Stocks firm ahead of jobs report, waiting on OPEC

European stocks rallied again in early trade after yet another record high for Wall Street as investors look ahead to today’s big jobs report from the US. The FTSE 100 rose above 7,150 for its best since Jun 18th and close to the post-pandemic peak set a few days before at 7,189.63. The DAX was up 0.4% in early trade to 15,666. Travel & leisure, basic resources and tech lead the way higher on the Euro Stoxx 600 this morning, whilst banks and retail are down. Earlier saw the S&P 500 notch a 6th straight record close, finishing above 4,300 for the first time at 4,319.94 with all sectors in the green, led by a 1.6% pop for energy stocks on higher oil prices.

All eyes today turn to the US jobs report, the monthly nonfarm payrolls. Initial jobless claims declined to 364,000 last week, data yesterday showed, the lowest level since the pandemic started, but there are still more than 11m Americans receiving pandemic-related benefits. Today’s NFP is expected to print around 700k, but as ever the range of estimates is quite wide. That would imply an improvement from May’s 559,000, while the unemployment rate is expected to decline to 5.6% from 5.8%. Whilst we know the Fed has signalled it’s not ignorant to inflation risks, we also know that the labour market is a key factor in determining the likely timing and pace of tightening when it does happen. Since the Fed’s last meeting, which the market took as a sign of more hawkishness (from a very dovish base), the equation for markets has changed slightly. US 10-year yields trade around 1.46% ahead of the report, whilst US equity index futures are mildly higher.

OPEC failed to agree on an increase in production yesterday, as the UAE emerged as a dissenter against plans to gradually raise production by an additional 400k bpd each month through to December until the baseline for its own output is raised. The agreement in principle would also have led to the production deal being extended through to the end of 2022. The failure of OPEC members to agree to the deal means the planned OPEC+ meeting has been pushed back to today and could go on into the weekend. If OPEC cannot agree a deal, it could mean there is no agreement to gradually raise output, leaving production at current levels and forcing prices higher in what’s already seen as a very tight market.

WTI (continuous) remains well supported above $74.20 after spiking on yesterday’s news before paring gains a touch. The market seems to still expect a deal to be struck – failure could see another leg up.

Chart indicating movement of oil spot contracts.

Elsewhere, the bid for the dollar we have seen all week continues, with GBPUSD trading at the lowest since mid-April at 1,3750, which yet take it back to the double bottom at 1.3660.

GBPUSD performance indicated on a chart.

EURUSD also dropping to weakest since early April, bear flag playing out still, possible extension to the March low at 1.170. But in both cases the dollar is starting to look a little stretched.

Performance of the EURUSD currency pair.

Bitcoin futures around $33k, still trades under 200-day SMA.

Performance of Bitcoin contracts.

Stocks set for solid quarterly gains

A tentatively positive start to the session in Europe turned negative within the first hour of the session, reflecting continued uncertainty about lots of things, not least a degree of caution on the last day of the quarter; whilst over the pond US markets ground out fresh record highs as big tech holds the show on the road. Asian shares rose and global stocks were close to record highs, whilst US futures were indicating another higher open. You get the impression that markets want to get the quarter-end out of the way before we see some real movement, but the bias remains mainly positive. 

 

The FTSE 100 is heading into the final day of trading for the quarter +5.4%, and up 9.5% for the year so far, and is just about holding gains for the month of June despite a soft week. The FTSE 100 still has a long way to go before it recaptures its pre-pandemic highs but should have more room to run. With a dividend yield of +3% vs 2.3% on German blue chips and less than 2% for the US equivalents, and PE of 17 vs 19 on the DAX and 28 on the SPX, it offers considerable value still. 

 

The S&P 500 is up 8% this quarter and 2% higher this week, riding a +14% gain YTD, figures matched closely by the DAX. Within these stats we note that the mega cap growth up 6% this month. The Russell 1000 growth index is +2% in June, while its value counterpart is –2%. YTD growth is +16%, value +17%.  For the US at least the continued rotation in and out of growth/value has done nothing but see both rise – when one takes a breather the other steps up as bond markets, tamed by central banks, have remained calm during a period of strong global growth. The question as we head into H2 is whether there is more room to run for the bull market or whether we are due a correction. I tend for the latter to play out in the coming months as bonds are sure to move.

 

US consumer confidence rose for the fifth month in a row to hit a fresh post-pandemic high. The Conference Board’s consumer confidence index hit 127.3 in June from 120 in May, with respondents offering a healthy outlook for business, labour markets and income. Inflation expectations rose but consumers didn’t fear this would have much impact on them. That seemed to give investors confidence that the US economy is still on track. 

 

Eurozone inflation numbers for May due later this morning will be closely watched for a read on the path of ECB policy direction. Inflation jumped to 1.9% in May from 1.2% in April, an unexpectedly high print, whilst core inflation rose to 1.3%. The ECB’s Villeroy says inflation will go up this year but down again in 2022 and 2023 (transitory). The Fed’s Barkin said “we’ve got a long way to go on the job front” before slowing asset purchases, whilst Waller said he would not rule out a hike in 2022, though this was heavily caveated: The unemployment rate would have to drop fairly substantially, or inflation would have to really continue at a very high rate, before we would take seriously a rate hike in 2022, but I’m not ruling it out.” 

 

WTI trades around the $73 level ahead of the OPEC meeting and between two US inventory reports. Yesterday, OPEC’s Barkindo warned that significant uncertainty in oil markets calls for prudence, highlighting the considerable risk to demand outlook from Covid variants. OPEC and allies are due to meet tomorrow to set out production for August amid an increasingly tight market. Meanwhile API data showed a draw of 8.2m barrels for the week ended June 24th, the sixth straight weekly decline. Gas inventories rose 1.3m barrels, whilst distillates rose by 400k. Official EIA figures due later today are expected to show a draw of 4.7m barrels. 

 

Gold broke down and out of the tight range it has traded of late, before trying to recover the $1,760 support. Failure to do so could see retest of the $1,675.

Chart showing the performance of gold on June 30th 2021.

Stocks firm, oil runs into technical problems

European stocks moved higher in early trade Tuesday after a sizeable down day in the previous session and a rather limp handover from Asia. The FTSE 100 recaptured 7,100, rising 0.5%, after slipping below this level yesterday, having closed down 0.9%. European indices continue to trip along recent ranges having set post-pandemic highs earlier this month as the market looks for more direction re inflation and bond yields. Everyone seems happy to buy the line that inflation will be transitory: the super-hot peaks we are getting right now will be, we knew that as base effects and pent-up demand played out; the question is what sort of new inflation regime persists beyond this summer. Once the inflation genie is out the bottle it is hard to put back in easily.

 

US markets are grinding higher along the path of least resistance but on lower vols and declining breadth. As bond yields remain in check and inflation expectations cool, big tech and other bond proxies are providing the heavy lifting for the indices. The S&P 500 inched to a new all-time high with just healthcare and utilities up and twice as many advancers as decliners. Energy was smoked, registering a decline of 3%, with Valero, Halliburton, Phillips 66, Occidental and Marathon all down 5%. Cruise operator stocks sank 6-7% as Carnival announced an additional stock sale of $500m, whilst Disney delayed a planned test voyage. Growth is beating value right now as the reflation trade unwinds: the Nasdaq rallied 1%, whilst the Dow fell 151pts as the likes of Chevron and Boeing pulled back. US 10yr yields are back under 1.5%, and this morning US stock futures are flat. After a pause, AMC rallied more than 7%. SoFi (Nasdaq: SOFI) is the most talked about stocks on Wallstreetbets, with WKHS, WISH, CLOV, BB, SPCE and GME also still garnering some of the most mentions. 

 

Among the big tech leaders making gains was Facebook, which rallied 4% to take its market capitalisation above $1tn for the first time as it saw off a monopoly legal threat. A judge rejected two antitrust lawsuits brought by the Federal Trade Commission and a coalition of 46 states. The news removed a significant headwind for the stock, though the FTC has a month to refile its complaint. It seems that the judge’s rejection of the case was based on the lack of evidence, or the way it was presented, which could be remedied with a new lawsuit.  

 

Elsewhere, in FX the dollar is mildly bid with GBPUSD testing the Jun 22th low around 1.3860 and EURUSD creeping back to 1.1910. Chart pattern looks a bit bearish and flaggy.

 

EURUSD price action chart.

Crude oil turned lower through the day after touching its best levels in almost three years. So far this market has been a buy-the-dip affair, and market fundamentals seem solid as supply remains tight, but we just need to be mindful from a technical perspective. Yesterday’s outside day bearish engulfing candle is one red flag, the bearish MACD crossover on the daily chart is another. Not necessarily the top but would call for a potential near-term pullback such as a ~10% correction as seen in Mar/Apr this year. Anyway, market fundamentals remain firm and OPEC+ has scope to increase in August – it would be about 1.5m bpd short of demand without any additional output from OPEC or Iranian oil coming back online.

Oil price movement chart.

Bitcoin – still holding under the 200-day SMA but the selling may be done now as bears tire and weak hands are out; there is a potential rip higher incoming.

Bitcoin price action chart.

European stocks edge higher, BoE meeting ahead

Stocks seem to be largely marking time until there is more clarity on economic data like inflation with the major European bourses a little higher this morning but well within ranges. Bonds are steady with US 10s around 1.5% and stocks are likely to remain similarly directionless until the former start to motor. Wednesday saw US indices essentially flat but they remain +1% higher on the week after a sharp turnaround from the Fed-induced selling last week. The Nasdaq rose marginally to notch another record high with subdued bond yields allowing investors to get back into big tech growth. More Fed speakers today to watch for in the shape of Bostic, Harker, Williams, Bullard and Barkin but the sentiment seems to be that if the Fed is going to more mindful of inflation than was judged for most of the last year then it ought to keep control of yields and allow for gently rising stock markets. I’d still be mindful of a tantrum later this year when yields ought to pick up some steam. 

 

Sterling trades close to $1.40 ahead of the Bank of England monetary policy statement today. As detailed in our preview, no change is expected but there are signs that inflation might run hotter than the MPC currently forecasts so we will be watching for any commentary around this. Yesterday’s UK PMI report pointed to strong inflationary pressures that will take CPI above the bank’s 2% target – the question is how far above and for how long – and how does the Bank respond. Bailey has made clear the MPC won’t tolerate above-target inflation for long. Could he spring a hawkish surprise today and say something like ‘inflation pressures are building and the bank has the tools to respond’?  I don’t think this is the time yet to do this, but that’s why it would be a surprise.

 

GBPUSD: near term resistance at the 1.40 round number, support holding on the 100-day line at 1.3950.

WTI made a fresh high above $74 amid ongoing expectations that restrained supply and improving demand is leading to an increasingly tight crude market. Yesterday the EIA reported crude oil stocks declined by 7.6m. Stocks at the Cushing, Oklahoma hub fell to their lowest since March 2020 and US total petroleum demand rose 20.75m bpd, getting close to pre-pandemic levels. Meanwhile OPEC is signalling a stronger oil market. Chatter is that the cartel will increase production by 500,000 bpd from August as they continue to cautiously unwind production curbs. 

 

Copper has staged a bit of comeback this week but there are some bearish indicators on the physical supply front with China releasing metal from reserves to counter rising inflation. Wednesday saw a bounce in copper as the release of 100,000 tonnes of base metals was less than expected, but this is being reversed. Import demand in the country is also reported to be the weakest since 2017, whilst LME stockpiles are 30% higher this month.  

 

Bitcoin futures just running into resistance at the 200-day line, which had acted as support during recent plunges.

Stocks search for direction after Monday turnaround, MicroStrategy doubles down again

When you’re all in, you’re all in. Michael ‘diamond eyes’ Saylor revealed MicroStrategy (MSTR) has doubled down on its double down by purchasing yet more Bitcoin. The company has bought an additional 13,005 Bitcoins for roughly $489 million in cash at an average price of $37,617 per coin. “As of 6/21/21 we #hodl ~105,085 bitcoins acquired for ~$2.741 billion at an average price of ~$26,080 per bitcoin,” he tweeted. Shares declined almost 10% as investors fretted over this decision and watched Bitcoin prices skid to near the $30k support before paring losses to trade in the $32k area – 50% down from its all-time high in April. Whether he’s making the call of the century or he’s dead wrong is kind of irrelevant – how on earth can the CEO of a public company be allowed to take such a massive gamble on such a volatile asset? $30k will be defended to the death – if it goes expect a bloodbath, and Saylor’s bet will look like a monumental mistake. Meanwhile China continues its clampdown with the PBOC telling Alipay and other banks not to provide any services such as trading, clearing and settlement for crypto transactions and to do more to prevent speculation on cryptocurrencies. Whilst not a new policy as such, it underlines how China is taking a very hard line on this, particularly in the wake of the mining clampdown.

Stocks recovered their poise on Monday with the Dow up 586pts and the S&P 500 rallying 1.4%. The FTSE 100 is back above 7,000 this morning as the unwind in reflation bets reversed and higher oil prices helped the majors. WTI rose above $73 and Brent above $75, levels not seen since Oct 2018. Benchmark US 10-year yields traded back at 1.5%, having slipped as low as 1.36%. A lot of the unwind we saw last week post the FOMC has been clawed back after a sterling Monday session – I fear there is too much uncertainty to have much conviction and we back in a market that will chop up both longs and shorts, just as we were in March.

New York Fed president John Williams reiterated that the US central bank is not moving quickly, despite what most saw as a hawkish statement last week. “It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good. But the data and conditions have not progressed enough for the FOMC to shift its monetary policy stance of strong support for the economic recovery,” he said. The usually hawkish Dallas Fed president Robert Kaplan said making an adjustment to asset purchases sooner rather than later be “healthier”.

Meanwhile in prepared remarks ahead of his Congressional testimony today, Fed chair Jay Powell reiterated that the Fed is not unduly concerned that hot inflation readings are here to stay. “[As] transitory supply effects abate, inflation is expected to drop back toward our longer-run goal,” he says. His testimony from 7pm (BST) is likely to be market-moving – particularly if he says anything considered as hawkish. We will want to see whether he seeks to row back on the messaging the market took from last Wednesday.

It’s worth remembering that the bout of selling we saw in equity markets on Friday came after St Louis Fed president James Bullard said the Fed could raise rates as early as next year. There is a lot of uncertainty about the recovery – both its pace and duration – and what the Fed is thinking and where it should be a year, two years from now. For some time, the market had bought hook, line and sinker into the lower-for-longer mantra that average inflation targeting and the employment focus implied – without adjusting to the economic (and health) realities of the last three months that has brought forward the timing of tightening. Beware linear thinking – things change.

A lot of dollar shorts will have been cleared out by the rally but this is now on pause after a small pullback in yesterday’s session. Bullish crossover on the hourly MACD but it’s close to the zero line so not as forceful an indicator. 92 now acting as the near-term resistance.

Chart showing dollar performance on 22nd June 2021.

S&P 500: watch the bear traps at the 50-day line.

Performance of S&P 500 displayed on chart for 22.06.2021.

 

Cryptocurrency update: BTC slides as China intensifies mining crackdown

Bad news for Bitcoin. Earlier Chinese efforts to limit crypto mining have turned into a full-scale purge, hitting BTC prices with a significant body blow.

Cryptocurrency update

Bitcoin tumbles as China puts the squeeze on crypto mining

China has intensified its crackdown on cryptocurrency mining operations sending Bitcoin reeling.

As of Monday 21st June, BTC was trading for around $32,000 – some $32,000 lower than the $65,000 highs seen in April. Just last week, Bitcoin had climbed to around $40,000, but China’s efforts to curb mining activity has stunted recovery.

Authorities in China’s key crypto mining provinces are following Inner Mongolia’s lead by banning the energy-hungry practice. China has major climate change goals, so limiting mining for digital tokens from energy consumption chains is part of the strategy to reduce its CO2 emissions.

Every year, crypto mining globally consumers more energy than Sweden.

China is not content with limiting or halting mining operations. In May, the government moved to ban financial institutions and payment companies from providing services related to cryptocurrency transactions. Authorities also warned investors against speculative crypto trading.

The hash rate, the rate at which new Bitcoin tokens are minted, has dropped considerably with these latest measures. Bitcoin tokens are already scarce, it’s partly what gives them value, but authorities moving against miners, and kicking them out of China, is the real issue here.

China’s authoritarian stance is not unexpected – it’s a government that thrives on control of pretty much every industry – but it fits into a wider cautionary attitude displayed by regulatory bodies and governments worldwide.

We’ve heard Governor Bailey of the Bank of England speak out against cryptocurrencies, for example. Regulators in Thailand, India, and Turkey have been mulling over full-on bans too. Retail crypto trading is unavailable for UK customers.

While institutional support from banks and corporations like Tesla continues to mount, it’s being met by stiff resistance from governments.

How can Bitcoin recover? No doubt miners will be setting up shop elsewhere. El Salvador has an ambitious plan to turn itself into Central America’s crypto mining hub, harnessing the geothermic power of volcanos to run its mining operations. Will we see a spike in El Salvador-sourced tokens?

Bitcoin has been struggling to regain its massive April gains across May and June. It looks like its path to recovery just got longer.

Over 90% of UK financial advisors would avoid cryptocurrency

A survey of UK independent financial advisers (IFAs) undertaken by Opinium reveals 93% would never recommend investing in cryptocurrency to their clients.

A further 91% said they would be concerned if they were investing in such assets.

Retail clients are unable to trade digital tokens in the UK anyway, but this is still an interesting development. According to Opinium, crypto’s inherent volatility and close regulatory scrutiny turn IFAs against cryptocurrency investing.

Only a third of those surveyed said they had noticed an increase in interest regarding crypto trading and investing.

A new crypto unicorn emerges

A new unicorn, a tech firm valued at a minimum of $1bn, has emerged in the cryptoverse.

Amber Group (AG), an Asian crypto trading and technology firm, is the latest subject of venture capitalist interest, as they continue to pour capital into the space.

The Group dubs itself as “an integrated crypto financial services firm that offers 24/7 services ranging from market making to asset management and structured products”.

It passed the $1bn mark after a successful investment round raising $100m from China Renaissance, with participation from Tiger Brokers, Tiger Global Management, and other new investors. Its existing investors, such as Pantera Capital, Coinbase Ventures, and Blockchain.com have also joined the round.

Michael Wu, Co-Founder and CEO of Amber Group, says the company now accounts for 2%-3% of total trading volumes in the crypto spot and derivative market. AG’s cumulative trading volumes have doubled from $250bn since the beginning of the year to over $500bn as of June 2021.

“We have been profitable since inception, and with growing revenues across all business lines, we are now annualizing USD 500m in revenues based on January to April 2021 figures,” Wu said in an announcement.

Fed fallout, Morrisons shares jump

The reverberations from the Fed’s policy meeting last week continue to be felt across global markets. Stocks have fallen, bond yields too, amid a sharp repricing of the risks of the Fed raising rates. Asian shares fell as global markets continue to react to the Fed’s willingness to raise rates in the face of higher inflation and its admission that members are talking about talking about tapering. US stocks suffered their worst week in several months, with the Dow Jones declining the most since October. European markets followed suit with a broad sell-off in early trade Monday. US 10yr yields have fallen below 1.4%, whilst the dollar is surging. The funny thing about all this is that given the data coming out of the US the Fed didn’t do anything terribly surprising, it just seems to have caught some by surprise by saying it wasn’t going to keep things super easy forever. Let’s be clear – this is not a shift away from average inflation targeting or somehow the Fed abandoning its employment-first approach: only a realisation that two and a half years from now the economy should be pretty well recovered, and inflation will have been running above 2% for a good amount of months, so some tightening would be warranted. Yields declining after a ‘hawkish’ Fed is frankly odd, and indicates the market thinks the stance is appropriate to keep a lid on inflation.

Shares in Morrisons jumped 30% to 234p after it said it rejected an informal offer from Clayton, Dubilier & Rice at 230p, saying that the bid undervalues the business. CD&R has until July 17th if it wants to make a formal offer, though this could flush Amazon out to finally make an approach. MRW has been undervalued for a while and before today not got nowhere near recovering its pre-pandemic valuation. Owning the bulk of its store estate outright makes it an attractive asset for private equity intent on gearing it up (think Toys R Us…). There is a lot of PE money sniffing around the UK as valuations are low – we knew this before the pandemic. But its market share of the UK grocery market, its growing wholesale business and its existing tie-up with Amazon surely means it is not impossible the US tech giant will make an offer. However, if Amazon were interested, you’d assume that an offer would have come by now. A PE bid seems more likely and ultimately may be the best way to unlock value for shareholders who’ve gone through a lot but ultimately not seen any appreciation in years (before today). Shares in Tesco and Sainsbury’s were up strongly partly on the read-across, partly on expectations that a PE buyout would see MRW less able/willing to compete.

This morning the FTSE 100 declined half of one percent to trade under 7,000 following from Friday’s drubbing on Wall Street that left the S&P 500 down 1.3% on the day and the Vix rose towards 22. As flagged last week, the UK market was liable to a pullback as it approached the top of the rising wedge.

Chart showing FTSE 100 movements on 21 June 2021.

Dollar looks stretched and liable to pullback but lots of speculative short USD/long EUR/GBP positions need to be unwound. This is a big dollar short squeeze.

21st June 2021's Dollar Index performance

Gold tested $1,760 where it has found some near-term support, but it’s going to be tough to avoid a flirt with $1,675.

Gold performance 21.06.2021.

Volgende week: volgt de Bank of England de haviken van de Fed?

De Bank of England voorziet ons deze week van een update van het monetaire beleid, nu de inflatiedruk in het VK begint toe te nemen. Zullen de eerste cijfers de bank nerveus maken, of staat men steviger in de schoenen? Elders krijgen we nieuwe PMI-data uit de VS, het VK en de EU, volgend op de bemoedigende cijfers van mei. De OPEC en consorten houden zich ondertussen bezig met een serie nieuwe beleidsvergaderingen.

Andrew Bailey en de Bank of England zijn de headliners van volgende week. De centrale bank van het Verenigd Koninkrijk zal naar verwachting voet bij stuk houden op het gebied van monetair beleid, hoewel dit gebeurt tegen een achtergrond van snelle economische groei en stijgende inflatie.

Een omslag in de manier van denken zou aanstaande kunnen zijn. Gouverneur Bailey heeft in het verleden herhaaldelijk uitgesproken dat hij er geen probleem mee heeft het beleid aan te scherpen als de inflatie consequent hoger ligt dan het streefcijfer van 2 procent van de BoE. In dit geval zou dat een renteverhoging kunnen betekenen.

De basisrente van de BoE is het afgelopen jaar op 0,1 procent gehandhaafd als onderdeel van de pandemiegerelateerde steunmaatregelen die de bank had getroffen.

De consumptieprijsinflatie steeg in mei op jaarbasis met 2,1 procent, aldus de cijfers van het Office of National Statistics die vorige week bekendgemaakt werden. Op maandbasis noteerde de inflatie 0,6 procent.

Er zijn echter nog geen aanwijzingen dat er een onmiddellijke rentewijziging aanstaande is. Hoewel er meer factoren meespelen, is de inflatiedruk grotendeels een gevolg van het heropenen van de Britse economie en basiseffecten uit 2020. De sleutel is consistentie. Als we de inflatie op maandbasis toe zien nemen, kan de BoE gedwongen worden om te reageren.

Kijken we naar andere cijfers, dan verwachten we deze week de inkoopmanagersindices uit de VS, het VK en de EU. De grote economieën zullen het indrukwekkende momentum van mei vast willen houden.

IHS Markit’s Amerikaanse producentenindex noteerde in mei met 61,5 punten bijvoorbeeld op het hoogste niveau sinds oktober 2009. Binnenlandse vraag en consumptie vormden de drijvende kracht achter de Amerikaanse productie, al waarschuwen fabrikanten nog steeds over problemen in de toeleveringsketen, onder andere met betrekking tot grondstoffen en tekorten aan arbeidskrachten. Een lager cijfer in juni is niet ondenkbaar.

De groei van de Amerikaanse dienstensector was echter aanzienlijk. In mei werd er 70,1 genoteerd, aanzienlijk hoger dan de 64,7 van april. Groter consumentenvertrouwen, gecombineerd met de indrukwekkende uitrol van het vaccinatieprogramma in de VS, is de belangrijkste verklaring voor deze toename.

In het VK was er eveneens sprake van een aanzienlijke groei van de dienstensector nu de lockdownbeperkingen steeds verder worden losgelaten. De sectorindex noteerde op 62,9 – het hoogste punt sinds mei 1997. Ook de productie nam rap toe tot 65,6, een cijfer dat we in 29 jaar niet meer hebben gezien, gestimuleerd door een golf aan nieuwe orders.

Mei was ook een goede maand voor de bedrijfsactiviteit in de eurozone. IHS Markit’s samengestelde EU-producentenindex noteerde met 57,1 op een driejarig hoogtepunt, boven de notering van 53,8 uit april. Vergeet niet dat een cijfer boven 50 duidt op groei. Hoewel het tempo dus niet zo hoog was als in het VK of de VS, was er vorige maand ook in de EU sprake van goede economische weerbaarheid. Zal juni eenzelfde beeld laten zien?

Op cijfergebied verwachten we deze week ook de definitieve cijfers van het Amerikaanse bbp voor het eerste kwartaal. De definitieve cijfers zijn een soort bevestiging, een controle van de algemene economische gezondheid. De voorlopige cijfers voor mei duidden op groei van 6,4 procent, tekenen van een economie die er goed voorstaat. De producentenindices lijken dit te bevestigen. In Q2 zou er zomaar sprake van dubbele groeicijfers kunnen zijn.

We verwachten deze week echter meer dan alleen ruwe economische gegevens. De OPEC en aangesloten landen ontmoeten elkaar donderdag voor een serie vergaderingen. De toenemende olieprijzen zorgen zonder twijfel voor een goede stemming in het kartel, maar voorzichtigheid is geboden. Onverwachte productiepieken die het stabiele beperkingsprogramma van de OPEC+ in de war gooien zouden tot overschotten kunnen leiden, ondanks het wereldwijd verwachte economische herstel.

De OPEC+ besloot in april om van mei tot en met juli 2,1 miljoen vaten per dag (barrels per day, bpd) op de markt te brengen. Deze week zouden we een eerste blik op de verwachtingen voor na juli kunnen zien.

Het kartel houdt vast aan de optimistische verwachtingen van de vraag naar olie. In het maandverslag van juni wordt uitgegaan van een stijging van 6,6 procent tot 5,95 miljoen bpd in 2021. Het was de tweede maand op rij dat de voorspellingen ongewijzigd bleven.

Belangrijk is hoe de OPEC+ vanaf hier te werk gaan. Op het moment van schrijven noteren WTI en Brent op respectievelijk $ 72 en $ 74, de hoogste prijzen in jaren. Er zijn inderdaad tekenen van toegenomen wereldwijde vraag naar olie, maar overproductie kan er zomaar voor zorgen dat prijzen weer dalen.

Belangrijke economische data

Date  Time (GMT+1)  Asset  Event 
Mon 21-Jun  2.30am  AUD  Retail sales m/m 
       
Wed 23-Jun  8.15 am  EUR  French Flash Manufacturing PMI 
  8.15 am  EUR  French Flash Services PMI 
  8.30 am  EUR  German Flash Manufacturing PMI 
  8.30 am  EUR  German Flash Services PMI 
  9.00 am  EUR  Flash Manufacturing PMI 
  9.00 am  EUR  Flash Services PMI 
  9.30 am  GBP  Flash Manufacturing PMI 
  9.30 am  GBP  Flash Services PMI 
  1.30 pm  CAD  Core Retail Sales m/m 
  1.30 pm  CAD  Retail Sales m/m 
  2.45 pm  USD  Flash Manufacturing PMI 
  2.45 pm  USD  Flash Services PMI 
  3.30pm  OIL  US Crude Oil Inventories 
       
Thu 24-Jun  All Day  OIL  OPEC+ Meetings 
  12.00 pm  GBP  MPC Official Bank Rate Vote 
  12.00 pm  GBP  Monetary Policy Statement 
  12.00 pm  GBP  MPC Asset Purchase Facility Votes 
  12.00 pm  GBP  Official Bank Rate 
  1.30pm  USD  Final GDP q/q 
  3.30pm  GAS  US Natural Gas Inventories 

 

Belangrijke cijfers deze week

Date  Company  Event 
Mon 21-Jun  Naspers  Q4 2021 Earnings 
     
Wed 23-Jun  Markit  Q2 2021 Earnings 
     
Thu 24-Jun  Nike Inc.  Q4 2021 Earnings 
  Accenture plc  Q3 2021 Earnings 
  FedEx Corp.  Q4 2021 Earnings 

Stocks dip as Fed shakeout continues

How do you trade the Fed? Not easily, is the simple answer. US has ripped higher as the Fed signalled it won’t let inflation run riot, but bonds have been pretty steady – 10yr yields have slipped back under 1.48%. Stocks have come off their record highs since the Wednesday meeting, but yesterday the Nasdaq Composite – composed of tech and growth companies that ought to do less well in a rising rate environment – gained 0.87%. That may be because investors are retreating to a form of quality right now. NDX rose 1.3% as the mega tech names enjoyed solid gains. The broader market was weaker with small caps -1%, commodities slipped with palladium -10%, platinum -7%, oil lower and the dollar was bid up to its best day in over a year.

European indices saw a mixed start to the session on Friday but have mostly turned red as investors dial down their risk in the wake of the Fed’s slightly hawkish meeting. What the Fed’s meeting also told us was that once inflation expectations become unanchored, it’s a tough job to re-anchor them. I continue to envisage higher yields by the end of the year but the Bank of America Flow Show report today stresses that cyclicals face a ‘perfect storm’, with ‘excess positioning, China tightening, US fiscal hopes fading, and now hawkish Fed’ combining against them.  Metals are a tad firmer this morning after steep losses Thursday, but copper is still ~14% off its recent peak and set for its worst week in 15 months. A combination of a tighter Fed and China’s efforts to lower prices have worked. Gold is also set for its steepest weekly loss in more than a year as a stronger dollar and Fed’s hit job on inflation works its way through some stretched speculative longs.

UK retail sales indicated the direction of the post-pandemic economy. Sales fell 1.4% between April and May as shoppers ditched stuff for experiences, dining out more and hitting the pub again. Tesco Q1 numbers this morning evidence this, with the company reporting that sales growth peaked in March at +14.6% and moderated in April/May as restrictions eased.  Tesco is starting to hit some extremely tough comparisons with last year’s pandemic-driven surge in sales. Shares in the retailer declined more than 1% towards the bottom of the FTSE 100.

Dollar strength continues to dominate the FX narrative in the wake of the Fed. GBPUSD is lower again with a break of the 100-day moving average to 1.3860.  The washing out of longs maybe has some way to go yet and a test of the April double bottom at 1.3660 may be on if there is further for this to correct. Fairly stretched GBP longs and shorts on the USD mean this could have further to unwind. USDJPY trades lower at 110 support after the BoJ kept monetary policy unchanged and extended its pandemic relief programme. EURUSD is also on the back foot and trying to hold onto the 61.8% retracement of the Mar-May rally around 1.1920. AUDUSD is through the April low and testing the 200-day SMA at 0.7550. Very light data day but EU finance ministers are meeting for a second day in Brussels.

Shares in EasyJet, Ryanair and Wizz Air all rose after an upgrade for budget airlines from HSBC, which says ‘the process of reopening borders and enabling travel is assuming momentum within the EU, and the UK may follow’. EasyJet and Ryanair were both upgraded to buy from hold, whilst Wizz was given a hold rating having previously held a reduce tag. HSBC adds that whilst UK policy is ‘not easily predicted’ (you don’t say), it expects UK travel restrictions to ease.

Was it all that hawkish? Markets recovering poise after Fed meeting

European stocks fell slightly in early trade Thursday, following Asia (ex-China) and the US into the red after the Federal Reserve signalled it thinks rates will rise a year earlier than previously forecast. Bonds fell, with US 10yr yields up to 1.59% before easing back a touch to 1.56% this morning, and the 2yr hitting its highest in a year. The dollar rallied on expectations of tighter US monetary policy, with sterling back under $1.40 and the euro under $1.20. Gold is weaker amid the strong USD, higher yield picture. Oil remains bid after another bullish inventory report.

 

The Fed’s much-maligned dot plot signalled policymakers believe there will be two rate hikes by the end of 2023, vs the previous zero moves until 2024. The interest rate on excess reserves was raised by 5bps – worries about inflation perhaps.  It’s a technical move, but it points to the direction of travel: tighter not looser. The forecasts for this year were a lot punchier – 7% GDP growth and 3% core inflation. The market took all this as unvarnished hawkish – certainly it paves the way for an Aug/Sep taper announcement. Powell also dialled back the transitory language around inflation. 

 

So, was it all that hawkish? I thought we’d stop bothering with the dots a long time ago – Powell said you should take them with a “big grain of salt”. As I said a couple of years ago, “decisions to cut or hike are binary and tangible; dots are like dreams; imaginary and fluid. They also cannot account for things when there is very great, and very real, uncertainty in the economy”. None of the policymakers know what’s going to happen tomorrow, let along in 2023 – they are not fortune tellers. I don’t think it told us much we shouldn’t already have expected – the April meeting minutes showed the Fed is thinking about thinking about tapering, while rates are going to remain anchored at zero for a couple more years. Powell said this meeting was the talking about talking about tapering (and said this phrase should be retired). Lift off not until after 2023 always seemed unlikely given the pace of the reopening and Fed is reflecting this – we can all see the data coming in every week – these dots only get wheeled out every quarter and since the March projections things have clearly improved – it is not a surprise that Fed policymakers have noticed.

 

But the meeting did signal a shift on inflation: confidence in the labour market + economy is still there but they are just a shade more concerned about inflation, which might be seen as odd since they were expecting it and some hot readings this summer were guaranteed. But there is a clear sense they are less confident in the transitory narrative. Indeed, the shift in the number of policymakers forecasting hikes in 2023 can probably be attributed to a couple of hot inflation prints we have had since the last projections. Whilst growth and inflation forecasts for 2021 were raised substantially, projections for growth, unemployment and inflation for 2022 and 2023 were almost unmoved. It’s saying – we saw those CPI numbers, don’t worry.

 

“Inflation could turn out to be higher and more persistent than we expect,” Powell said in the presser. In some ways this tells us less about the Fed’s view of 2023 and more about the concerns of some policymakers right now, that they are presiding over an overheating economy, and they need to get back in front of the curve PDQ.  They’re not saying the economy is going to be booming in 2023, it’s just that the dots are a way to express concern about inflation today.

So far not much damage: The S&P 500 closed just half a percent lower. European markets are a shade lower this morning but hardly tumbling. The Fed is communicating its views reasonably well and has managed to signal its intent to tighten without actually doing anything. The question remains over whether inflation becomes more troublesome before labour market recovery is established, which could force the Fed into tightening before it would like and forcing a recession.

Amid all this, bank stocks liked the hawkishness as higher yields help them, with shares in Barclays and Lloyds both up about 2% this morning. Airline stocks are also higher this morning amid reports ministers are looking to ditch quarantine rules for Brits travelling to amber list countries who have had both jabs. IAG rose 3.5%, EasyJet +4% and Ryanair +3.8%. Finally CureVac stock dropped 50% after its vaccine candidate showed an efficacy of just 47%.

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