Stocks drift lower ahead of FOMC minutes

Stocks Wobble 

Stocks fell in early trade on Wednesday, with the FTSE 100 down around 0.4 percent to under the 7,500 support, whilst the DAX shed about 0.6 percent to dip under 16,000 again. Choppy action here reflects a lack of any real meaningful direction from Wall Street this week with the half day on Monday and closure yesterday – but that is about to change as traders return to their desks. The dollar rose overnight, dipped this morning, but DXY futures remain kind of range-bound on the 102 handle for the time being. UK and German 2yr yields sit near 15-year highs. Gold is steady at $1,926 after three days of gains following the bounce off the $1,900 support and Fib level. 

Data Weaker 

Sentiment is a tad risk-off as data shows China’s services activity expanding at the slowest pace in five months in June. The Caixin services PMI dipped to 53.9 from 57.1 in May, the weakest since January though still in expansion territory. Similar reads came from Japan and Europe with services growth slowing down, though Germany seemed to hold up a bit better with the services PMI at 54.1, composite at 50.6. Across the piece, PMIs are signalling a grinding slowdown in the global economy. Producer prices are expected to show disinflation with EZ PPI at 10am (BST) seen at -1.7%. UK new car registrations up 25% - rates not doing enough! But don’t worry the mortgage bomb will go off soon enough…if only the Bank had got ahead of the curve in the first place…go early and you don’t have to go as far. In short the pandemic was a policy disaster on many levels – but economically the huge overstimulation has created inflation and soaring rates. Total policy failure. 

FOMC Minutes 

The focus later is on the FOMC meeting minutes – how close a call was the decision to pause rate hikes in June and how quickly do participants expect to resume the cycle? We’ve heard a lot of chatter since that meeting – chiefly a rather hawkish Jay Powell at Sintra in Portugal. Markets price in another hike this month but are far from confident about a second 25bps move this year – remember what I have said about market pricing – it's only ever a snapshot of a feeling on a given day and has been prone to big swings. It’s about as reliable as the dots themselves.  

Incoming Jobs Data 

Investors are looking ahead to a big couple of days for the US labour market. ADP numbers are often ignored but the higher frequency weekly unemployment claims data and JOLTS jobs openings are worth paying attention to tomorrow. A recent rise in weekly claims has suggested some cracks appearing in the labour market. But at 10m+, job openings remain incredibly strong. Friday is jobs day with the monthly nonfarm payrolls. A month ago the jobs report came in way stronger than expected just as weekly claims started to tick up – will that weekly data be captured in this report? Payrolls rose 339,000 in May, blowing apart the market expectation for 190,000. But unemployment rose to 3.7% from 3.4% and wage inflation edged a bit lower to 4.3% from 4.4%.   

Oil Drifts 

Oil slipped a bit, giving back some of yesterday’s gains as it struggled to get over the 50-day line. Price action remains pretty lacklustre and the market continues to drift absent any fresh macro catalyst. Fed minutes today may be factor as is the day-late API release. OPEC seminar today – maybe some chatter on the wires but no discussions around quotas.