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Pause for breath 

After the strong rally Friday, we are seeing the major equity indices pause for breath. European indices oscillated either side of the flatline this morning after Wall Street finished lower on Monday. The S&P 500 hit its best level in nine months but closed down 0.2%, whilst Apple registered a new all-time high at one point before pulling back to finish lower for the session. Bank shares also weighed on the Dow, which fell 0.6%, as regulators weigh tougher capital requirements for the likes of Goldman Sachs and JPM. The Nasdaq finished almost flat. 

Sentiment may be a tad on edge with eyes trained on the Zaporizhzhia nuclear plant in Ukraine, after damage to a dam appeared to threaten its cooling function. The International Atomic Energy Agency says no danger right now – but one to watch. Treasury yields are a tad lower with the 10yr to 3.680%, with the dollar steady for now. Bitcoin tumbled 5% as the SEC said it was suing Binance, filing 13 civil charges against the crypto exchange.

 

An Apple a day

Apple shares retreated 0.8% yesterday after touching an all-time high, as investors digested a deluge of software updates from the Cupertino firm and the launch of a new virtual/mixed reality headset. Investors maybe think the Vision Pro is a tad pricey - $3,499 a go is hardly mass market. The pullback in the shares after the launch suggest a slightly lukewarm initial response but the longer-term is up for grabs as developers pile in to make applications for use. You have to assume that use cases will grow over time and Apple has probably done something spectacular, even if it’s out of range for most people for the time being. Apple also unveiled a new chip – Intel fell almost 5%. Unity Software rallied 17% on news of its partnership with Apple on the Vision Pro. Disney’s Bog Iger said it will enhance the viewing experience on Disney+…I can imagine a wild 3D remake of Fantasia.

 

All that glitters

Gold rallied yesterday but is a touch weaker this morning as yields pulled back on fresh recession warning lights from the US ISM services PMI – remember the recession lights have been flashing for months and the labour market is pulling decisively in the other direction. ISM headline number fell to 50.3, barely in expansion territory, and one of the weakest readings in the last 14 years outside of Covid months. Delving deeper we see real weakness in the backlog of orders, which dropped to 40.9 from 49.7, the worst reading since 2009. This chimes with the manufacturing report, where order backlog fell from 43.1 to 37.5...recession lights flash – can the labour market really continue to hold up so well? 

 

Bank shot

RBA hiked overnight – bit of a surprise but the market was expecting something by September – no pause and no skip...lessons here for the Fed – why pause in June only to hike again in July? It would not look in control. The RBA raised rates by 25bps to 4.1%, its 12th hike in a year, saying: “Recent data indicate that the upside risks to the inflation outlook have increased” even as "inflation... has passed its peak". Notably, the RBA removed a sentence from its prior statement that medium term inflation expectations remain well anchored – suggesting it is far less confident about where inflation is heading – hawkish and indicates likely more hikes to come.

ECB boss Christine Lagarde spoke yesterday; main points: Underlying inflationary pressures remain high; our rate hikes are being transmitted forcefully to financing conditions; the full effects of our monetary policy measures are starting to materialise. Autopilot on. Governing Council member Knot says today that the worst of the inflation is behind. German factory orders this morning are quite weak at –0.4% vs +2.7% forecast, though nowhere near as bad as the revised 10.9% decline in the previous month.

Elsewhere Barclays spending data shows Brits are spending more on staying at home as supermarket spending soars – but at the expense of restaurants, furniture and electronics. Less disposable cash = lower discretionary spend…implications for stocks in the sector. Hardly a surprise when food prices are so high and mortgage/rent costs are soaring. 

 

In the charts...

Bespoke says that after Friday’s rally, the S&P 500 closed 2.47 standard deviations above its 50-DMA, which was the most ‘extreme’ overbought reading for the index since July 2021. 

 

 

Cable – big rejection hammer but also knocking heads on the 50-day line…looking for direction…MACD sideways

 

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Crude oil (Spot WTI) has already closed the gap after the puny OPEC cut. Saudi doing all the lifting – may need to do more.

 

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