Risk aversion sentiment dominance seems to be back as recession calls have grown louder, supported by another round of disappointing business sentiment data this week.
As expected in this environment, the “safe haven” currencies performed well, while the Kiwi and Aussie took the biggest hit among the majors.
Notable News & Economic Updates:
Russia defaulted on foreign debt on Monday; the first time since 1918
China’s industrial firm profits fell by 6.5% y/y in May, less than the 8.5% annualized decline in April
SEC’s Gensler Reiterated that bitcoin alone is a commodity
- NATO to grow high-readiness forces to 300,000, ‘biggest overhaul’ since Cold War
- U.S. blocks gold imports from Russia in latest round of sanctions targeting Putin’s war
- U.S. gov’t officials mulling price cap on Russian oil with Africa & South America
Crypto hedge fund Three Arrows Capital plunged into liquidation as market crash takes toll
EIA said crude oil inventory fell by 2.8M barrels in week ending June 24.; OPEC sticks with planned production hike of 648K bpd in August
China’s manufacturing PMI up from 49.6 to 50.2, services higher from 47.8 to 54.7 in May
Bitcoin and ether futures saw nearly $200M in liquidations during Thursday short squeeze
J.P. Morgan Global Manufacturing PMI for June: 52.2 vs. 52.3 in May; input prices slip from 70.3 to 68.6
S&P Global PMI commodity price & supply indicators survey showed that supply shortages are still almost five times the usual level.
Intermarket Weekly Recap
Risk sentiment seems to have come back as the dominant driver this week, and it looks like traders leaned risk averse, more so as the week went on. This was characterized first by the dip lower in equities/crypto early on, followed by a fall in bond yields and commodities by Wednesday.
It’s likely that traders are continuing to shift focus towards a potential global recession ahead, supported this week by slowing business sentiment survey data from all over the world.
The most notable from the bunch was the manufacturing PMI reads from both the U.S. and China. The U.S. sentiment data disappointed as it came in below expectations (ISM PMI at 53.0 vs. 54.6 exp.; employment index contracting faster at 47.3).
And as for China, the survey data showed that there was improvement as businesses expect a return to expansionary conditions, but it’s surprising we didn’t see a higher level of optimism given that China is starting to exit lockdown COVID protocols.
We also got updates on inflation conditions, and arguably, we are starting to get signals that the high rates of price growth may be starting to stabilize. The most notable read was from the Fed’s favorite inflation measurement, the core PCE price index, which came in below expectations and inline with the previous month’s rate of +0.3%.
While one month of data doesn’t make a trend, it appears that it was enough to move traders to lighten up on high inflation bets. And when combined with the narrative of a likely recession ahead, it’s no wonder why we saw bond prices pump higher and a dramatic fall in bond yields this week. It was just on Tuesday that the U.S. 10-yr Treasury yields was a 3.25% before falling rapidly to around its current range around 2.88%.
As mentioned in the intro, the safe havens were big gainers this week given the risk-off environment, but it was the Canadian dollar that saw a late week push to sneak into the top spot. The Loonie was relatively resilient all week, likely a combination of optimistic comments from Canadian Finance Minister Freeland on Sunday, ongoing expectations of more rate hikes ahead, and oil prices staying mostly in the green this week.
U.S. Pending home sales for May: +0.7% m/m (-3.7% forecast) vs. -4.0% m/m previous
U.S. Durable goods orders in May: +0.7% m/m vs. +0.5% previous
Texas Manufacturing Outlook Survey: In May, the future general business activity index fell 20 pts to -26.0
U.S. CB consumer confidence index sank from 103.2 to 98.7 vs. 100.0 forecast
Q1 2022 U.S. GDP was revised lower to -1.6% vs. +6.9% Q4 2021
Fed Chairman Powell: “no guarantee” the Fed can tame inflation without hurting jobs
U.S. Core PCE for May: +4.7% y/y vs. 4.9% y/y in April
U.S. weekly initial jobless claims ticked lower to 231K in the week ending June 25
Chicago PMI dipped to 56.0 in June from 60.3 in May
U.S. Personal income increased by 0.5% m/m in May; personal spending rate dipped to 0.2% vs. 0.6% previous
Atlanta Fed GDP tracker shows Q2 2022 growth likely around -1.0%
ISM Purchasing Managers Index for June: 53.0 vs. 56.1 in May; Employment Index dipped -2.3 to 47.3; Prices Index decreased -3.7 to 78.5
U.S. construction spending unexpectedly fell in May -0.1% vs. +0.8% in April
U.K. BRC shop price index up from 2.8% to 3.1%
Bank of England Governor Bailey said the BOE will set policy to offset inflationary pay rises
BOE’s Bailey: UK economy weakening more and earlier than others over higher energy prices
U.K.’s GDP confirmed at 0.8% in Q1 2022
U.K. current account deficit rose to £51.7B in Q1 2022
Average U.K. house price hit a new record high of £271,613 after rising by an annualized rate of 10.7% in June
S&P Global / CIPS UK Manufacturing PMI in June: 52.8 vs. 54.6 in May.
U.K. net lending spiked to £7.4B; home loans for May: 66.1K vs. 64K in April
German consumer sentiment plunged to -27.4 vs. -26.2 in June – GfK
ECB President Lagarde said on Wednesday that an economic recovery is ‘very much underway’
Preliminary Spanish CPI read for June: +10.2% y/y vs. 8.7% previous
Germany preliminary CPI for June: +7.6% y/y; +0.1% m/m
ECB’s Lagarde: Era of ultra-low inflation unlikely to return
Germany’s retail sales inch 0.6% higher vs. 1.1% expected, 5.4% drop in May
Germany’s jobless rate soars from 5.0% to seven-month high of 5.3% in June as Ukrainians register in job centers
Eurozone flash headline CPI up from 8.1% to 8.6% vs. 8.5% forecast
Final Eurozone Manufacturing PMI at 52.1 in June vs. 54.6 in May
Swiss retail sales fall by another -1.6% in May vs. -5.5% in April
Swiss KOF economic barometer fell in June to 96.9 vs. 97.7 previous
Sight deposits at the Swiss national Bank fell by the most in more than a decade (CHF 3.37B), signaling that the SNB is no longer intervening in the FX markets to weaken the franc
The Swiss National Bank spent CHF 5.74B on foreign currencies in Q1 2022
Finance Minister Chrystia Freeland predicted a “soft landing” for Canada on Sunday
Canada Prelim GDP for May: +0.2% m/m vs. 0.7% m/m in April
ANZ survey shows NZ firms pessimistic about the economic outlook, expect “dire” drop in profits
New Zealand consumer confidence index down from 82.3 to 80.5 in June
New Zealand building consents dipped by 0.5% after previous 8.6% slump
Australian retail sales post another 0.9% gain vs. projected 0.3% uptick
Australia Private Sector Credit: +0.8% m/m in May 2022 vs. +0.6% m/m forecast
Australian Manufacturing Index rose by 1.6 to 54.0 in June; sales conditions have declined
BOJ focused on wages, yen at June meeting, no debate on tweaking yield cap
Japanese retail sales advanced to 3.6% y/y vs. 4.0% forecast in May
BOJ’s Kuroda vows to keep easy policy as Japan less affected by global inflation
Tokyo core CPI climbed from 1.9% to 2.1% as expected
Japanese unemployment rate ticked higher from 2.5% to 2.6%
Japan’s Tankan manufacturing index fell from 14 to 9; non-manufacturing index up from 9 to 13 as expected
au Jibun Bank Japanese Manufacturing PMI: 52.7 in June vs. 53.3 in May