Stocks positive ahead of US inflation report

Bullish

Stocks edged up in early trading in London as the Bank of England said the UK’s top eight banks would weather a severe downturn. The blue chips added another half a percent to retake the 7,320 area, after eking out a small gain in the prior session, whilst shares in Frankfurt and Paris were similarly higher. It follows a solid session on Wall Street saw the Nasdaq add more than half a percent and Dow Jones rise by more than 0.9%. Asia was more mixed overnight. The CBOE equity put-call ratio hit 0.39 today, the lowest level since November of 2021...signals more investors are bullish than bearish...max pain is to the downside.  

Main event today is the US CPI inflation number. 

The headline number is expected to slow to 3.1% from 4.0% in May, which would be the slowest pace in two years. However core inflation is likely to remain far stickier at 5%, albeit this would also mark a slowing from the prior month’s 5.3%. US 10yr yields sit around 3.95%, whilst the more rate-sensitive 2yr yield is at 4.86%. Gold trades firmer again with yields nursing losses this week and the dollar a lot softer.  

Concentration

The Nasdaq 100 is to undergo a special rebalancing because a handful of big tech stocks have got so massive it’s no longer much of an index. Microsoft and Apple alone make up a quarter of the index by market capitalisation – throw in an Nvidia and you get to almost a third from just three stocks. It underlines the way in which the rally of 2023 has been largely down to a handful of megacap tech stocks.  

Elsewhere

China loan growth accelerated in June, with aggregate financing up to 4.2 trillion yuan vs f/c 3.1 trillion. Japan core Machinery Orders fell 7.6% mom in May, vs forecast gain of 1%. RBNZ – holds as expected, leaving rates unchanged at 5.5% and noting that "the level of interest rates are constraining spending and inflation pressure as anticipated and required". Meanwhile the RBA governor Lowe signalled more tightening could be required, suggesting August is going to be a live meeting.  

FX – dollar down again with Treasury yields lower on Tuesday and major peers making headway. GBPUSD is higher again this morning, touching .1.29690, a new 15-month high. EURUSD is also making new 2-month highs north of 1.10, whilst the yen is blazing a trail.