IG Morning Call

[MongiIG]

Asian stocks fell sharply on Thursday and bonds slid as investors braced for global interest rates to remain higher for longer due to persistent inflation. The MSCI Asia-Pacific index dropped 1.2%, with Japan's Nikkei down 1.3%. Chinese stocks also retreated despite an IMF upgrade to China's growth forecasts. The dollar strengthened against major currencies, riding higher US Treasury yields, while commodity prices came under pressure on renewed expectations that the Federal Reserve is unlikely to cut rates soon. The selloff came amid data pointing to lingering inflationary pressures across major economies. Investors are keenly awaiting Friday's US core PCE inflation report for further clues on the Fed's policy path. Yields on US Treasuries and Japanese government bonds climbed to multi-year highs.

 

[AshishIG]

Asian markets rallied on Monday as investors anticipated interest rate cuts by the European Central Bank and possibly the Bank of Canada, representing global policy easing despite sticky inflation concerns. Economic data showed improvement in Chinese, Japanese and South Korean manufacturing activity, boosting sentiment. The MSCI Asia-Pacific index, Japan's Nikkei and South Korea's KOSPI posted solid gains, and European and US equity futures also climbed. The ECB is expected to cut rates by 25 basis points this week ahead of the Fed. However, higher-than-expected eurozone inflation data tempered hopes for aggressive ECB rate cuts. The Bank of Canada is also expected to cut rates at its meeting this week, with markets implying 59 bps of easing priced in for 2024. The Japanese yen remained weak against the US dollar despite massive currency intervention spending by Japanese authorities recently.

[KoketsoIG]

Asian stocks broadly rose on Wednesday, while the US dollar was steady, as softening US labour market data firmed up bets for a Federal Reserve interest rate cut in September. Investors awaited the crucial US payrolls report later this week for further clues on the Fed's rate path. Worries about a cooling US economy kept a lid on risk appetite on Tuesday but appeared to ease overnight. The focus in Asia remained on Indian markets, with stocks volatile after the previous session's plunge as election results showed a slimmer-than-expected victory margin for Prime Minister Narendra Modi's party. Oil prices hovered near four-month lows as traders weighed OPEC+'s decision to boost supply and increase US crude and fuel stocks. The dollar index was steady but close to a near two-month low, with expectations that the dollar's recent relentless strength will give way to minor weakness over the next 12 months.

 

[KoketsoIG]

Asian shares gained on Thursday, driven by rising expectations that the US Federal Reserve will likely cut interest rates in September, as hinted by recent labour market data. The shifting Fed expectations lifted oil prices, pushed Treasury yields to their lowest in two months, and put pressure on the U.S. dollar. The euro firmed ahead of the European Central Bank (ECB) policy meeting, where a rate cut is widely expected. The ECB is anticipated to cut interest rates from record highs, but investors will focus on the central bank's comments and economic projections to gauge future actions. The expectations of central bank easing boosted global stock markets, with the S&P 500 and Nasdaq indexes hitting record closing highs on Wednesday. Nvidia became the world's second-most valuable company after breaching a market cap of $3 trillion.

 

[AshishIG]

Today's payrolls data is highly anticipated as it will provide insights into the strength of the labour market and the case for a potential Fed rate cut. Expectations are for 185,000 jobs added in May, slightly higher than April's 175,000. A slew of recent economic data has pointed to easing labour market conditions, increasing the importance of the jobs report in reinforcing or contradicting that narrative. An upside surprise could shock markets. Investors have been betting on a potential Fed rate cut in September, following rate cuts by the European Central Bank and Bank of Canada this week. This has led to a global rally in stocks, compression of bond yields, and a weaker US dollar over the past week. However, China was an outlier, with stocks falling amid concerns over potential US. bans on Chinese battery companies tied to Ford and Volkswagen, overshadowing positive export data.

[AshishIG]

Investors in Europe face uncertainty over the global interest rate outlook from central banks like the Fed and ECB, as well as political shifts in the region after the European Parliament elections. French President Emmanuel Macron called snap legislative elections after his party was defeated by the far-right in the EU vote, roiling markets. The European Parliament took a shift to the right, with more eurosceptic nationalist parties gaining seats at the expense of mainstream liberal and green parties. Markets reacted negatively, with the euro falling to a one-month low against the dollar and European equity futures and French bonds declining. There is also angst over US interest rates ahead of the Fed meeting, with questions over how much they will scale back projected rate cut plans after the strong jobs report on Friday, which smashed expectations once again. The Bank of Japan meeting is also in focus, with expectations they could taper bond purchases, potentially providing relief for the weakening yen against the resurgent US dollar.

[AshishIG]

Asian stocks were cautious on Tuesday as investors assessed the political uncertainty in Europe after right-wing gains in elections and a potential snap poll in France, raising concerns over the cohesion of the European Union. The euro, French stocks, and government debt were impacted by the possibility of the far-right National Rally winning the potential snap election in France, although without a clear majority. Markets had a muted reaction to Apple's AI strategy announcement, with the company's shares declining slightly in after-hours trading. US stock futures edged lower, with markets proving resilient despite the jump in US yields and diminished prospects for Federal Reserve rate cuts this year after the strong jobs report. The Federal Reserve is expected to keep interest rates unchanged at its upcoming policy meeting, with the focus on whether it maintains projections for three rate cuts in 2023 or reduces it to two. The euro steadied after hitting a one-month low against the U.S. dollar, while the Japanese yen remained weak, raising expectations of potential bond-buying tapering by the Bank of Japan. Oil prices consolidated after a 3% rally, with expectations of strong summer demand and potential US crude purchases for its petroleum reserve.

[AshishIG]

Markets in Asia were subdued on Wednesday ahead of key US inflation data and the Federal Reserve's policy decision. China's consumer price index fell 0.1% month-on-month in May, missing forecasts, while rising 0.3% annually. This soft inflation data weighed on Chinese stocks. Technology shares outperformed in the region, boosted by Apple's 7% surge overnight after unveiling new AI features. This helped push the Nasdaq and S&P 500 to record highs. Overall caution prevailed ahead of the US CPI report, forecast to show a 0.1% monthly rise in May with core up 0.3%. The outcome could drive market moves and influence the Fed's rate outlook. Markets are bracing for the Fed to leave rates unchanged but focus on whether policymakers stick to projecting three rate cuts for 2023 or scale back that outlook given sticky inflation

[AshishIG]

Asian equities rallied on Thursday, with the regional MSCI Asia ex-Japan index up 0.9%, as investors reacted to cooling US inflation data and a more hawkish Fed stance. Japanese shares underperformed as the Bank of Japan began its two-day policy meeting, with speculation it may reduce bond purchases. Markets initially rallied hard after the US CPI report showed core inflation slowing sharply. However, gains were pared after the Fed signaled just one more 25bp rate hike this year, though the Nasdaq 100 and S&P 500 both hit fresh record highs. Fed Chair Powell acknowledged inflation has eased but remains too high. He said the rate path decision was a "close call" for policymakers. Treasury yields fell initially after the CPI data but pared declines after the Fed meeting. US PPI data this afternoon will be closely-watched following yesterday's events. 

[AshishIG]

A dovish Bank of Japan, which held off from any changes to its bond-buying programme, boosted Japanese stocks and weakened the yen. Other indices in Asia were weaker, as markets mulled over the outlook for the global economy. It caps a week where markets priced in at least two rate cuts from the Fed as US inflation shows signs of easing, though the Fed remains cautious. European automakers are in the spotlight after the EU imposed tariffs on Chinese EV imports, labelled protectionist by Beijing. Tesla shareholders approved Elon Musk's $56 billion pay package despite opposition from some big investors, showing his support among retail investors. Both the S&P 500 and the Nasdaq 100 have hit fresh highs this week, though the Dow continues to struggle. 

[AshishIG]

Asian stock markets were mostly down Monday as mixed Chinese economic data highlighted that country's uneven economic recovery. This dampened risk appetite. Chinese retail sales grew better than expected in May, but industrial output and investment missed forecasts. Home prices also fell sharply, reflecting continued strains in the property sector. The People's Bank of China kept interest rates unchanged, despite some expectations for a cut after weak lending data. In Europe, political uncertainty around the French elections soured sentiment and weighed on the euro currency. US stock futures were little changed, with investors awaiting upcoming economic data like retail sales. Central bank meetings are scheduled this week for Australia, Norway, UK and Switzerland, with the Swiss National Bank tipped to potentially cut rates given the strong franc. Commodities were mixed, with oil prices easing slightly after last week's rally, while gold held steady after recent gains.

[AshishIG]

Asian stocks rose on Tuesday, tracking gains on Wall Street ahead of comments from several Federal Reserve officials later in the day. The Reserve Bank of Australia kept interest rates on hold at 4.35%, as expected, but warned inflation risks remain. This led traders to cut back bets on an RBA rate cut this year, though the Australian dollar was little changed. Ebbing concerns over European political turmoil also boosted market sentiment. Futures for European stock indexes were higher after gains on Monday. The dollar edged up ahead of US retail sales data, pressuring the euro and pound. The Chinese yuan remained near 7-month lows on mixed economic data from China pointing to a need for more policy support. With multiple Fed speakers on tap, investors are looking for clues on the US rate outlook after last week's Fed decision, with around 45 basis points of cuts priced in for the rest of 2024.

[AshishIG]

Asian shares rose to a one-month high on Wednesday, led by a rally in tech stocks like Nvidia which surpassed Microsoft to become the world's most valuable company. The dollar was steady as soft US retail sales data reinforced expectations of the Federal Reserve cutting interest rates later this year. Markets are pricing in around 48 basis points of rate cuts by the Fed in 2024. Trading is expected to be muted due to the US markets being closed for the Juneteenth holiday on Wednesday. Oil prices were steady, with Brent crude around $85 per barrel and WTI crude near $81.5 per barrel. UK inflation slowed to 2% year-on-year in May, from 2.3%, and held at 0.3% month-on-month. Core CPI slowed to 3.5% YoY from 3.9%. 

[AshishIG]

The overnight session in Asia saw stocks hovering near two-year highs, as investors awaited more policy clues from the US. The pound was steady ahead of the Bank of England's meeting, where interest rates are expected to remain unchanged. The  dollar index was little changed, while the euro held steady against the dollar. The euphoria around AI has fueled a surge in tech stocks, driving US indices to record highs and boosting Asian markets as well. US markets were closed for the Juneteenth holiday, leading to a quiet session on Wednesday for European markets, but reopen today, with the Nasdaq 100 now above 20,000 for the first time. Today's calendar sees the release of weekly US jobless claims, eurozone consumer confidence and EIA crude oil inventories (delayed from yesterday), as well as the Bank of England's latest rate decision.

[AshishIG]

Asian shares are ending the week lower after recent rallies. Yesterday on Wall Street the Dow made gains while Nvidia and other tech names came under short-term pressure. The dollar continues to strengthen, pushing the Japanese yen close to levels last seen in April, which then provoked a currency intervention. European markets are expected to open flat, while US futures show slight gains. The MSCI Asia-Pacific index fell 0.6%, led by a pullback in technology stocks. Japan's inflation slowed in May, complicating the outlook for interest rate hikes. Currency markets saw the euro, sterling, and Swiss franc fall against the US dollar. Today is dominated by flash PMIs from around the globe, including Germany, the UK and the US. 

[AshishIG]

Markets started the week with a mild risk-off sentiment, with most Asian markets lower, though the Nikkei bucked the trend. Meanwhile the dollar rose and Treasury yields were also slightly lower. The dollar approached 160 yen, prompting warnings from Japanese officials about potential intervention, two months after the last move. Yen weakness is increasing imported inflation in Japan, putting pressure on the Bank of Japan to adjust it policies. Geopolitical events are in focus, including the US presidential debate and French elections. The week is quieter from a macro perspective, though first-round French elections take place at the end of the week. 

[AshishIG]

The risk rebound continues in a quiet week, though tech stocks are still edging down after their strong gains in the first weeks of June. Asian stocks made headway overnight, led by the ASX 200 and the Nikkei 225, though mainland Chinese stocks suffered losses. Today sees the release of Canadian CPI data, but the main focus remains the US PCE data on Friday. Signs of weakening of price growth in these figures would give new life to the hope of rate cuts in the US this year. European markets recovered yesterday, though first round French elections on Sunday loom large and futures have turned lower ahead of the open. Yesterday's big name faller was Nvidia, which shed 7% and dragged other tech stocks lower, though the the broader US stock market appears able to shrug these losses off for now.

[AshishIG]

Asian stocks were mixed as markets waited for Friday's PCE data in the US. The Japanese yen is close to 160 per dollar, raising concerns about potential intervention by Japanese authorities. Hawkish comments from Federal Reserve officials have tempered expectations for near-term US rate cuts. Australian consumer inflation hit a six-month high in May, boosting the Australian dollar and causing Deutsche Bank and Morgan Stanley to both revise their view to expecting a 25bps hike by the RBA in August. Japanese and Taiwanese stocks rose, led by chipmakers, following the rally in the tech-heavy Nasdaq, which found renewed upward momentum after several days of declines. The Japanese yen's weakness has prompted speculation about potential intervention, with the Bank of Japan hinting at possible quantitative tightening in July.