IG Morning Call

[MongiIG]

Asian markets struggled again on Thursday, as the US debt ceiling crisis continued to cast a shadow. Chinese inflation data showed that consumer price inflation rose only slightly, while factory-gate inflation dropped by more than expected. While US CPI was weaker than expected, tech stocks were the only real beneficiary of the data, which provides further support to the idea that the Fed is now in pause mode regarding interest rate moves, though market expectations of a cut later in the year remain misplaced, barring a significant weakening of the economic outlook. Today will see the Bank of England decision, with a 25bps hike expected, along with the weekly US jobless claims data.

 

[MongiIG]

It was another risk-off session in Asia overnight, following on from the modest selling in European and US markets seen on Thursday. The US debt ceiling, worries about an economic slowdown and the US regional bank crisis conspired to push equities lower. Debt ceiling talks planned for today have been pushed back to next week, though there are signs of some dealmaking going on behind the scenes; the White House now accepts some budget cuts will have to be made, having previously insisted on raising the ceiling with spending plans intact. PacWest Bancorp fell on Thursday after reporting a decline in deposits. UK GDP grew by 0.1% quarter-on-quarter, in line with forecasts, but just 0.2% year-on-year in Q1. 

 

[MongiIG]

There are signs of a more positive outlook by European markets this morning, but the US debt ceiling will be the main driver of events from here into the second half of May. Talks resume on Tuesday, and there are signs of progress, but it would be foolish to expect a deal to be done well in advance of the 1 June date when the US government begins to run out of money. We can expect volatility to increase as this date gets closer. It is a quiet start to a week that is lacking in Tier 1 economic data, while US earnings season is now definitely beginning to wind down. UK earnings are still plentiful, providing some interest for UK-focused traders. 

 

[MongiIG]

A solid performance in Tokyo for the Nikkei and the Topix, along with gains in Taiwan, provided a positive counterpart to losses in other Asian markets overnight. Talks between US lawmakers did not end in a deal, though there were fresh signs of progress. President Biden has cut short a trip to Asia in order to continue negotiations, and House speaker McCarthy said that there was still time to do a deal by the end of the week, though the two sides remained far apart. Japanese GDP showed a rebound in activity for Q1, supported by domestic spending, providing some much-needed good news on the economic front. A mixed start to the day is expected, with some losses in European markets but US futures looking slightly brighter after Tuesday's falls. 

 

[MongiIG]

While last week ended with concerns that debt ceiling negotiations had broken down, today has seen hopes of further progress. US president Biden and Republican leader McCarthy will meet today, with less than two weeks before the default date. While the ASX 200 struggled, the Nikkei made further progress and the Hang Seng rallied off its lows of the session. On Friday Fed chairman Jerome Powell said that his preference for the June meeting was a pause in policy tightening rather than another hike, helping to reverse a rising expectation that the Fed would have to move again on rates. With the debt ceiling scheduled to hit before then, June's meeting will be an interesting one. Today's light macro calendar sees just eurozone consumer confidence this afternoon. 

 

[MongiIG]

At least today we have something to distract us all from the debt ceiling drama in Washington. Today is flash PMI day, and the steady drumbeat of these figures around the globe will provide markets with something to focus on. April's numbers were generally stronger, so investors will wonder if the data can repeat this trick. The Nikkei was unable to record a ninth day of gains, while the Hang Seng also dropped back. Stocks continue to trade relatively cautiously, as the deadline for the US to run out of money inches closer, though mega-cap tech continues to show resilience, having recently hit a one-year high.

 

[MongiIG]

While the leaders of the two sides in Washington have succeeded in reaching a deal, the tricky part, convincing Congress, begins. More details are expected to emerge, but even before this happens some Republicans have said that they will vote against the deal. Stocks rose in Asia on optimism that the deal will be done, and futures are pointing higher as well. European inflation data comes through this week, although it is not expected to influence the outlook on rates. Market expectations around a June Fed hike continue to rise however, and a hike at the next meeting is viewed as being a 60% chance. This week's US jobs data, culminating as ever in the payrolls report, could be key to the Fed's next move. 

 

[MongiIG]

The US debt ceiling deal has cleared the first hurdle, with the House of Representatives passing the bill to raise the ceiling. The deal now moves to the Senate, which is also expected to pass the measure, staving off a US default. Stocks in Asia made headway, and futures are pointing higher in Europe and the US. Meanwhile, in China, the Caixin manufacturing PMI sneaked back into expansion territory, allaying some of the fears about a broad slowdown in the Chinese economy. More PMIs next week, along with inflation and trade data, will provide additional insight into the Chinese economy. Expectations for a Fed move in June have dropped back sharply after vice-chair Jefferson said that he favoured 'skipping' a June hike, while softer CPI data in Europe have seen ECB tightening expectations drop too. Further eurozone inflation data is scheduled for today, along with the ADP report (delayed a day due to Memorial Day in the US), weekly jobless claims, the ISM manufacturing PMI and weekly crude oil inventories. 

 

[MongiIG]

The US debt ceiling deal has cleared the second and last hurdle, with the Senate passing the bill to raise the ceiling. President Biden can now sign it into law, staving off a US default. Stocks in Asia rallied, and futures are pointing higher in Europe and the US. Meanwhile, a much stronger-than-expected ADP private payrolls report led to a sharp rise in the probability of another rate hike being seen in June, despite the US ISM manufacturing  prices paid index coming in lower-than-expected which is supportive of a Fed pause. Softer Eurozone headline and core inflation have seen ECB tightening expectations drop. All eyes are now on today's US Non-Farm Payrolls and hourly earnings data, out at 1.30pm.

 

[MongiIG]

Friday's jobs report fell firmly into the 'Goldilocks' category that markets have been looking for over the past year. This provided the foundation for a rally across stock markets, although Chinese stocks registered small losses. Futures are pointing to a quieter start in Europe and the US, but stocks are holding up well despite OPEC's decision to cut back on output, which bolstered oil prices overnight. This month's Fed meeting is still expected to see the committee pause on hiking, with the new term 'skip' pointing towards a resumption of hikes in July, and all expectations of cuts later in the year being wiped out. Along with final PMI readings for May, today sees the US ISM services PMI published this afternoon. 

 

[MongiIG]

A 25-bps hike from the RBA came as something of a surprise to markets, which had expected the Australian central bank to remain on the sidelines this time around. Expectations for a Fed move in June have continued to drop however, and a pause is viewed as 80% likely compared to around 36% a week ago. While the Nikkei and Hang Seng made some progress overnight, general sentiment in Asia remained cautious. Apple's new product was insufficient to provide much in the way of fresh momentum, though the Nasdaq 100 managed to hit yet another one-year high in Monday's session. A muted open is expected across Europe and the US. 

 

[MongiIG]

Stocks in Asia managed to move higher overall, though weakness in Japan was the outlier. A poor performance from China's trade data raised hopes that some form of stimulus might eventually come to pass in the world's second-largest economy, as the slowdown intensifies. Markets remain relatively quiet overall, as the focus shifts to next week's clutch of central bank meetings. Yesterday's more hawkish RBA may give the Bank of Canada cover to raise rates once again, defying general expectations of a pause. 

 

[MongiIG]

Another light day lies ahead for European markets, though the surprise rate hike from the Bank of Canada raises the prospect of a further round of tightening by central banks around the world. In China, a number of banks said that they would cut deposit rates providing some support for profit margins and the broader economy. Attention will increasingly turn to next week's Fed and ECB decisions; economists still expect the former to hold rates, while the latter is forecast to raise rates to 3.5%. 

 

[MongiIG]

A relatively quiet week is heading towards its end, after a positive session in Asia that followed the lead set by Europe and the US. A rise in jobless claims bolstered the view that the Fed would leave policy on pause at its next meeting. However, rate hikes this week in Australia and Canada have unnerved investors, and so caution could well prevail over the first half of next week. Given that the coming week also includes ECB and BoJ decisions, plus US inflation figures, it promises to be full of potential volatility flashpoints. 

 

[MongiIG]

Markets will spend the day in anticipation of the Fed decision tonight, following on from yesterday's softer inflation data that has seen expectations of any further hikes revised down. Much will hang on the language around the decision, focusing on whether this is still a 'pause' (viewed as more dovish) or a 'skip' (more hawkish). Given the gains in risk assets in recent days, such fine-tuning of the language could provoke significant volatility. While the Hang Seng fell back overnight, the rest of Asia was generally positive, the standout once again being the Nikkei, soaring 1.7% to hit fresh post-1990 highs. UK GDP grew by 0.2% in April, in line with forecasts, but the pound remains in strong form following yesterday's wage data. 

 

[MongiIG]

The Fed duly 'skipped' at last night's meeting, leaving rates unchanged But they raised the terminal rate forecast to allow room for two additional rate hikes, jolting markets and giving the dollar a boost. After last night's excitement we now look towards the ECB meeting today, with the bank expected to lift rates once more. Overnight China cut its medium-term lending rate to 2.65%, following on from a similar cut to short-term rates earlier in the week. Industrial output and retail sales was weaker than expected in China last month, adding to the impression of a slowing economy. Aside from the ECB meeting, US weekly jobless claims and retail sales for May are released later. 

 

[MongiIG]

The week has begun with losses across Asian markets, as the prospect of a US holiday drains liquidity from the systems and leaves investors wondering what comes next. Risk had a good week overall last week, rallying despite what seemed to be a more hawkish Fed, but some caution has set in today. The week sees the latest Bank of England rate decision, while Jerome Powell will also give testimony to US lawmakers on Wednesday and Thursday. 

 

[MongiIG]

Asian stocks staged a recovery overnight, continuing the rebound seen in Europe and the US yesterday. Bond yields fell after last week's surge, and the dollar was weaker as well. In the stock market, Alibaba's shares rose due to the belief that a $984 million fine for Ant Group could indicate the end of a long-term regulatory crackdown on the Chinese tech industry. The U.S. Treasury Secretary, Janet Yellen's visit to Beijing didn't seem to significantly impact U.S.-China relations, with no clear signs of improvement or deterioration. It was perhaps an 'anti-Goldilocks' set of UK employment figures this morning; the claimant count was higher than expected and the unemployment rate rose in May to 4%, while average hourly earnings rose by 6.9% including bonuses, putting more pressure on the Bank of England to keep raising rates. 

 

[MongiIG]

Market participants are eagerly awaiting the U.S. inflation report, set to be released later today. Economists are predicting that the consumer price index will have risen by 3.1% in June, following May's 4% increase. In the meantime, global markets have adopted a risk-on sentiment. MSCI's broadest index of Asia-Pacific shares outside Japan has climbed almost 1%, signaling a third consecutive day of gains. The U.S. dollar has dipped against major currencies, reaching a two-month low. The yen, in particular, has continued to strengthen, dipping below 140 for the first time in a month. European stocks are also expected to maintain their positive momentum, according to futures indicators. Aside from the U.S. inflation report, market attention will also be focused on the Bank of Canada's policy decision. The central bank is expected to increase interest rates by a quarter-point for the second consecutive time.

 

[MongiIG]

Stocks rallied sharply after the US inflation print yesterday, as the slower growth in prices in June reduced the pressure on the Fed for more rate hikes. Asian stocks enjoyed strong gains, while Beijing also pledged to support tech platforms, raising hopes that a crackdown on the sector was easing. UK GDP fell 0.1% between April and May, but this was better than expected. Today is something of a lull between CPI data and US bank earnings tomorrow, though US PPI and initial jobless claims are on the calendar for the session. 

 

[MongiIG]

Asian markets were mixed overnight, after China's economic growth in the second quarter was slightly higher than anticipated, increasing by 0.8% compared to the first quarter. However, the year-to-year growth was less than expected, at 6.3%, indicating some possible adjustments to past data. Industrial production in June exceeded expectations, growing by 4.4% compared to the previous year. However, retail sales did not meet expectations, increasing only by 3.1%. The response in the financial markets was negative, with stocks in China declining and the yuan also dropping. The Australian dollar fell as experts predict that Beijing will allow the yuan to continue to depreciate as a form of indirect economic stimulus.

The data highlights the need for increased government spending, but it doesn't seem like Beijing is prepared to fulfill this need at the moment. The central bank decided to keep one-year interest rates stable on Monday, and experts are waiting for a meeting of the Chinese government later this month for potential new measures. Earnings season is in full swing and Tesla will be the first of the major tech companies to report its results on Wednesday. 

 

[MongiIG]

Chinese markets fell again overnight, as worries about the outlook for that country's economy bedeviled investors. Other indices were more positive, with Japan's Nikkei 225 up 0.75% and the ASX 200 up 0.5%. US markets made firm headway yesterday after solid results from Morgan Stanley and Bank of America, while retail sales pointed towards further strength in US consumption. UK inflation rose 7.9% in June compared to a year earlier, below the expected 8.2%, while the monthly figure rose just 0.1% compared to the forecast 0.4%. This has put some pressure on the pound, but one inflation figure may not be enough to allow the Bank of England to pause its hiking campaign. Netflix, Tesla and Goldman Sachs are all on the schedule for earnings today. 

 

[MongiIG]

Mixed earnings from Netflix and Tesla after the bell in the US meant that Asian markets were mixed once again. The Nikkei fell 1.2%, putting its rebound under pressure. The Australian dollar was boosted by stronger-than-expected employment data, causing the currency to rally against its US counterpart on expectations of another rate hike by the RBA. Stocks have been supported by a good start to earnings season, though after the huge gains so far this year the tech sector has struggled to build fresh enthusiasm for further upside. Earnings from American Airlines and Johnson & Johnson are on the calendar for today, along with US weekly jobless claims and existing home sales. 

 

[MongiIG]

Despite Chinese authorities announcing measures intended to help boost sales of automobiles and electronics with the aim of shoring up its sluggish economy and moderating growth in Japanese core inflation Asian equities were mixed today. The effect of disappointing earnings by the likes of Netflix and Tesla on Thursday still seem to linger on with investors now looking ahead to Q2 earnings by American Express and Schlumberger. Much stronger-than-expected UK June retail sales should help the FTSE 100 remain bid at Friday's open, though

 

[MongiIG]

Markets are contemplating an action-packed week of data, earnings and central bank decisions. Overnight in Asia the Nikkei was the standout performer, rising over 1% versus losses for Australia, Shanghai and the Hang Seng. US stocks finished the week in mixed form, with gains concentrated in defensive sectors versus losses for big tech stocks. Flash PMI readings dominate the day, giving investors an insight into the global economy, with mixed readings so far from Japan and Australia. Fed, ECB and Bank of Japan rate decisions are the key events to watch this week on the economic front, along with US GDP data for Q2, while earnings come through thick and fast, most notably from the big tech names such as Alphabet and Microsoft. 

 

[MongiIG]

Stocks in Asia were mostly higher on Thursday following the US Federal Reserve's decision to raise its benchmark interest rate. Hong Kong's Hang Seng index rose by 1.3%, while the CSI 300 index and Australia's S&P/ASX 200 climbed by 0.5% and 0.8% respectively. The US central bank's move to raise rates by 0.25 percentage points to a target range of 5.25-5.5% was seen as a return to tightening after keeping rates steady in June. However, investors now believe that this could be the last rate hike for the year. In a statement, the Federal Open Market Committee noted that US inflation remained "elevated", job gains had been "robust", and economic activity was growing "at a moderate pace". Fed chairman Powell also mentioned the possibility of another rate hike in September, but stressed the need for careful assessment of incoming economic data.

The S&P 500 closed flat following Powell's remarks, while the Nasdaq Composite dipped slightly. The Japanese yen strengthened by 0.5% against the dollar ahead of the Bank of Japan's interest rate announcement on Friday. There are expectations that the Bank of Japan may begin to shift away from its ultra-loose monetary policy. Today's key data includes the ECB rate decision, at which rates are expected to rise again, along with US GDP for Q2, durable goods orders, initial jobless claims and pending home sales. Earnings in the US include Intel, Ford and McDonald's. 

 

[MongiIG]

Stocks in Asia rose overnight due to increased gains in the US late last week and optimism that Beijing would announce specific actions to boost its struggling economy. The Hang Seng index in Hong Kong increased by 1.7 %, China's CSI 300 went up by 1% and Japan's Topix saw a 1.6% rise. Monday's data revealed that the activity in China's service sector in July didn't meet expectations and manufacturing activity also decreased, further suggesting that Beijing would take actions to boost the economy. US stocks saw a significant rise on Friday after inflation, as measured by the Federal Reserve's preferred method, dropped to its lowest since the start of the COVID-19 pandemic. This resulted in the S&P 500 gaining 1% and the Nasdaq increasing by 1.9 1%. Eurozone GDP for Q2 and the Chicago PMI are the main events today, but more earnings are scheduled later in the week, particularly from Apple and Amazon. 

 

[MongiIG]

Investors maintained their optimistic outlook on the global economy, as Asian stocks reached a 16-month high. European consumer inflation showed signs of peaking, aligning with the narrative in the U.S., where optimism for a smooth economic landing persists. However, there are still potential risks on the horizon. The United States has several important jobs reports scheduled for the week, including the monthly payrolls report on Friday. Additionally, the Bank of England's decision on Thursday could impact the prevailing narrative of rising interest rates among major central banks. Meanwhile, Australia's central bank decided to keep interest rates at 4.1% for a second month, citing the effectiveness of previous rate increases in curbing demand but warning that further tightening may be necessary to combat inflation. In China, optimism regarding Beijing's efforts to support the economy and achieve its 5% growth goal has waned, resulting in Chinese markets underperforming in the region due to profit-taking following Monday's rally.

 

[MongiIG]

While Asian markets suffered further losses overnight following the US downgrade, overall the reaction has been much more muted than was the case during the 2011 downgrade. The moves were largely confined to equities, and both US bonds and the dollar were much calmer about the move by Fitch. Attention now shifts to the Bank of England meeting - a 25 basis point rise is the universal expectation. Any more hawkish move would be a big surprise and unnerve many. The bank is expected to strike a cautious tone following the latest UK CPI reading. Beyond this, investors are awaiting the big earnings reports of the week from tech giants Apple and Amazon. 

 

[AshishIG]

Stocks have shown signs of recovery after the US downgrade earlier in the week, though caution persists ahead of non-farm payrolls. A mixed performance from Apple and Amazon earnings overnight, where the former unnerved investors with weak iPhone revenue but the latter beat estimates and rolled out solid guidance, meant that investors are not firmly back in the bullish camp, but have dipped their toes back in the water. Now the final major event of the week, non-farm payrolls, is upon us. Crucially, the rise in wages is expected to slow, easing the pressure on the Fed to hike more.