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Futures Rebound As Hopes Of Imminent Recession Spark “Bad News Is Good News” Reversal

Futures Rebound As Hopes Of Imminent Recession Spark "Bad News Is Good News" Reversal

In a world where bad news is good news, and where the…

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Futures Rebound As Hopes Of Imminent Recession Spark "Bad News Is Good News" Reversal

In a world where bad news is good news, and where the looming recession means an end to rate hikes and a start to easing, it didn't take algos long to bid stocks up as treasury yields tumbled after comments by Jerome Powell and dismal PMI data in Europe justified fears that a global downturn is now just a matter of when, not if. After initially sliding more than 1% late on Wednesday, futures rebounded and recovered all losses and were last trading near Wednesday's session highs, up 0.7% or 27 point to 3,790, while Nasdaq futs were up 0.9% at 11,375 as of 715am ET.

10Y yield initially dumped below 3.10% - near a two week low, after trading at 3.50% one week ago -  before bouncing modestly, while the Dollar pushed higher as the euro tumbled after after a series of very poor European PMI prints confirmed that Europe's runaway inflation is pushing the continent into a stagflationary recession, which in turn sent the yield on German 10-year bonds slumping as much as 21 basis points, poised for the biggest two-day decline since November 2011. US 10-year rates traded near a two-week low.

In premarket trading, US-listed Chinese stocks climbed  as bullish sentiment around the group continues to grow amid calls from strategists and fund managers that Beijing’s regulatory crackdowns are easing. JPMorgan Asset Management became the latest to voice its support for Chinese tech shares, saying “the worst is over” when it comes to regulatory crackdowns. Here are some other notable premarket movers:

  • KB Home (KBH US) shares climb 4.7% in premarket trading after the homebuilder reported earnings per share and revenue for the second quarter that beat the average analyst estimate.
  • US-listed shares of Chinese electric-vehicle makers rallied in premarket trading after Chinese state television reported that the government may extend tax exemptions on electric-car purchases.
  • Li Auto (LI US) +6%, Xpeng (XPEV US) +5.3% and Nio (NIO US) +2.6% in premarket trading.
  • Cryptocurrency-exposed stocks rebounded in premarket trading as Bitcoin recovered to remain over the closely watched $20,000 level.
  • Coinbase (COIN US) +3%, Riot Blockchain (RIOT US) +3.7%, Marathon Digital (MARA US) +4.4%, Block (SQ US) +0.7%.
  • EBay (EBAY US) shares decline 2.1% in premarket trading as Morgan Stanley assumed coverage of the stock with a recommendation of underweight and a price target of $36, the lowest on Wall Street.
  • Energy companies slide in US premarket trading as oil eases anew amid concerns of slowing global growth.
  • Exxon Mobil (XOM US) -1%, Chevron (CVX US) -1.1%, Imperial Petroleum (IMPP US) -3.1%, Camber Energy (CEI US) -2.4%.
  • Westinghouse Air Brake (WAB US) and AGCO (AGCO US) shares may be in focus as Morgan Stanley cuts them to equal-weight and resumes coverage of Cummins (CMI US) at equal-weight in a note trimming its PTs across most of its machinery and construction coverage.

 

On Wednesday, in the first day of his Congressional testimony, Powell accepted that steep rate increases could trigger a US recession, and said the task of engineering a soft economic landing is “very challenging” (day two follows). Policy makers are taking drastic steps to cool inflation at a four-decade high and the Fed chair repeated his resolve to get consumer price growth back down to the 2% target.

“Market optimism couldn’t survive Jerome Powell’s testimony yesterday, but most of the negative pricing is certainly done by now,” said Ipek Ozkardeskaya, a senior analyst at Swissquote.

“The reaffirmation of the Fed’s commitment to bringing inflation down and that recession is a risk are adding to growth worries, which is the dominant fear again,” said Esty Dwek, chief investment officer at Flowbank.

Traders are now debating how far the Fed will stretch its rate cycle in the face of an economic downturn. Money markets indicate diminished odds the central bank will raise rates beyond year-end, and rising odds of a rate cut from May 2023. The Federal Reserve “is well served by keeping some hawkishness there,” Steven Major, global head of fixed income research at HSBC Holdings Plc, said in an interview with Bloomberg Television. “Because if they appear that they’ve reached the peak, then financial conditions will loosen and the policy won’t work. So they need a couple more months of this.”

European equities traded flat having erased earlier losses of more than 1%. Real estate, autos and banks are the weakest Stoxx 600 sectors; travel is a rare bright spot. European energy stocks slipped for a second session with crude prices under pressure as concerns over a global economic slowdown intensified. The Stoxx 600 Energy index falls as much as 1.9%; TotalEnergies and Shell the biggest drags on the index on Thursday, with wind- turbine firm Vestas and Italy’s Eni also slipping.  Here are some of the biggest European movers today:

  • Aroundtown stock drops as much as 11% after being cut to underweight from neutral at JPMorgan, which also lowered its PT to EU3.6 from EU6 due to excessive downside exposure for the German landlord.
  • Vantage Towers falls as much as 7.6% after Morgan Stanley cut the stock to equal-weight from overweight, saying the shares have outperformed despite challenges in its outlook.
  • Saipem trims losses after declining as much as 21% following the announcement of a EU2b capital increase on Wednesday; Italy’s Consob warns of volatility in the stock when the rights issue starts.
  • Rheinmetall falls as much as 6.3% after HSBC downgraded the German automotive and defense group to hold from buy due to it being temporarily held back by its automotive division
  • Naked Wines slumps as much as 40% after the online wine merchant forecast fiscal 2023 sales of £345m-£375m. The midpoint of the guidance is ~10% lower than what Jefferies analysts had been expecting.
  • Intertek falls as much as 4.1% after Deutsche Bank cuts the stock to sell, saying many structural trends that underpinned growth for testing and inspection companies are reversing. Eurofins gains as much as 4.2% on an upgrade to hold.
  • Atos gains as much as 11% after a report that Thales has the support of the French state in its effort to buy French tech company’s cybersecurity business.
  • Ubisoft rises as much as 2.5% before paring gains, as Deutsche Bank initiates coverage with a buy rating, saying there’s “good scope” to beat revenue and margins expectations for fiscal 2024 and 2025.

As noted above, the latest let of European PMIs were dismal, dropping across the board and all (except the UK) missing expectations:

  • Euro Area Composite PMI (June, Flash): 51.9, consensus 54.0, last 54.8.
    • Euro Area Manufacturing PMI (June, Flash): 52.0,  consensus 53.8, last 54.6.
    • Euro Area Services PMI (June, Flash): 52.8, consensus 55.5, last 56.1.
  • Germany Composite PMI (June, Flash): 51.3, consensus 53.0, last 53.7.
  • France Composite PMI (June, Flash): 52.8, consensus 55.9, last 57.0.
  • UK Composite PMI (June, Flash): 53.1, consensus 52.4, last 53.1.

Earlier in the session, Asian stocks edged higher, with an improving outlook in China offering support even as the prospect of a global downturn weighed on some export-reliant markets. The MSCI Asia Pacific Index was up 0.2% with China’s internet giants and automakers contributing to the gains. South Korea and Taiwan, the two tech-heavy markets that have seen foreigners flee amid rising global rates, fell more than 1%. Traders digested Federal Reserve Chair Jerome Powell’s Wednesday comments that steep rate increases could trigger a US recession. China stocks were the region’s best performers, extending a recent trend, as President Xi Jinping pledged to meet economic targets for the year. 

Hong Kong stocks gained after a report that the city’s incoming leader is working on a strategy to reopen its borders. Japanese stocks were little changed. “We’re sort of in a bottoming out phase here in Asia, where China is going to eventually support us again,” Robeco Asia-Pacific Chief Investment Officer Arnout van Rijn said in a Bloomberg TV interview. “The rest of Asia, with its better macroeconomic policies and lower interest rates, should at least outperform a weaker global market.” The Fed’s recent rate hike and comments have been especially hard on growth shares, with a gauge of Asia’s tech stocks falling to its lowest level since September 2020. China’s stocks have outperformed the broader region amid hopes for continued fiscal and monetary support.

Japanese equities struggled for direction as investors worried over Federal Reserve Chair Jerome Powell’s comments on the risks of a recession. The Topix closed down les than 0.1% at 1,851.74, while the Nikkei advanced 0.1% to 26,171.25. Out of 2,170 shares in the index, 1,295 rose and 775 fell, while 100 were unchanged. “We’re in a very difficult phase,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. “The market is still focused on what will happen to prices in the US and whether the economy can cope with a larger interest rate hike.” 

Indian shares rose to mark their third day of gains in four after a retreat in crude oil prices eased concerns about vehicle demand in Asia’s third-biggest economy. Maruti Suzuki India Ltd. and Mahindra & Mahindra Ltd. were among the top gainers on the S&P BSE Sensex, which climbed 0.9% to close at 52,265.72 in Mumbai. The NSE Nifty 50 Index rose by an equal measure. Both indexes have risen for three of four sessions this week. All but two of the 19 sub-sector gauges compiled by BSE Ltd. advanced, led by auto companies.  Regional peers were mixed after Federal Reserve Chair Jerome Powell acknowledged the risk of a recession. West Texas Intermediate sank toward $104 a barrel after closing at a six-week low on Wednesday. Tata Consultancy contributed the most to the Sensex’s gains, increasing 2.7%. Out of 30 shares in the index, 27 rose and 3 fell.

In rates, Treasury futures traded above Wednesday’s highs after tracking steeper gains for bunds sparked by weaker-than-expected euro-zone growth data, before fading much of the move. US yields richer by 3bp-5bp across the curve led by belly, richening the 2s5s10s fly by 3.5bp on the day; 10-year richer by ~3bp at 3.125% vs 16bp slide for German 10-year, widening spread ot ~165bp. Elevated recession risk put German 10-year yields on track for their biggest decline in more than three months. US auctions include $18b 5-year TIPS reopening at 1pm ET; ahead of the sale 5-year breakeven inflation is ~2.75%, near lowest level since January. Focal points of US session include Fed Chair Powell’s second day of congressional testimony and manufacturing survey data. Bunds futures rally, trading over a 300 tick range in high volumes before stalling close to 148.00. Yield curves bull steepen aggressively. German 2y yields crater over 20bps near 0.82%, trading 10bps richer to gilts and ~15bps richer to USTs. Peripheral spreads widen with short-end Portugal underperforming.

In FX, Bloomberg dollar spot index rose 0.3% as the EUR tumbled on poor PMI data. The yen extended its rise as comments from an ex-policy official spurred bets that the Bank of Japan may intervene to halt the currency’s slide. Japan’s currency gained as much as 0.8% after Takehiko Nakao, the former head of foreign exchange policy at the finance ministry, said the possibility of the authorities intervening directly in foreign-exchange markets can’t be ruled out. Sterling eased against a broadly stronger dollar as a slide in global share prices prompted investors to sell riskier assets. Markets await UK PMI data, which is expected to show a drop in manufacturing and services sectors, adding to signs of a slowing economy.

In commodities, oil dipped initially in early trading before paring the entire loss, Brent crude back above $111 a barrel. Most base metals are trade lower: LME copper drops ~2%, LME tin underperforms declining over 8%. Spot gold drifts lower near $1,830/oz.

Bitcoin is firmer overall but continues to pivot the USD 20k mark and has struggled to gain any real traction during brief forays either side.

Looking to the day ahead now, and the main data highlight will be the rest of the flash PMIs for June, along with the US weekly initial jobless claims, the Q1 current account balance, and the Kansas City Fed’s manufacturing activity for June. From central banks, Fed Chair Powell will be speaking before the House Financial Services Committee, the ECB will publish their Economic Bulletin, and we’ll hear from the ECB’s Nagel and Villeroy. Finally, EU leaders will be meeting in Brussels.

Market Snapshot

  • S&P 500 futures down 0.2% to 3,755.75
  • STOXX Europe 600 down 1.2% to 401.04
  • MXAP up 0.1% to 156.60
  • MXAPJ up 0.2% to 519.03
  • Nikkei little changed at 26,171.25
  • Topix little changed at 1,851.74
  • Hang Seng Index up 1.3% to 21,273.87
  • Shanghai Composite up 1.6% to 3,320.15
  • Sensex up 0.7% to 52,208.76
  • Australia S&P/ASX 200 up 0.3% to 6,528.45
  • Kospi down 1.2% to 2,314.32
  • German 10Y yield little changed at 1.47%
  • Euro down 0.6% to $1.0503
  • Brent Futures down 1.7% to $109.80/bbl
  • Gold spot down 0.2% to $1,834.49
  • U.S. Dollar Index up 0.46% to 104.67

Top Overnight News from Bloomberg

  • Germany elevated the risk level in its national gas emergency plan to the second-highest “alarm” phase, following steep cuts in supplies from Russia.
  • India’s central bank appears to have ramped up intervention in the forwards market to slow the rupee’s decline and preserve its hard-earned reserves.
  • Russia faces yet another bond payment test this week, with just days remaining before it potentially slides into its first foreign default in a century.
  • India’s central bank appears to have ramped up intervention in the forwards market to slow the rupee’s decline and preserve its hard-earned reserves.

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly positive after risk appetite slightly improved from the uninspiring lead from Wall St where stocks were choppy as tailwinds from lower oil prices and softer yields were offset by recession fears. ASX 200 was led higher by strength in real estate and consumer stocks, while Manufacturing PMI data remained in a firm expansion. Nikkei 225 swung between gains and losses with the index hampered by currency inflows. Hang Seng and Shanghai Comp. were kept afloat with auto manufacturers lifted after China’s cabinet pledged to boost the auto industry, while markets also shrugged off initial cautiousness brought on by COVID concerns after Shenzhen required PCR tests for anyone entering a public venue.

Top Asian News

  • China's Shenzhen is to require PCR tests for anyone entering a public venue, according to Bloomberg.
  • US State Department warned about reconsidering travel to China due to COVID lockdown risks, according to Reuters.
  • Former Japanese FX chief Nakao said continuing with YCC has many negative effects and that it is clear monetary policy is playing a role in the weak JPY, according to Bloomberg.

European bourses are pressured overall, but well off lows going into the US session, Euro Stoxx 50 -0.2%; pressure was seen post-PMIs which missed expectations and featured pessimistic internal commentary. The sectoral breakdown is mixed as such while individual movers are affected by numerous broker moves. Stateside, futures are now firmer on the session, ES +0.4%, having shrugged off the French/German/EZ flash-PMI induced risk move ahead of Powell's second day of testimony.

Top European News

  • Majority of economists expect the ECB to hike the deposit rate by 25bps in July and 50bps in September, while the Deposit Rate is seen at 0.75% at year-end (prev. 0.25%) and there is a median 34% (prev. 30%) chance of a recession in 12 months, according to a Reuters poll.
  • Bulgarian Turmoil Deepens as Premier Loses Confidence Vote
  • Norway Steps Up Action With First Half-Point Hike Since 2002
  • Hedge Fund Trader Shah Struck Cum-Ex Trades With DekaBank
  • UK June Flash Services PMI 53.4; Est 52.9

FX

  • Poor preliminary Eurozone PMIs pull rug from under Euro; EUR/USD sub-1.0500 at worst, EUR/JPY under 142.00 vs almost 144.00 peak and EUR/GBP probes 0.8600 from circa 0.8641.
  • Buck benefits indirectly alongside Yen as risk aversion intensifies on heightened recession anxiety; DXY towards top end of 104.780-050 range, USD/JPY vice-versa between 136.25-135.12 parameters.
  • Pound pares some declines with assistance of solid UK services PMI, Cable keeps tabs on 1.2200 handle.
  • Franc makes way for rebounding Dollar, Loonie, Aussie and Kiwi bear brunt of ongoing losses in underlying commodities; USD/CHF back above 0.9650 from sub-0.9600, USD/CAD hovering under 1.3000, AUD/USD capped into 0.6900 and NZD/USD around 0.6250.
  • Norwegian Crown underpinned by bigger than expected 50bp Norges Bank hike and loftier rate path with caveats, EUR/NOK pivots 10.4800 vs near 10.5300 peak and 10.4400 trough.

Central Banks

  • Norges Bank Key Policy Rate (June-MPR): 1.25% vs. Exp. 1.00% (Prev. 0.75%); points to a 25bps hike in August (interim meeting). Click here for full details, reaction and newsquawk analysis.
  • Norges Bank Governor Bache says cannot rule out increasing rates by more than 25bps in future meetings.
  •  
  • NBH keeps its one-week deposit rate unchanged at 7.25%

Fixed Income

  • Bunds and OATs front-run latest broad and big bond bounce as PMI miss consensus by some distance.
  • Gilts and US Treasuries tag along with a lag post-solid UK services PMI and pre-US jobless claims, PMIs and Fed Chair Powell part 2.
  • Bunds reach 147.89 from 144.81 low, Gilts 113.36 vs 111.93 and 10 year T-note 117-16 compared to 116-25+.
  • Italy raises EUR 9.45bln with the BTP Italia bond, via Reuters.

Commodities

  • Crude complex remains pressured with specific newsflow limited and focused on known themes, WTI/Brent -0.5% having benefitted from the recent pick up in broader sentiment; note, the EIA release has been delayed.
  • Private US Energy Inventory Data (bbls): Crude +5.7mln (exp. -0.6mln), Gasoline +1.2mln (exp. -0.5mln), Distillates -1.7mln (exp. +0.3mln), Cushing -0.4mln.
  • US EIA said product releases scheduled this week will be delayed due to system issues, while it added the nat gas storage report will be released as scheduled on June 23rd but all other releases will be delayed, according to Reuters.
  • Germany reportedly fears that a planned 'maintenance' shutdown of the Nordstream 1 pipeline could be used by Russia to shut off gas supplies completely to Germany which would threaten its efforts to build stores ahead of winter, according to FT.
  • Germany declares Phase Two of Emergency Gas Plan due to supply cuts from Russia and high prices.
  • Spot gold is back below the DMAs it briefly surmounted yesterday, downside in wake of post-PMI USD upside.

US event Calendar

  • 08:30: June Initial Jobless Claims, est. 226,000, prior 229,000
  • 08:30: June Continuing Claims, est. 1.32m, prior 1.31m
  • 08:30: 1Q Current Account Balance, est. -$275b, prior -$217.9b
  • 09:45: June S&P Global US Services PMI, est. 53.2, prior 53.4
  • 09:45: June S&P Global US Manufacturing PM, est. 56.0, prior 57.0
  • 11:00: June Kansas City Fed Manf. Activity, est. 12, prior 23

Central Bank Speakers

  • 10:00: Powell Testifies Before House Financial Services Panel

DB's Jim Reid concludes the overnight wrap

It’s been another eventful 24 hours in markets, with recession fears making a prominent return after Fed Chair Powell made some of his most pessimistic comments to date on whether the Fed would be able to successfully engineer a soft landing. Appearing before the Senate Banking Committee as part of the Fed’s semiannual Monetary Policy Report to Congress, Powell said that a recession was “a possibility”, whilst the soft landing the Fed is seeking will be “very challenging”, which is a long way from what the Fed were saying at the start of the year. Similarly, Powell said that the Fed “know we need to have restrictive policy, and that’s where we’re headed”, which is in line with what the Report itself said last week, in that the FOMC’s price stability commitment was “unconditional”. So a further reiteration that the Fed are prepared to keep hiking rates to bring down inflation, and an acknowledgement that there could well be a bumpy ride as they do so.

However, even as Powell emphasised the Fed’s willingness to deal with inflation, those growing fears of a recession meant that Fed funds futures became more doubtful on the Fed’s ability to take policy into restrictive territory. For instance, the rate priced in by the December meeting actually came down -10.5bps yesterday, and since early last week we’ve seen nearly a full 25bp hike taken out of market pricing. The expected terminal rate also came down, with futures only seeing a peak of 3.61% in April 2023 before subsequent cuts.

With investors becoming increasingly sceptical about the Fed taking policy far into restrictive territory, sovereign bonds rallied strongly yesterday, with yields on 10yr Treasuries down -11.9bps to 3.16%. That was driven by a decline in both real rates and inflation breakevens, and interestingly, the 10yr breakeven fell to its lowest level since Russia’s invasion of Ukraine began in late February yesterday, closing at 2.54%. In terms of the curve’s slope, the 2s10s steepened +2.2bps to 9.4bps, so still pretty close to inversion territory that has traditionally been a leading indicator of a recession. Meanwhile, if you look at the Fed’s preferred yield curve indicator that Powell has cited of the near-term forward spread (which looks at the 18m forward 3m yield minus the current 3m yield), that came down by -18.9bps yesterday to 176bps, which is the lowest it’s been in over 3 months, even if it still remains some way out of inversion territory.

Equities put in a mixed performance against this backdrop, with the S&P 500 oscillating between gains and losses before ending the day down -0.13%. Energy stocks were a major laggard after oil prices fell to a one-month low, with Brent crude down -2.54% over yesterday’s session to close at $111.74/bbl. And this morning those losses have accelerated further, with Brent crude down -2.52% to trade at $108.92/bbl, which is now -13% beneath its intraday peak above $125/bbl seen last week. Over in Europe the tone was even more negative, with the major indices including the STOXX 600 (-0.70%) and the DAX (-1.11%) all seeing noticeable declines. That coincided with growing fears on the energy side, and Germany’s economy minister Habeck said yesterday that “we must assume that Putin is ready to reduce the gas flow further”. Natural gas futures in Europe (+1.28%) hit a 3-month high against that backdrop, and this is only set to become more of an issue as we move closer towards the colder months of the year.

Staying on Europe, there was a similar rally in sovereign bonds to the US, with yields on 10yr bunds (-13.6bps) coming down from their post-2014 high on Tuesday. That was echoed elsewhere, whilst a fresh narrowing in peripheral spreads saw the gap between Italian 10yr yields over bunds reach their tightest in nearly a month, with a -2.0bps move to 191bps. Over in credit though, growing fears of a recession led to a widening in spreads, and iTraxx Crossover widened +15.4bps after 3 consecutive moves tighter.

Overnight in Asia, equities are similarly struggling to gain traction in light of those warnings about a US recession. Both the Nikkei (-0.33%) and the Kospi (-0.84%) have moved lower for a second consecutive session, although Chinese equities have put in a stronger performance, with the Shanghai Composite (+0.58%) and the CSI (+0.49%) both trading in positive territory with the Hang Seng (+0.96%) maintaining its morning gains. Outside of Asia, US equity futures have continued to move between gains and losses, but contracts on the S&P 500 (-0.23%) and NASDAQ 100 (-0.25%) are both pointing lower this morning.

Moving on to economic data, it’s an eventful day ahead as we get the flash PMIs for June. But we’ve already had the numbers out of Japan, where the services PMI hit its highest since October 2013 at 54.2, whilst the composite reading also accelerated to 53.2, which is the highest since November. The numbers from Australia showed a modest decline in June however, with the flash composite PMI down three-tenths on May’s reading to a 5-month low of 52.6.

Here in the UK, the main news yesterday came from the May CPI reading, where annual inflation rose to +9.1% in line with expectations. That’s the highest rate since March 1982, although core CPI did fall a bit more than expected to 5.9% (vs. 6.0% expected). Staying on the UK, there’s a couple of important political contests taking place in the form of two by-elections to the House of Commons as well. Both are in seats that had been won by the Conservatives at the last election, but where opposition parties are making a challenge, and represent an important test for Prime Minister Johnson’s authority, not least since he saw 41% of his party’s MPs vote no confidence in him at the start of the month. The one in Wakefield will be of particular interest, since that is a so-called “Red Wall” seat that Labour held for the entire post-war period before Johnson’s Conservatives gained it at the 2019 election. So an important bellwether as we move closer to the next election.

Looking at yesterday’s other data, the European Commission’s preliminary consumer confidence indicator for the Euro Area in June unexpectedly fell to -23.6 (vs. -20.5 expected), which is its lowest level since April 2020 at the height of the initial wave of the Covid pandemic. Separately, we saw Canadian CPI surprise on the upside, with the annual number coming in at +7.7% in May (vs. +7.3% expected), which is the fastest since 1983.

To the day ahead now, and the main data highlight will be the rest of the flash PMIs for June, along with the US weekly initial jobless claims, the Q1 current account balance, and the Kansas City Fed’s manufacturing activity for June. From central banks, Fed Chair Powell will be speaking before the House Financial Services Committee, the ECB will publish their Economic Bulletin, and we’ll hear from the ECB’s Nagel and Villeroy. Finally, EU leaders will be meeting in Brussels.

Tyler Durden Thu, 06/23/2022 - 07:50

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Bonds

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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