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China’s soft economic data from Monday continues to weigh on sentiment a bit with European equities kind of sideways in early trading on Tuesday morning after a mixed session for Asia. But it didn’t stop Wall Street posting fresh gains as the Dow Jones closed at its highest level this year after climbing 0.22%. the S&P 500 rose 0.4% and the Nasdaq added more than 0.9%. The FTSE 100 was up a quarter of a percent in early trade, led by gains for Ocado, after declining around 0.4% on Monday, whilst the DAX added around 0.1%.


We’re in a kind of perfect soft landing scenario as far as the market is concerned – but it cannot price in cuts this year and a good economic outcome...earnings season is underway and expectations are for around a 7% decline in EPS across the S&P 500. Market remains way too optimistic at this stage. Bank of America (BAC) and Morgan Stanley (MS) report later with Tesla (TSLA), Goldman Sachs (GS) and Netflix (NFLX) tomorrow.


JPMorgan’s Kolanovic: “...while the growth lift from normalizing services demand and commodity prices should fade, the resilience of the US and global expansions should remain in place. ... We thus downplay near-term recession risks.” 


In London, Ocado shares rallied 15% as it reported good progress in returning to profitability in its retail division. I just don’t get why the stock moves so much on the retail side of the business when virtually all its enterprise value lies in the tech bit of the business. EBITDA of £16.6m does not make £5bn company.  

 

Ocado shares rallied

 


Minutes from the RBA showed a debate between hiking: the central bank noting that "inflation was forecast to remain above target for an extended period and there was a risk that this timeframe would be extended without further monetary policy tightening"; and leaving rates unchanged: "the risk that output growth slows by more than expected”. 


US retail sales are due in later today, expected at +0.5%. Four weeks ago data for May showed retail sales rose 0.3 percent from April to $686.6 billion, ahead of analyst expectations. Details of US industrial production, which contracted for the first time this year, are also due. 


A few more things coming up this week. The UK is in a tight spot, but inflation could soon roll over. It may be too early with this week’s CPI release, but disinflation could be coming to the UK. Headline CPI inflation remained at 8.7% in May, refusing to come down as expected, whilst the core reading jumped even higher, rising from 6.8% to 7.1%, the highest since 1992. But today’s Lloyds food inflation tracker shows prices falling for the first time in three years!  


Oil – front month WTI (Sep) pulling back further from the 200-day SMA after the China data, holding up for now just above the 100-day.

200-day SMA after the China data
 

Why Japan has to act – super core inflation is in beast mode and the BoJ has to abandon ultra-loose monetary policy. National core CPI figures are due on Friday. USDJPY doesn’t want to crack at 138 just yet but the BoJ cannot sit and do nothing forever.

Why Japan has to act

 

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