Stocks firmer but choppy

Stocks Firm With China Support 

European stock markets rallied early Tuesday and the dollar gave back some ground as risk found a stronger footing. China is in accommodative mode with premier Li Qiang saying Beijing would introduce growth policies to boost demand, whilst sentiment also seemed to improve as the PBOC set a stronger-than-expected fix for the yuan. The FTSE 100 rallied about half a percent early doors to knock on the 7,500 area, whilst the DAX in Frankfurt added a similar amount to look at 15,900. 

Tech Pullback 

A fall in tech stocks hit Wall Street yesterday, pushing the Nasdaq down more than 1.15% and the S&P 500 down 0.45%. Tesla fell 6% as Goldman hit the stock with a downgrade, whilst some of the top-performing tech stocks like Nvidia and Meta slid 3%. There’s been a big run this year so we are in giveback mode with a lack of catalysts to encourage bulls to keep it going.   

Correction Risk 

Morgan Stanley’s Mike Wilson, who’s been bearish a while now, says "risks for a major correction have rarely been higher". The question is probably one of liquidity – how much gets pulled over the coming months with QT and lots of issuance. The Fed has been refilling the punchbowl with an eye on the stability of banks – this won’t last forever. There is also an argument about earnings expectations, which MS says are too high. Dealers for now look to be long gamma, ie selling tops and buying dips to keep volatility low. Treasury issuance may lead to a major drain on liquidity, which has been buoyed up by the Fed’s bank lending since the banking crisis blew up in March. The impact of the liquidity drain will depend on how much money market funds can absorb as they shift out of the Fed’s overnight reverse repo facility (RRP).   

Inflation Nation 

Good news on the inflation fight in the UK with shop price inflation slowing in June, notching a second monthly decline in a row. Shop price inflation fell to 8.4% in June, down from 9% in May. Canada’s CPI report is due later, whilst there is a full slate of US data incoming with durable goods, new home sales, Conference Board consumer confidence and the Richmond Fed manufacturing index.  

Crypto Lives 

“Crypto is far from dead,” says Bernstein analyst Gautam Chhugani. “Institutional interest has remained alive through the crypto winter and we are seeing some early news flow with the current announcements. We will continue to see continued institutional participation in new crypto products and offerings, including institutions building tokenized products on public blockchains.” Bitcoin trades above $30k this morning after running into resistance at the Apr swing high above $31k following a strong bounce last week. Regulatory moves could see it be a winner-takes-all situation?