Market movers today
- US retail sales for May are the key market focus today and we look out for any signs that the high US goods demand is starting to peak. The Empire manufacturing survey for June will be monitored for signs of intensifying labour shortages and inflationary cost pressures.
- The EU-US leaders’ summit takes place in Brussels and discussions will likely centre on rebuilding transatlantic trade ties and a possible solution to the ongoing Airbus-Boeing subsidy dispute.
The 60 second overview
Waiting for FOMC: Yesterday, we published a preview ahead of the FOMC meeting tomorrow night, see Fed Research Preview: Start talking about talking about tapering. We argue that the Fed will hardly rock the boat though the market should be prepared for ‘dots’ pointing to a 2023 rate hike (no hike in 2023 in current ‘dots’) and we might see the first cautious Fed comments on possible tapering in 2022.
Risk appetite: Despite the negative Covid-19 news out of the UK risk appetite remains strong and especially growth stocks lead by yield-sensitive tech stocks performed strongly last night. The market continues to buy into a strong recovery with contained inflation and central banks on hold.
Covid-19: Yesterday, PM Boris Johnson extended the UK Covid-19 measures by another four weeks as the more infectious delta variant continues to spread. The UK government will review the situation again June 28 with the possibility of easing restrictions July 5. However, that seems unlikely with infections growing by 64% every week in the UK according to PM Johnson. Modelling had shown that ending social-distancing rules June 21 as initially planned could result in a surge of hospitalizations as seen in the spring of 2020.
Oil: The price of oil continues to move higher for a fourth consecutive day this morning with Brent crude trading above USD 73 per barrel this morning. The recovery in travelling ahead of summer peak season on the Northern hemisphere is boosting prices. There is growing calls for OPEC+ to boost production further especially in H2 this year. That said, it seems that US shale oil production is picking-up pace. According to the US Energy Information Agency production from the seven biggest shale formations is forecasted to rise to the highest level since November in July.
Equities: Equities ended mixed yesterday, dragged down by US. Growth beat value, with tech among the best sectors and banks underperforming, despite a slight pickup in yields. Cyclicals outperformed defensives, which has been a rarity the past month, but this came from the growth intense segments while industrials and materials underperformed. S&P recovered late in the session and added 0.2% to Friday’s close, Dow -0.3%, Nasdaq 0.7% and Russell 2000 -0.4%. Asian markets are mixed this morning, pulled down by China. US futures indicates an opening slightly higher.
FI: There was a modest rise in global bond yields yesterday driven by the rise in US Treasury yields ahead of today’s US retail sales and the FOMC meeting on Wednesday. The EU announced the inaugural syndicated deal that is going to be used to fund EU’s recovery fun. It is a 10Y benchmark and we expect that they will sell EUR 8-10bn.
FX: FX had a quiet session yesterday as markets are mostly in wait-and-see mode ahead of this week’s FOMC meeting. We suspect this meeting may spark some broad dollar strength as we go in to Q3.
Credit: CDS indices sold slightly off yesterday, with iTraxx Xover ending 1bp wider (in 232bp) and Main ½bp wider. Cash bonds held up, with HY tightening 2bp and IG almost 1bp tighter.
