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Futures Jump Amid Optimism China’s Covid Lockdowns Are Ending

Futures Jump Amid Optimism China’s Covid Lockdowns Are Ending

Another day, another dead cat-bouncing, bear market rally.

After Monday’s flattish…

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Futures Jump Amid Optimism China's Covid Lockdowns Are Ending

Another day, another dead cat-bouncing, bear market rally.

After Monday's flattish session which saw tech names slump on fresh inflation fears, Nasdaq futures rebounded on Tuesday, setting up technology stocks for solid gains after a six-week rout as investors were encouraged by China's easing covid lockdowns and amid speculation that Beijing regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Nasdaq 100 futures jumped 2% by 7:00 a.m. in New York after the underlying gauge sank on Monday on concerns about a slowdown in economic growth; S&P 500 futures rose 1.6%. Treasury yields rose modestly above 2.90%, and the dollar retreated. Bitcoin managed to rebound back over $30K.

Confirming what we said almost three weeks ago, Shanghai reported three days of zero community transmission, a milestone that could lead officials to start unwinding a punishing lockdown. However, flareups elsewhere in China showed how hard it is to tackle the omicron strain.

Among notable moves in US premarket trading, Twitter shares fell 3.3%, set to extend declines for an eighth straight session amid uncertainties around the deal with Elon Musk, while Citigroup rose 4.9% after Warren Buffett’s Berkshire Hathaway unexpectedly disclosed a new stake in the lender, a return to banks for the billionaire who purged many of his bank holdings several years ago. Tech names including Advanced Micro Devices, Tesla and Nvidia were among the biggest premarket gainers as growing recession concerns prompt markets to reasses just how many rate hikes the Fed will pull off before it is forced to reverse. Cryptocurrency-exposed stocks climbed as Bitcoin rose above $30,000 on Tuesday in cautious trading, with the fallout from a collapsed stablecoin continuing to keep sentiment in check. Chinese stocks in US jumped across the board in premarket trading on speculation that regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Here are the most notable premarket movers:

  • Twitter (TWTR US) shares fell 2.4% in premarket trading, on course to extend their seven-day streak of declines, as uncertainties around a deal by buyer Elon Musk weigh on the stock. Tesla (TSLA US) shares rallied 3% in premarket trading.
  • Chinese stocks in US jump across the board in premarket trading on speculation that regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Alibaba (BABA US) +6.2%, JD.com (JD US) +5.6%, Pinduoduo (PDD US) +7% and Baidu (BIDU US) +3.6%
  • Cryptocurrency-exposed stocks climb in US premarket as Bitcoin rises above $30,000 on Tuesday in cautious trading, with the fallout from a collapsed stablecoin continuing to keep sentiment in check. Riot Blockchain (RIOT US) +7.8%; Coinbase (COIN US) +6.8%; Marathon Digital (MARA US) +6.1%
  • Advanced Micro Devices (AMD US) upgraded to overweight from neutral at Piper Sandler, which says in note that the company’s core businesses are running well and mid-to-long-term catalysts remain intact. Stock gains 3.6% in New York premarket trading.
  • United Airlines Holdings’ (UAL US) updated second-quarter guidance is “a solid step in the right direction,” Citi says. United’s shares gained 4.3% in premarket trading.
  • Bird Global (BRDS US) shares jump as much as 40% in US premarket trading with DA Davidson noting management’s announcement of a plan to streamline operations.
  • Take-Two (TTWO US) reported better-than-expected fourth-quarter earnings helped by popular video games like NBA 2K22. The company’s shares rise 5.4% in premarket trading.
  • Global-e Online (GLBE US) shares slump as much as 30% in US premarket trading as analysts slash their price targets on the e-commerce software firm after it lowered its full-year guidance for revenue and gross merchandise value.
  • Imperial Petroleum (IMPP US) shares plunge 48% in US premarket trading. The shipping company priced an underwritten public offering of 72.7m units at $0.55 per unit, with expected gross proceeds of ~$40m.

US stocks have been roiled in the past six weeks as the combination of high inflation and hawkish central banks fueled fears of a potential recession. While some strategists including Morgan Stanley’s Michael Wilson expect equities to fall further before finding a floor, they don’t foresee a recession as their base case. The main focus today will be on US retail sales data, which are expected to show a rise of 1% in April.

“Investors’ appetite for riskier assets is on the rise after many welcomed today’s positive unemployment and GDP figures” from the eurozone and UK, said Pierre Veyret, an analyst at ActivTrades Plc. “The improving virus situation in China is also blowing a wind of relief in investors’ trading minds.”

A challenging global economic outlook amid elevated food and record fuel costs, and tightening monetary settings continues to shape sentiment.  Oil has jumped to about $114 a barrel and an index of agricultural prices is at a record high. But one bond-market measure - the five-year breakeven rate - is signaling inflation has peaked, while the latest virus developments raised hopes China’s damaging lockdowns may soon be eased.

On Monday, New York Fed President John Williams on Monday downplayed deteriorating liquidity conditions in financial markets, saying it was to be expected as investors grapple with uncertainty over global events and shifting U.S. monetary policy. No less than six Fed speakers - including Chair Jerome Powell - are due to speak later Tuesday.

In Europe, technology and basic-resources stocks led a broad-based advance of the Stoxx Europe 600 following a rally in Chinese tech shares on optimism Beijing may ease up on a yearlong clampdown. Italy's FTSE MIB adds 1.6%, FTSE 100 lags, adding 0.7%. Miners, financial services and banks are the strongest-performing sectors. Equities were also buoyed by data showing the euro-area economy expanded more than initially estimated at the start of the year as the region moved past a wave of Covid-19 infections and defied headwinds from the early days of the war in Ukraine. Here are the biggest European movers:

  • Clariant shares rise as much as 8.7% after the specialty chemical company announced its governance agreement with SABIC will expire at the June 24 AGM, and won’t be renewed.
  • Imperial Brands climbs as much as 7.9% after the tobacco company reduced its losses from next-generation products and continued on a turnaround plan.
  • Daimler Truck gains as much as 7.8% in Frankfurt; Oddo BHF notes strong 1Q report that will reassure in the current environment, while Citi says the company delivered an “encouraging” set of results.
  • Engie rises as much as 6.9%, hitting the highest since March 1, after the French energy company boosted its profit guidance on higher European energy prices.
  • CaixaBank advances as much as 5.4% after the Spanish lender released a new strategic plan that predicts a jump in a key profitability metric and announced a EU1.8b share buyback program.
  • Prosus and Naspers both raised to overweight from neutral at JPMorgan following the broker’s upgrade of Tencent. Prosus shares gain as much as 6.5% in Amsterdam, Naspers climbs as much as 6.7% in Johannesburg.
  • ContourGlobal gains as much as 34% after US private equity firm KKR agreed to buy the power generation business for 263.6p/share in cash, representing a premium of 36% to Monday’s close.
  • Vodafone erases losses after dropping as much as 4.2% as the telecom operator’s forecast for adjusted Ebitda after-leases missed consensus estimates at mid- point.

Earlier in the session, Asian stocks advanced for a third day -- its longest winning streak since mid-March -- amid a jump in some technology firms on the back of hopes for an unwind of Chinese lockdowns that have hurt the global economic outlook as well as a dialing back of Beijing’s regulatory crackdowns. The MSCI Asia-Pacific Index climbed as much as 1.5%, on track for a third day of gains. Chinese tech giants Tencent and Alibaba contributed most to the gain, while chipmakers TSMC and Samsung also helped. Shanghai reported no new Covid infections in the broader community for a third day, hitting a crucial milestone toward reduced restrictions. China’s top political advisory body is hosting a meeting Tuesday with some of the nation’s largest private-sector firms, sparking hopes for an improved business climate. 

“The mood in Asia is risk on,” said Xue Hua Cui, a China equity analyst at Meritz Securities in Seoul. “Whether this remains a dead cat bounce or not depends on how quickly demand recovers following the end of Shanghai lockdowns.” Hong Kong outperformed, with the Hang Seng Index rising more than 3%. Benchmarks in India also advanced more than 2%, even as state-run insurer Life Insurance Corporation of India dropped in its Mumbai trading debut after a record initial public offering for the nation. 

Japanese equities gained with Asian peers amid hopes that China will ease up on Covid lockdowns and regulatory crackdowns. The Topix rose 0.2% to close at 1,866.71. Tokyo time, while the Nikkei advanced 0.4% to 26,659.75. Recruit Holdings contributed the most to the Topix gain, rising 2% after its earnings report. Out of 2,172 shares in the index, 1,164 rose and 932 fell, while 76 were unchanged.

Australia's S&P/ASX 200 index rose 0.3% to close at 7,112.50, taking its winning run to a third session. Miners and banks contributed the most to the gauge’s advance. Beach Energy was among the top performers, climbing with other energy shares as oil rallied. Brambles was the biggest laggard after saying CVC won’t be putting forward a proposal for the pallet maker. Investors also assessed minutes from the RBA’s May meeting. The central bank said it considered three options for the size of its first interest-rate increase since 2010. In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,137.88.

India’s key gauges surged on Tuesday, boosted by Reliance Industries Ltd. which climbed the most since early March. Still, Life Insurance Corp. of India, the country’s biggest listing so far, slumped on debut. The S&P BSE Sensex rose 2.5%, its biggest jump in three months, to 54,318.47 in Mumbai, while the NSE Nifty 50 Index advanced 2.6%. All of the 19 sector sub-indexes compiled by BSE Ltd. climbed, led by a gauge of metal companies. Reliance Industries advanced 4.2%, providing the biggest boost to the Sensex, which had all 30 members trading higher.  “It’s a much-needed breather for the bulls after five weeks of slide and we may further rise,” said Ajit Mishra, vice-president research at Religare Broking Ltd. “Since all the sectors are participating in the rebound, we suggest focusing more on stock selection. Despite strong gains in the broader market, shares in the state-controlled insurer plunged 7.8%, following a $2.7 billion IPO, India’s biggest on record. The stock trimmed losses from the low, but failed to touch the listing price in the session. LIC’s first-day performance makes for the second-worst debut among 11 global companies that listed this year after raising at least $1 billion through first-time share sales. 

In FX, the Bloomberg Dollar Spot Index fell a third consecutive day and the greenback weakened against all of its Group-of-10 peers apart from the yen. The pound lead G-10 gains followed by Scandinavian and Antipodean currencies. The pound rallied and gilts slumped across the curve after a stronger-than-expected reading of the UK employment data stoked speculation that a tighter labor market may prompt the BOE to continue its monetary tightening cycle beyond a widely expected rate rise next month. Average weekly earnings surged 7% in the three months through March, compared to the 5.4% figure economists had expected. The euro rose on the back of a broadly weaker dollar. Bunds slid as haven demand was unwound. Italian bonds also tumbled as money markets wagered on up to 98bps of ECB hikes by December. The Aussie strengthened for a third day while Australia’s sovereign bonds fell after minutes from RBA’s May meeting indicated the central bank considered an outsized rate hike. The RBA said it considered three options for the size of its first interest-rate increase since 2010, according to minutes of its May 3 policy meeting, when it raised the cash rate by 25 basis points. The Australian and New Zealand dollars also benefitted from expectations that Covid lockdowns in Hong Kong and Shanghai will be lifted. The yen gave up earlier gains as US yields resumed their climb, which also weighed on Japan government bonds.

In rates, yields rose as Treasuries cheapened with losses led by front-end of the curve, following a sharper bear flattening move across EGBs after ECB Governing Council member Klaas Knot said he supports a quarter-point increase in interest rates in July and that a bigger move may be justified if data show inflation worsening. US Treasury yields cheaper by up to 5.5bp across front-end of the curve, the 10Y TSY trading at 2.91% last and flattening 2s10s spread by 2.2bp on the day; 2-year German yields cheaper by 23bp on the day following Knot comments while German 10s are cheaper by 4bp vs. Treasuries. In U.S. session, focus on a stacked Fed speaker slate led by Chair Jerome Powell who will be interviewed during a Wall Street Journal live event in the afternoon. The Dollar issuance slate includes Export Development Canada 5Y SOFR, OKB 3Y SOFR and JICA 5Y SOFR; six deals priced $9.1n Monday in order books that were 3.3x oversubscribed

In commodities, WTI drifts 0.2% higher to trade at around $114. Spot gold rises roughly $3 to trade above $1,825/oz. Base metals are mixed; LME tin falls 1.6% while LME zinc gains 2.4%. European gas prices hit four-week low after EU revised guidelines for purchases of Russian supplies.

To the day ahead now, and there’s an array of central bank speakers including Fed Chair Powell, along with the Fed’s Bullard, Harker, Kashkari, Mester and Evans, ECB President Lagarde and BoE Deputy Governor Cunliffe. Data releases include US retail sales, industrial production and capacity utilisation for April, along with the NAHB’s housing market index for May. Elsewhere, there’s also the UK unemployment reading for March. Finally, earnings releases include Walmart and Home Depot.

Market Snapshot

  • S&P 500 futures up 1.3% to 4,057.75
  • STOXX Europe 600 up 1.6% to 440.47
  • MXAP up 1.4% to 162.83
  • MXAPJ up 2.2% to 535.18
  • Nikkei up 0.4% to 26,659.75
  • Topix up 0.2% to 1,866.71
  • Hang Seng Index up 3.3% to 20,602.52
  • Shanghai Composite up 0.6% to 3,093.70
  • Sensex up 2.1% to 54,080.42
  • Australia S&P/ASX 200 up 0.3% to 7,112.53
  • Kospi up 0.9% to 2,620.44
  • German 10Y yield little changed at 0.99%
  • Euro up 0.4% to $1.0480
  • Brent Futures up 0.3% to $114.53/bbl
  • Gold spot up 0.2% to $1,827.11
  • U.S. Dollar Index down 0.42% to 103.75

Top Overnight News from Bloomberg

  • The euro-area economy grew more than initially estimated at the start of the year as the region moved past a wave of Covid-19 infections and defied headwinds from the early days of the war in Ukraine. Economic output rose 0.3% in the first quarter, exceeding a flash reading of 0.2%, according to Eurostat data released Tuesday. Employment, meanwhile, gained 0.5% during same period
  • The UK will lay out its plan to amend its post-Brexit trade deal Tuesday in a direct challenge to the European Union, which is insisting that Prime Minister Boris Johnson must honor the agreement he signed
  • China’s main bond trading platform for foreign investors has quietly stopped providing data on their transactions, a move that may heighten concerns about transparency in the nation’s $20 trillion debt market after record outflows
  • The American and European Union chambers of commerce in separate briefings said their members are rethinking their supply chains and whether to expand investment in the face of China’s zero tolerance approach to combating Covid-19
  • Turkish President Recep Tayyip Erdogan said he won’t allow Sweden and Finland to join NATO because of their stances on Kurdish militants, throwing a wrench into plans to strengthen the western military alliance after Russia’s invasion of Ukraine

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were positive but with gains capped after the uninspiring lead from Wall St and growth concerns. ASX 200 was kept afloat by strength in the commodity-related sectors after recent gains in underlying prices. Nikkei 225 traded marginally higher with Japan seeking to pass an extra budget by month-end and will begin permitting entry to a small number of tourists. Hang Seng and Shanghai Comp were both firmer with tech spearheading the outperformance in Hong Kong amid hopes of an easing of the crackdown on the sector, while the mainland lagged amid economic concerns and despite Shanghai reporting no cases outside of quarantine for a 3rd consecutive day.

Top Asian News

  • China's state planner said China's economy faces increasing downward pressure, while it will step up support for manufacturing companies, contact-intensive services, small companies and home businesses, according to Reuters.
  • Senior Chinese officials are to meet with tech industry chiefs today amid talk of crackdown easing, according to Nikkei. It was later reported that China's top political consultative body began a conference on promoting the sustainable and healthy development of the digital economy, according to state media.
  • Hong Kong Chief Executive Carrie Lam said they will proceed with the planned COVID curbs easing on May 19th, according to Bloomberg.
  • BoJ Deputy Governor Amamiya said it is important to continue current powerful easing to firmly support the economy and that long-term interest rates have been stable since the adoption of fixed-rate operations, while he added that if monetary easing is reduced now, it would make the 2% price goal an even more distant target, according to Reuters.
  • Japan is to permit small groups of tourists to visit this month as a trial ahead of its border reopening, according to Japan Times.

European bourses are firmer across the board, Euro Stoxx 50 +1.7%, taking impetus from and extending on a positive APAC handover as the regions COVID situation improves. Stateside, futures are firmer across the board, ES +1.8%, following yesterday's  relatively lacklustre session with participants awaiting numerous Fed speak, including Chair Powell. Twitter (TWTR) prospective purchaser Musk says that his offer was based on the Co.'s SEC filing being accurate, however, yesterday the CEO refused to show proof of less than 5% of fake/spam accounts; deal cannot move forward until this has been disclosed. -3.5% in the pre-market. Home Depot Inc (HD) Q1 2023 (USD): EPS 4.09 (exp. 3.67/3.67 GAAP), Revenue 38.9bln (exp. 36.71bln); Raises Fiscal 2022 Guidance. +2.5% in the pre-market

Top European News

  • UK Foreign Secretary Truss is to declare her intention to bring forward legislation that rips up parts of the post-Brexit trade deal on Northern Ireland, according to LBC. Expected around 12:30BST/07:30ET
  • Irish Foreign Minister Coveney says he spoke with UK Foreign Minister Truss on Monday, notes the EU and UK sides haven't met since February and says it is "time to get back to the table"
  • ECB is expected to raise the deposit rate in July according to 39 out of 39 respondents in a Reuters survey, while 26 out of 48 economists see the deposit rate at 0% in Q3 and 21 out of 48 see the deposit rate at 0.25% in Q4.

FX

  • Pound the standout G10 performer in wake of outstanding UK labour report; Cable clears string of resistance levels on the way towards 1.2500 and EUR/GBP probes 0.8400 after breaching technical supports .
  • Kiwi and Aussie relish renewed risk appetite and latter also helped by hawkish RBA minutes; NZD/USD above 0.6350 and 1.3bln option expiries at 0.6300, AUD/USD back on 0.7000 handle.
  • Greenback concedes ground ahead of top tier US data and raft of Fed speakers including chair Powell, DXY down to 103.470 vs 104.320 at best; latest session low in wake of ECB's Knot.
  • Franc, Euro and Loonie all up at the expense of the Buck but latter also fuelled by WTI topping USD 115/bbl; USD/CHF sub-parity, EUR/USD surpassing 1.05 in wake of hawk-Knot and USD/CAD near 1.2800.
  • Yen lags as risk sentiment improves and yields outside of Japan rebound firmly; USD/JPY rebounds through 129.00 and just over 129.50.
  • Norwegian Crown boosted by Brent in stark contrast to crude import dependent Turkish Lira and Indian Rupee; EUR/NOK under 10.1500, USD/TRY touches 15.8850 and USD/INR crosses 78.0000 to set fresh ATH

Fixed Income

  • Bonds make way for risk revival and brace for US data amidst a raft of global Central Bank speakers.
  • Bunds down to 152.74, Gilts hit 119.25 and 10 year T-note as low as 119-08 before paring some heavy declines
  • UK DMO gets welcome reception for 2015 issuance, but new German Schatz receives cold shoulder even before hawkish comments from ECB's Knot not ruling out a 50 bp July hike if data warrants more than 25 bp
  • China's main bond trading platform is said to have stopped the reporting of bond trades by foreigners following the market downside, according to Bloomberg.

Commodities

  • WTI and Brent are firmer in-fitting with broader risk appetite and the aforementioned China COVID improvement; posting gains of circa USD 0.80/bbl.
  • However, upside remains capped amid the ongoing standoff between the EU and Hungary over a Russian import embargo.
  • Iran set June Iranian light crude price to Asia at Oman/Dubai + USD 4.25/bbl, according to a Reuters source
  •  
  • OPEC+ production was 2.6mln below quotas in April, according to a report cited by Reuters; Russian production 1.28mln below the required level in April, sources add.
  • Spot gold is firmer, taking impetus from the USD pressure; though, the yellow metal is yet to move out of earlier ranges.
  • Base metals are bid on risk while Wheat declined amid reports that India is easing some of its export restrictions.

Central Banks

  • ECB's Knot says a 25bp hike in July is realistic; says a 50bp rate hike should not be excluded if data in the next few months suggests that inflation is broadening and accumulating.
  • NBH's Virag says they will increase rates further, via Reuters citing slides.
  • NBP's Kotecki says that interest rates will continue to move higher but it is currently difficult to define their target level.

US Event Calendar

  • 08:30: April Retail Sales Advance MoM, est. 1.0%, prior 0.5%, revised 0.7%
    • April Retail Sales Ex Auto MoM, est. 0.4%, prior 1.1%, revised 1.4%
    • April Retail Sales Ex Auto and Gas, est. 0.7%, prior 0.2%, revised 0.7%
    • April Retail Sales Control Group, est. 0.7%, prior -0.1%, revised 0.7%
  • 09:15: April Industrial Production MoM, est. 0.5%, prior 0.9%
  • 09:15: April Manufacturing (SIC) Production, est. 0.4%, prior 0.9%
  • 10:00: March Business Inventories, est. 1.9%, prior 1.5%
  • 10:00: May NAHB Housing Market Index, est. 75, prior 77

Fed Speakers

  • 08:00: Fed’s Bullard Discusses Economic Outlook
  • 09:15: Fed’s Harker Discusses Healthcare as Economic Driver
  • 12:30: Fed’s Kashkari Takes Part in a Moderated Townhall Discussion
  • 14:00: Powell Interviewed During Wall Street Journal Live Event
  • 14:30: Fed’s Mester Gives Opening Remarks to Panel on Inflation
  • 18:45: Fed’s Evans Discusses the Economic Outlook

DB's Jim Reid concludes the overnight wrap

Recession fears have continued to dominate markets over the last 24 hours, but Deutsche Bank Research is still the only bank to actually forecast one in the US. The tone was set for the day after some incredibly weak data out of China that we discussed yesterday, but that was then followed up with disappointing survey data from the US, which arrived ahead of an array of central bank speakers today (including Fed Chair Powell).

Although markets in Asia are bouncing a little this morning, the S&P 500 (-0.39%) last night followed up its run of 6 consecutive weekly declines with a further loss. It was another volatile day that saw stocks trade in a 1.5% range, including going into positive territory briefly in the afternoon before slipping into the close. Sector dispersion was pretty wide, with energy shares gaining +2.62% and consumer discretionary stocks falling -2.12%, led by Tesla retreating -5.88%. Tech was the next biggest laggard, with the NASDAQ (-1.20%) and FANG+ index (-1.34%) underperforming the broader universe. That still leaves the S&P 500 index around 2% above its recent closing low on Thursday, but remember that if we get another week in negative territory, it would still be the first time since 2001 that the S&P has posted 7 consecutive weekly declines. After opening the week much lower, the STOXX 600 did recover through that day to post a slight +0.04% gain yesterday, continuing its recent outperformance.

The prevailing risk-off mood meant that longer-dated sovereign bond yields also ended the day lower for the most part. Those on 10yr Treasuries were down -3.6bps to close at 2.88%, having already fallen by -20.8bps over the previous week as investors priced in a growing risk of recession over Fed and inflation concerns. The decline was split between breakevens and real yields. To be fair 10yr yields have gained +3.3bps this morning in Asia, thus almost reversing yesterday's losses so far.

At the short-end, the amount of tightening priced in over the near-term has subsided somewhat of late, as it seems investors are searching high and low for a Fed put following a poor run of risk asset performance and the prior relentless repricing towards a more aggressive monetary tightening. Indeed if you were to stop the month right now, it would be the first month in 10 that the rate priced in by the December 2022 meeting has actually fallen rather than risen. That’s been echoed further out the curve as well, with investors now barely expecting the Fed Funds rate to get above 3% in 2023 at all, even though inflation has proven much stickier than the consensus expected over recent months. As Chair Powell put it in an interview last week, getting inflation back to target will “include some pain”. Markets are starting to price some of that out though.

Over in Europe longer-dated sovereign bond yields also moved slightly lower, including those on 10yr bunds (-0.8bps), OATs (-1.4bps) and BTPs (-0.8bps). That came as we heard from Bank of France Governor Villeroy, who said to expect “a decisive June meeting, and an active summer”, which fits into the broader debate recently whereby markets are increasingly expecting an initial hike as soon as July. This saw the 2yr bund increase +3.0bps to 0.12%. Another point of interest were also his comments on the exchange rate, saying that “A euro that is too weak would go against our price-stability objective”.

In line with the broader theme this year, one asset class that wasn’t impacted by the risk-off tone was commodities, and both Brent crude (+2.41%) and WTI (+3.36%) moved back above $114/bbl yesterday. This morning, both are seeing slight losses though (-0.36% and -0.46%, respectively). There were major gains for wheat futures (+5.94%) too, which saw a significant daily rise following India’s move over the weekend to restrict their exports. And that went alongside other rises in agricultural goods yesterday including corn (+3.6%) and sugar (+2.66%), which is an incredibly important story for emerging markets in particular given the much higher share of disposable income that consumers put towards food in those countries.

Another asset class that has had a bad time of late is Bitcoin, shedding another -3.58% to $29,909 yesterday. This morning it is climbing back above the $30k threshold. Marion Laboure in my team published a piece yesterday looking at the recent selloff in crypto, adding some much needed context for what this means for broader adoption efforts. See here for more.

Overnight in Asia, it has been a good start for the Hang Seng (+2.23%) amid optimism that today’s meeting between China’s corporates and regulators may lead to an easing of draconian measures on tech companies. Hong Kong is also on track to ease covid curbs on May 19th, a theme that also lifted the Shanghai Composite (+0.29%) after the city reported a third day of no new infections in the broader community, a threshold that allows it to roll back some of the restrictions. The sentiment is upbeat elsewhere in Asia too, with the Nikkei (+0.35%) and the KOSPI (+0.80%) also rising. This optimism is shared by S&P 500 futures, up +0.31%.

Elsewhere, it’s likely that Brexit will be back in the headlines today as UK Foreign Secretary Liz Truss is expected to make a statement to parliament announcing a new law that would override parts of the Northern Ireland Protocol. For reference, the Protocol is a part of the Brexit deal which the UK and the EU agreed ahead of the UK’s departure, but has been a persistent source of controversy since. Northern Irish unionists view it as undermining their place in the UK because it places an economic border between Northern Ireland and Great Britain, and the DUP (the second-largest party in the Northern Ireland Assembly) are refusing to help form an executive following their recent elections unless action is taken on the Protocol. The EU have continued to warn the UK against any unilateral action, and there’s been fears of an UK-EU trade war if the row gets worse.

There wasn’t much in the way of data yesterday, although the Empire State manufacturing survey for May underwhelmed with a reading of -11.6 (vs. 15.0 expected), which was beneath every estimate in Bloomberg’s survey. There was some easing in the prices paid index though, which fell to a 14-month low of 73.7.

To the day ahead now, and there’s an array of central bank speakers including Fed Chair Powell, along with the Fed’s Bullard, Harker, Kashkari, Mester and Evans, ECB President Lagarde and BoE Deputy Governor Cunliffe. Data releases include US retail sales, industrial production and capacity utilisation for April, along with the NAHB’s housing market index for May. Elsewhere, there’s also the UK unemployment reading for March. Finally, earnings releases include Walmart and Home Depot.

Tyler Durden Tue, 05/17/2022 - 07:43

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Bitcoin nears worst monthly losses since 2011 with BTC price at $19K

Bitcoin price action will seal monthly losses over 40% for the first time in 11 years if it closes at $19,000.
Bitcoin (BTC) drifted…

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Bitcoin price action will seal monthly losses over 40% for the first time in 11 years if it closes at $19,000.

Bitcoin (BTC) drifted further downhill into the June 30 Wall Street open as United States equities opened with a whimper.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

U.S. dollar returns to multi-decade highs

Data from Cointelegraph Markets Pro and TradingView followed BTC/USD as it abandoned $19,000 to hit its lowest in over ten days.

Bulls failed to preserve either $20,000 or $19,000 at the hands of limp U.S. stock market moves, the S&P 500 and Nasdaq Composite Index down 1.8% and 2.6% respectively at the time of writing.

At the same time, the U.S. dollar once again staged a comeback to fix a trajectory toward twenty-year highs seen this quarter.

The U.S. dollar index (DXY) was above 105.1 on the day, coming within just 0.2 points of its highest levels since 2002.

U.S. dollar index (DXY) 1-day candle chart. Source: TradingView

"The US dollar (DXY) looks set to test highs last seen in December 2002 as the short-term downtrend is broken convincingly amid risk markets' continued crumble," researche and trader Faisal Khan summarized on Twitter.

Data on inflation meanwhile once more suggested the worst could be behind the market.

As Cointelegraph reported, however, central banks began to acknowledge that the low rates seen before COVID-19 may never return.

Bulls' worst month in 11 years

With the majority of on-chain metrics now at historic lows, price data hinted how far BTC could theoretically go in a bear market increasingly unlike the rest.

Related: No flexing for Bitcoin Cash users as BCH loses 98% against Bitcoin

Should it close at current levels of $19,000, BTC/USD would seal monthly losses of over 40% for June 2022.

That would make it the worst June ever and the heaviest monthly losses since September 2011, data from TradingView and on-chain monitoring resource Coinglass confirms. 

Even March 2020 and the 2018 and 2014 bear markets were less severe on monthly timeframes. 40% drops were last seen when BTC/USD traded at $8.

BTC/USD monthly returns chart. Source: Coinglass

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Stocks, Cryptos Tumble To Close Out Catastrophic First-Half

Stocks, Cryptos Tumble To Close Out Catastrophic First-Half

It was supposed to be a 7% ramp into month-end on billions in pension fund residual…

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Stocks, Cryptos Tumble To Close Out Catastrophic First-Half

It was supposed to be a 7% ramp into month-end on billions in pension fund residual buying.

Instead, it ended up being more or less the opposite, with crypto-led liquidations dragging futures and global markets lower, and extending Wednesday losses after central bankers issued warnings on inflation and fueled concern that aggressive policy will end with a hard-landing recession, which increasingly more now see as being 2022 business, an outcome that now appears assured especially after yesterday's disastrous guidance cut from RH, the second in three weeks!

Recession fears and inflation woes may be prolonged by today's PCE deflator report. The consumer price gauge favored by the Fed may have picked up to 6.4% last month from 6.3%. Personal income growth probably edged up but Bloomberg Economics highlights an anticipated decline in real personal spending as a major worry.

Meanwhile, China’s economy showed further signs of improvement in June with a strong pickup in services and construction, even if the latest Chinese PMI print came slightly below expectations. Also overnight, Russia said it withdrew troops from Ukraine’s Snake Island in the Black Sea after Ukraine said its forces drove Russian troops from the area.

In any case, with zero demand from pensions so far (even though the continued selling in stocks and buying in bonds will only make the imabalnce bigger), overnight Nasdaq 100 contracts dropped 1.8% while S&P 500 futures declined 1.3%, and cryptos crumbled, with bitcoin dragged back below $19000 and Ether on the verge of sliding below $1000. The tech-heavy gauge managed to end Wednesday’s trading slightly higher, while the S&P 500 fell for a third straight day. In Europe, the Stoxx Europe 600 Index slid 1.9%. Treasuries gained, the dollar was steady and gold declined and crude oil futures edged lower again.

Which brings us to the last trading day of a quarter for the history books: the S&P 500 is set for its biggest 1H decline since 1970 and the Nasdaq 100 since 2002, the height of the dot.com bust. The Stoxx 600 is set for the worst 1H since 2008, the height of the GFC. 

Traders have ramped up bets that the global economy will buckle under central bank tightening campaigns -- and that policy makers will eventually backpedal. The bond market shifted to price in a half-point rate cut in the Federal Reserve’s benchmark rate at some point in 2023. On Wednesday, during the annual ECB annual forum, Fed Chair Jerome Powell and his counterparts in Europe and the UK warned inflation is going to be longer lasting. A view that central banks need to act fast on rates because they misjudged inflation has roiled markets this year, with global stocks about to close out their worst quarter since the three months ended March 2020.

“Markets are worried about growth as central bankers continue to emphasize that bringing down inflation is their overriding objective, and that it may take time to bring inflation down,” said Esty Dwek, chief investment officer at Flowbank SA. “We still haven’t seen total capitulation in markets, so further downside is possible.”

Meanwhile, the cost of insuring European junk bonds against default crossed 600 basis points for the first time in two years on Thursday.

And speaking of Europe, stocks are also down over 2% in early trading, with all sectors in the red. DAX and CAC underperform at the margin with autos, consumer discretionary and banking sectors the weakest within the Stoxx 600.  Here are some of the biggest European movers today:

  • Uniper shares slump as much as 23% after the German utility withdrew its outlook and said it was discussing a possible bailout from the German government following Russia’s move to curb natural gas deliveries.
  • SAP sinks as much as 6.5% after Exane BNP Paribas downgraded stock to neutral from outperform, saying it sees risks on demand side in the near term as software spending decisions come under increased scrutiny.
  • Sanofi shares decline as much as 4.5% after the French drugmaker said the FDA placed late-stage clinical trials of tolebrutinib on partial hold in US because of concerns about liver injuries.
  • European semiconductor stocks fell, following peers in the US and Asia lower amid growing concerns that the industry might face a downturn soon as chip stockpiles build. ASML drops as much as 3.4%, Infineon -4.1%, STMicro -3.1%
  • Norsk Hydro shares slide as much as 6% amid metals decline and as DNB cuts the stock to sell from hold, citing concerns about rising aluminum supply.
  • Stainless steel stocks in Europe fall, with Morgan Stanley saying the settlement on the latest ferrochrome benchmark missed its expectations. Outokumpu shares down as much as 6.6%, Aperam -7.2%, Acerinox -4%
  • Saab shares jump as much as 8.4%, after getting an order worth SEK7.3b from the Swedish Defence Materiel Administration for GlobalEye Airborne Early Warning and Control aircraft.
  • Orsted shares rise as much as 2.5%, before paring some of the gains. HSBC raises to buy from hold, saying any further downside for the wind farm operator looks limited.
  • Bunzl shares rise as much as 2.6% after the specialist distribution company said it now expects very good revenue growth in 2022.
  • Grifols shares rise as much as 7.8% after slumping on Wednesday, as the company says that the board isn’t analyzing any capital increase “for the time being.”

Earlier in the session, Asian stocks fell for a second day as tech-heavy indexes in Taiwan and South Korea continued to get pummeled amid concerns over the potential for aggressive monetary tightening in the US to rein in inflation.  The MSCI Asia Pacific Index declined as much as 1.2%, dragged down by technology shares including TSMC, Alibaba and Tencent. Taiwan slid more than 2%, while gauges in Japan, South Korea, Australia dropped more than 1%.  Stocks in mainland China rose more than 1% after the economy showed further signs of improvement in June with a strong pickup in services and construction as Covid outbreaks and restrictions were gradually eased. Traders are also watching Chinese President Xi Jinping’s trip to Hong Kong, his first time outside of the mainland since 2020. 

Asian stocks are struggling to recover from a May low as the threat of higher US rates outweighs China’s emergence from strict Covid lockdowns and its pledge of stimulus measures. While mainland Chinese stocks led gains globally this month, the rest of the markets in the region -- especially those heavy with technology stocks and exporters -- saw hefty outflows of foreign funds.  “Investors continue to assess recession and also inflation risks,” Marcella Chow, JPMorgan Asset Management’s global market strategist, said in an interview with Bloomberg TV. “This tightening path has actually increased the chance of a slower economic growth going forward and probably has brought forward the recession risks.” Asian stocks are set to post a more than 12% loss this quarter, the worst since the one ended March 2020 during the pandemic-induced global market rout.

Japanese stocks declined after the release of China’s data on manufacturing and non-manufacturing PMIs that showed slower than expected improvements.  The Topix Index fell 1.2% to 1,870.82 as of market close Tokyo time, while the Nikkei declined 1.5% to 26,393.04. Sony Group contributed the most to the Topix Index decline, falling 3.4%. Out of 2,170 shares in the index, 531 rose and 1,574 fell, while 65 were unchanged. “Although China is recovering from a lockdown, business sentiment in the manufacturing industry is deteriorating around the world,” said Tomo Kinoshita, global market strategist at Invesco Asset Management China’s Economy Shows Signs of Improvement as Covid Eases.

Indian stock indexes posted their biggest quarterly loss since March 2020 as the global equity market stays rattled by high inflation and a weakening outlook for economic growth.  The S&P BSE Sensex ended little changed at 53,018.94 in Mumbai on Thursday, while the NSE Nifty 50 Index dropped 0.1%. The gauges shed more than 9% each in the June quarter, their biggest drop since the outbreak of pandemic shook the global markets in March 2020. The main indexes have fallen for all but one month this year as surging cost pressures forced India’s central bank to raise rates twice and tighten liquidity conditions. The selloff is also partly driven by record foreign outflows of more than $28b this year.  Despite the turmoil in global markets, Indian stocks have underperformed most Asian peers, partly helped by inflows from local institutions, which made net purchases of more than $30b of local stocks. “Investors worry that the latest show of central bank determination to tame inflation will slow economies rapidly,” HDFC Securities analyst Deepak Jasani wrote in a note.  Fourteen of the 19 sector sub-gauges compiled by BSE Ltd. fell Thursday, with metal stocks leading the plunge. The expiry of monthly derivative contracts also weighed on markets. For the June quarter, metal stocks were the worst performers, dropping 31% while information technology gauge fell 22%. Automakers led the three advancing sectors with 11.3% gain.

Australian stocks also tumbled, with the S&P/ASX 200 index falling 2% to close at 6,568.10, weighed down by losses in mining, utilities and energy stocks.  In New Zealand, the S&P/NZX 50 index fell 0.8% to 10,868.70

In rates, treasuries advanced, led by the belly of the curve. German bonds surged, led by the short-end and outperforming Treasuries. US yields richer by as much as 5.4bp across front-end and belly of the curve which outperforms, steepening 2s10s, 5s30s by 2bp and 2.8bp; wider bull-steepening move in progress for German curve with yields richer by up to 13.5bp across front-end with 2s10s wider by 3.5bp on the day. US 10-year yields around 3.055%, richer by 3.5bp. Money markets aggressively trimmed ECB tightening bets on relief that French June inflation didn’t come in above the median estimate. Bonds also benefitted from haven buying as stocks slide. Month-end extension flows may continue to support long-end of the Treasuries curve. bunds outperform by 7bp in the sector. IG issuance slate empty so far; Celanese Corp. pushed back plans to issue in euros and dollars, most likely to next week, after deals struggled earlier this week. Focal points of US session include PCE deflator and MNI Chicago PMI. 

In FX, the Bloomberg Dollar Spot Index was steady as the greenback traded mixed against its Group-of-10 peers. The yen advanced and Antipodean currencies were steady against the greenback. French inflation quickened to the fastest since the euro was introduced. Steeper increases in energy and food costs drove consumer-price growth to 6.5% in June from 5.8% in May . Sweden’s krona swung to a loss. It briefly advanced earlier after the Riksbank raised its policy rate by 50bps, as expected, signaled faster rate hikes and a quicker trimming of the balance sheet. The pound rose, snapping three days of losses against the dollar. UK household incomes are on their longest downward trend on record, as the nation’s cost of living crisis saps the spending power of British households. Separate figures showed that the current-account deficit widened sharply to £51.7 billion ($63 billion) in the first quarter. The yen rose and the Japan’s bonds inched up. The BOJ kept the amount and frequencies of planned bond purchases unchanged in the July-September period. The Australian dollar reversed a loss after data showed China’s official manufacturing purchasing managers index rose above 50 for the first time since February in a sign of improvement in the world’s second largest economy.

Bitcoin is on track for its worst quarter in more than a decade, as more hawkish central banks and a string of high-profile crypto blowups hammer sentiment. The 58% drawdown in the biggest cryptocurrency is the largest since the third quarter of 2011, when Bitcoin was still in its infancy, data compiled by Bloomberg show.

In commodities, WTI trades a narrow range, holding below $110. Brent trades either side of $116. Most base metals trade in the red; LME zinc falls 3.1%, underperforming peers. Spot gold falls roughly $3 to trade near $1,814/oz. Bitcoin slumps over 6% before finding support near $19,000.

Looking to the day ahead now, data releases include German retail sales for May and unemployment for June, French CPI for June, the Euro Area unemployment rate for May, Canadian GDP for April, whilst the US has personal income and personal spending for May, the weekly initial jobless claims, and the MNI Chicago PMI for June.

Market Snapshot

  • S&P 500 futures down 1.2% to 3,775.75
  • STOXX Europe 600 down 1.8% to 406.18
  • MXAP down 1.0% to 158.01
  • MXAPJ down 1.1% to 524.78
  • Nikkei down 1.5% to 26,393.04
  • Topix down 1.2% to 1,870.82
  • Hang Seng Index down 0.6% to 21,859.79
  • Shanghai Composite up 1.1% to 3,398.62
  • Sensex up 0.2% to 53,136.59
  • Australia S&P/ASX 200 down 2.0% to 6,568.06
  • Kospi down 1.9% to 2,332.64
  • Gold spot down 0.2% to $1,814.91
  • US Dollar Index little changed at 105.04
  • German 10Y yield little changed at 1.42%
  • Euro little changed at $1.0443
  • Brent Futures down 0.4% to $115.85/bbl

Top Overnight News from Bloomberg

  • The surge in the dollar has set Asian currencies on course for their worst quarter since the 1997 financial crisis and created a dilemma for central bankers
  • French Finance Minister Bruno Le Maire said the EU can deliver the global minimum corporate tax with or without the support of Hungary, circumventing Budapest’s veto earlier this month just as the bloc was on the brink of a agreement
  • German unemployment unexpectedly rose, snapping 15 straight months of decline as refugees from the war in Ukraine were included in those searching for work
  • The SNB bought foreign exchange worth 5.7 billion francs ($5.96 billion) in the first quarter of 2022 as the franc sharply appreciated against the euro and briefly touched parity in March
  • The ECB plans to ask the region’s lenders to factor in the economic hit of a potential cut off of Russian gas when considering payouts to shareholders
  • European stocks were poised for their biggest drop in any half-year period since 2008, as investors focused on the prospects for economic slowdown and stubbornly high inflation in the region
  • New Zealand will enter a recession next year that could be deeper than expected, Bank of New Zealand economists said after a survey showed business sentiment continues to slump

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were varied at month-end amid a slew of data releases including mixed Chinese PMIs. ASX 200 was dragged lower by weakness in energy, miners and the top-weighted financials sector. Nikkei 225 declined after disappointing Industrial Production data and with Tokyo raising its virus infection level. Hang Seng and Shanghai Comp. were somewhat mixed with Hong Kong indecisive and the mainland underpinned after the latest Chinese PMI data in which Manufacturing PMI printed below estimates but Non-Manufacturing PMI firmly surpassed forecasts and along with Composite PMI, all returned to expansion territory.

Top Asian News

  • NATO Secretary General Stoltenberg said China's growing assertiveness has consequences for the security of allies, while he added China is not our adversary, but we must be clear-eyed about the serious challenges it presents.
  • US blacklisted 5 Chinese firms for allegedly helping Russia in which Connec Electronic, King Pai Technology, Sinno Electronics, Winnine Electronic and World Jetta Logistics were added to the entity list which restricts access to US technology, according to WSJ.
  • Japan's government cut its assessment of industrial production and noted that production is weakening, while it stated that Japan's motor vehicle production declined 8% M/M and that industrial production likely saw the largest impact of Shanghai's COVID-19 lockdown in May, according to Reuters.
  • Tokyo metropolitan government will reportedly increase COVID infections level to the second-highest, according to FNN.

It’s been a downbeat session for global equities thus far as sentiment deteriorates further. European bourses are lower across the board, with losses extending during early European hours. European sectors are all in the red but portray a clear defensive bias. Stateside, US equity futures have succumbed to the glum mood, with the NQ narrowly underperforming.

Top European News

  • Riksbank hiked its Rate by 50bps to 0.75% as expected, and said the rate will be raised further and it will be close to 2% at the start of 2023. Bank said the balance sheet its to shrink faster than previously flagged, and suggested that policy rate will increase faster if needed. Click here for details.
  • Riksbank's Ingves said inflation over forecast probably not enough for Riksbank to hold extra policy meeting in summer. Ingves added that if the situation requires a 75bps hike, then Riksbank will carry out a 75bps hike.
  • Orsted Gains as HSBC Upgrades With Shares Seen ‘Good Value’
  • Aston Martin Extends Losses as Carmaker Reportedly Seeking Funds
  • Climate Litigants Look Beyond Big Oil for Their Day in Court
  • Ukraine Latest: Putin Warns NATO on Moving Military to Nordics

FX

  • DXY extends on gains above 105.00, but could see more upside on safe haven demand and residual rebalancing flows over fixes - EUR/USD inches towards 1.0400 to the downside.
  • Yen regroups as yields drop and risk sentiment deteriorates to compound corrective price action.
  • Franc unwinds some of its recent outperformance and Loonie lose traction from oil ahead of Canadian GDP.
  • Swedish Crown unable to take advantage of hawkish Riksbank hike in face of risk aversion - Eur/Sek stuck in a rut close to 10.7000.
  • Pound finds some underlying bids into 1.2100 and Kiwi at 0.6200, while Aussie holds above 0.6850 with encouragement from China’s services PMI that also propped the Yuan.

Fixed Income

  • Bonds on bull run into month, quarter and half year end - Bunds top 148.00 at best, Gilts approach 113.50 and 10 year T-note just a tick away from 118-00.
  • Debt in demand on safe haven grounds rather than duration as curves steepen on less hawkish/more dovish market pricing.
  • Italian supply comfortably covered to keep BTP futures propped ahead of US PCE data and yet another speech from ECB President Lagarde.

Commodities

  • WTI and Brent front-month futures are resilient to the broader risk downturn, and firmer Dollar as OPEC+ member members gear up for what is expected to be a smooth meeting.
  • Spot gold is uneventful but dipped under yesterday's low, with potential support at the 15th June low at USD 1,806.59/oz.
  • Base metals are softer across the board amid the broader risk profile. Dalian and Singapore iron ore futures were on track for quarterly losses.
  • Ship with 7,000 tonnes of grain leaves Ukraine port, according to pro-Russia officials cited by AFP.

US Event Calendar

  • 08:30: June Initial Jobless Claims, est. 229,000, prior 229,000
  • 08:30: June Continuing Claims, est. 1.32m, prior 1.32m
  • 08:30: May Personal Income, est. 0.5%, prior 0.4%
  • 08:30: May Personal Spending, est. 0.4%, prior 0.9%
  • 08:30: May Real Personal Spending, est. -0.3%, prior 0.7%
  • 08:30: May PCE Deflator MoM, est. 0.7%, prior 0.2%
  • 08:30: May PCE Deflator YoY, est. 6.4%, prior 6.3%
  • 08:30: May PCE Core Deflator YoY, est. 4.8%, prior 4.9%
  • 08:30: May PCE Core Deflator MoM, est. 0.4%, prior 0.3%
  • 09:45: June MNI Chicago PMI, est. 58.0, prior 60.3

DB's Jim Reid concludes the overnight wrap

We’ve just released the results of our monthly EMR survey that we conducted at the start of the week. It makes for some interesting reading, and we’re now at the point where 90% of respondents are expecting a US recession by end-2023, which is up from just 35% in our December survey. That echoes our own economists’ view that we’re going to get a recession in H2 2023, and just shows how sentiment has shifted since the start of the year as central banks have begun hiking rates. When it comes to people’s views on where markets are headed next, most are expecting many of the themes from H1 to continue, with a 72% majority thinking that the S&P 500 is more likely to fall to 3,300 rather than rally to 4,500 from current levels, whilst 60% think that Treasury yields will hit 5% first rather than 1%. Click here to see the full results.

When it comes to negative sentiment we’ll have to see what today brings us as we round out the first half of the year, but if everything remains unchanged today we’re currently set to end H1 with the S&P 500 off to its worst H1 since 1970 in total return terms. And there’s been little respite from bonds either, with US Treasuries now down by -9.79% since the start of the year, so it’s been bad news for traditional 60/40 type portfolios. Ultimately, a large reason for that has been investors’ fears that ongoing rate hikes to deal with inflation will end up leading to a recession, and yesterday saw a continuation of that theme, with Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey all reiterating their intentions in a panel at the ECB’s Forum to return inflation back to target.

In terms of that panel, there weren’t any major headlines on policy we weren’t already aware of, although there was a collective acknowledgement of the risk that inflation could become entrenched over time and the need to deal with that. Fed Chair Powell described the US economy as in “strong shape”, but one that ultimately requires much tighter financial conditions to bring inflation back to target. Year-end fed funds expectations remained steady in response, down just -0.7bps to 3.45%. However, further out the curve the simmering slower growth narrative continued to grip markets and sent 10yr Treasury yields -8.2bps lower to 3.09%, and the 2s10s another -1.1bps flatter to 4.7bps. In line with a tighter Fed policy path and slower growth, 10yr breakevens drove the move in nominal yields, falling -8.2bps to 2.39%, their lowest levels since January, having entirely erased the gains seen after Russia’s invasion of Ukraine, when it peaked above 3% at one point in April. Along with 2s10s flattening, the Fed’s preferred measure of the near-term risk of recession, the forward spread (the 18m3m – 3m), similarly flattened by -5.7bps, hitting its lowest level in nearly four months at 154bps. And thismorning there’s only been a partial reversal of these trends, with 10yr Treasury yields (+1.3bps) edging back up to 3.10% as we go to press. Over in equities, the S&P 500 bounced around but finished off of its intraday lows with just a -0.07% decline, again with the macro view likely skewed by quarter-end rebalancing of portfolios. The NASDAQ was similarly little changed on the day, falling a mere -0.03%.

In terms of the ECB, President Lagarde said on that same panel that she didn’t think “we are going back to that environment of low inflation” that was present before the pandemic. But when it came to the actual data yesterday there was a pretty divergent picture. On the one hand, Spain’s CPI for June surprised significantly on the upside, with the annual inflation rising to +10.0% (vs. +8.7% expected) on the EU’s harmonised measure. But on the other, the report from Germany then surprised some way beneath expectations, coming in at +8.2% on the EU-harmonised measure (vs. +8.8% expected). So mixed messages ahead of the flash CPI print for the entire Euro Area tomorrow.

As in the US, there was a significant rally in European sovereign bonds, with yields on 10yr bunds (-10.7bps), OATs (-10.7bps) and BTPs (-16.0bps) all moving lower on the day. Equities also lost significant ground amidst the risk-off tone, and the STOXX 600 shed -0.67% as it caught up with the US losses from the previous session. That risk-off tone was witnessed in credit as well, where iTraxx Crossover widened +21.5bps to a post-pandemic high. At the same time, there were further concerns in Europe on the energy side, with natural gas futures up by +8.06% to a three-month high of €139 per megawatt-hour, which follows a reduction in capacity yesterday at Norway’s Martin Linge field because of a compressor failure.

Whilst monetary policy has been the main focus for markets lately, we did get some headlines on the fiscal side yesterday too, with a report from Bloomberg that Senate Democrats were working on an economic package that had smaller tax increases in order to reach a deal with moderate Democratic senator Joe Manchin. For reference, the Democrats only have a majority in the split 50-50 senate thanks to Vice President Harris’ tie-breaking vote, so they need every Democrat Senator on board in order to pass legislation. According to the report, the plan would be worth around $1 trillion, with half allocated to new spending, and the other half cutting the deficit by $500bn over the next decade.

Overnight in Asia we’ve seen a mixed market performance overnight. Most indices are trading lower, including the Nikkei (-1.45%) and the Kospi (-0.81%), but Chinese equities have put in a stronger performance after an improvement in China’s PMIs in June, and the CSI 300 (+1.62%) and the Shanghai Comp (+1.31%) have both risen. That came as manufacturing activity expanded for the first time in four months, with the PMI up to 50.2 in June (vs. 50.5 expected) from 49.6 in May. At the same time, the non-manufacturing climbed to 54.7 points in June, up from 47.8 in May, which also marked the first time it’d been above the 50 mark since February.

Nevertheless, that positivity among Chinese equities are proving the exception, with equity futures in the US and Europe pointing lower, with those on the S&P 500 (-0.28%) looking forward to a 4th consecutive daily decline as concerns about a recession persist.

When it came to other data yesterday, the third estimate of US GDP for Q1 saw growth revised down to an annualised contraction of -1.6% (vs. -1.5% second estimate). Separately, the Euro Area’s M3 money supply grew by +5.6% year-on-year in May (vs. +5.8% expected), which is the slowest pace since February 2020.

To the day ahead now, data releases include German retail sales for May and unemployment for June, French CPI for June, the Euro Area unemployment rate for May, Canadian GDP for April, whilst the US has personal income and personal spending for May, the weekly initial jobless claims, and the MNI Chicago PMI for June.

Tyler Durden Thu, 06/30/2022 - 07:58

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Eurodollar Futures Interpretation Is Everywhere

Consumer confidence in Germany never really picked up all that much last year. Conflating CPIs with economic condition, this divergence proved too big…

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Consumer confidence in Germany never really picked up all that much last year. Conflating CPIs with economic condition, this divergence proved too big of a mystery. When the German GfK, for example, perked up only a tiny bit around September and October 2021, the color of consumer prices clouded judgement and interpretation of what had always been a damning situation.

From GfK back then:

The growing consumer optimism signals that consumers here consider the German economy on course for recovery, although the momentum is somewhat more moderate than expected a few months ago. A stable labor market also contributes significantly to the high level of economic expectations.

The words just don’t match the data; when the quote above was written and released, the headline estimate for consumer sentiment in Germany had just ticked above zero for the first time since the coronavirus debacle in 2020.

Sounds terrific, but that wasn’t really meaningful, just another technically-correct phrase which only agreed with the inflation narrative on its narrowest surface. The index remained well below each and every pre-2020 estimate.


It has been (widely) assumed this was only temporary, that Germany’s then-accelerating consumer price indices represented a true picture of recovery, if only too much of one. From that, you’d presume normality just a few more months ahead.

On the contrary, it’s been downhill – way downhill – ever since. And the downslope began months before Russia went foraging for Ukrainian luster. In other words, as consumer (and producer) prices in Germany started their current climb, consumer confidence reversed into what is today an epic collapse – not only the GfK.

Like Americans, Germans have never been more pessimistic. As of today’s forecast for the month of July, GfK has it a record low.

What happened to “high level of economic expectations?” Complete and total mirage, mainstream pundits and the like convincing themselves that “stimulus” works, that CPIs are a result of economic activity rather than gross imbalances, ultimately the failure to see the world as it had truly been.

The entire global economy never recovered, not even close, and then the full weight of the worldwide supply shock (because it wasn’t American “money printing”) slammed down before Putin went full-on stupid.


Just as the hapless ECB begins to grow hawkish wings (I am very close to retracting my apology to Ms. Lagarde, though not entirely surprising), Europe’s economy falls apart. That region’s “inflation” was always going to be “transitory”, too, even if most people don’t have the patience to wait more than a year for it to be fulfilled.

The day’s other “shocking” news was Germany’s HICP advance for June 2022. It fell month-over-month; dropped, declined. The headline CPI, which is calculated a little differently from the harmonized HICP, gained only 0.1% month-over-month.

This could be nothing more than short-term noise, just as the situation had been last November the last time the CPI gained so little on a monthly basis. But that’s the thing; there’s a vast difference between now and last November, as German consumers will attest.

When consumer prices rebounded December and after, consumers weren’t yet so downtrodden. They are now, and then some.


And not just consumers, business expectations are falling fast, too, which only threatens the labor market Europe-wide; planet-wide.

To that end, Germany’s deStatis put the preliminary June year-over-year CPI gain at 7.6% compared to 7.9% during May. That was the other “shock”, an actual decelerating annual rate which had been widely expected (consensus was 8.0%) to further rise. This despite a god-awful, economy-crushing 38% year-over-year increase and contribution from energy (and 12.7% y/y for food).

Services prices were the primary reason, a huge macro uh-oh for all those inflation hawks to now digest. Except maybe the ECB which is following Jay Powell’s path toward yet another embarrassing turnaround.

Time will tell whether or not Europe or Germany’s June price reading proves temporary, or it actually does represent the start of the other side of supply shock transitory.

We know which way markets are currently betting globally. All those out there who said you couldn’t rely on especially the Treasury market because the Fed bought bonds during its QE’s, somehow spoiling and tainting good, relevant, validated information. Now these disbelievers are seeing their flippant (frankly irrational) dismissals of the curve thrown right back at them by the current flood of uniformly gross data.

Add the growing prospect for falling CPIs Europe and beyond, no rate hikes ever required.

But it had never been just USTs, had it? That’s what the Fed (Lagarde) Cult would also attempt, to limit their scope to just Treasuries while leaving unexplained how and why Treasuries were thoroughly corroborated up and down the market spectrum. Even by what were not too long ago the darlings of “store of value” “inflation” protection, crypto and real estate.

Digital currency prices started downward around October and November, too. Random coincidence? Not a chance.

I mean, that’s also exactly when eurodollar futures flattened into inversion.


The whole thing has been corroborated from one side to the next, from top to bottom, across geographical boundaries and from one market to another. This data is just confirming what has been increasingly priced in for over a year.

That’s the thing now, though. Markets have moved on from “if” and “when” to now “how bad.” Eurodollar futures, much more difficult to try to impeach (especially given history, recent history), inverted in whites at the December 2022 contract says Jay Powell is nearing certainty to get embarrassed this year. We can easily infer what that would mean for the ECB and Christine Lagarde (maybe just maybe, depending on timing, sparing her the same humiliation).

What would it take across the global system to turn Jay Powell from ultra-hawk (ostrich) to rate cutting dove? And do it in a matter of months!

The data we see here would be a start. But it’s not just here, it is everywhere.

Irony of irony, GfK stands for Growth from Knowledge. Here now, neither.

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