that Chinese President Xi suffered a stroke during the CCP's Third Plenum.
- EU delegate to the WTO asked China to refrain from claiming developing country benefits and noted that China's industrial policies are "distortive".
- Japan's outgoing top currency diplomat Kanda said they will respond appropriately to excessive FX moves and if speculators cause excessive moves, they have no choice but to respond appropriately, while he added they are in close contact with other countries' authorities and there has been no criticism, according to Kyodo.
EU/UK
NOTABLE HEADLINES
- UK King's Speech stated the government will legislate to introduce a new deal for workers and will reform planning to speed up delivery of infrastructure and housing. Furthermore, the UK will legislate to strengthen audit and corporate governance alongside pension investment, as well as reform rail franchising to bring train operators into public ownership, while the government will impose limits on the sale/marketing of vapes and plans a progressive ban on cigarettes.
- Germany's cabinet has finalised the 2025 budget which now goes for parliamentary approval. It was also reported that German Finance Minister Lindner expects EUR 6bln extra from the economic growth package in 2025 and said the 2025 draft budget foresees a EUR 17bln gap.
DATA RECAP
- UK CPI MM (Jun) 0.1% vs. Exp. 0.1% (Prev. 0.3%)
- UK CPI YY (Jun) 2.0% vs. Exp. 1.9% (Prev. 2.0%)
- UK Core CPI MM (Jun) 0.2% vs. Exp. 0.1% (Prev. 0.5%)
- UK Core CPI YY (Jun) 3.5% vs. Exp. 3.5% (Prev. 3.5%)
- UK CPI Services MM (Jun) 0.6% vs. Exp. 0.4% (Prev. 0.6%)
- UK CPI Services YY (Jun) 5.7% vs. Exp. 5.6% (Prev. 5.7%)
- EU HICP Final YY (Jun) 2.5% vs. Exp. 2.5% (Prev. 2.5%)
- EU HICP-X F&E Final YY (Jun) 2.8% vs. Exp. 2.8% (Prev. 2.8%)
