IG Morning Call

[MongiIG]

It was a more positive session for Asian markets, which made gains despite a very choppy session in the US yesterday. Comments from Jerome Powell to the effect that it might be difficult to avoid a 'hard landing' in the US economy dented sentiment, but overall it looks like equities are still trying to build a base after their recent run of losses. The dollar remains strong however, as Powell confirmed that the Fed would look to raise rates by 50 bps at the next two meetings, and was prepared to do more. A quiet end to the week sees just the US Michigan consumer confidence survey released this afternoon.

 

[MongiIG]

A sharp drop in Chinese retail sales for April meant that the initial strong start for Asian markets was somewhat reversed during the session, with the CSI 300 and Hang Seng both moving lower. The Topix finished mostly flat while the ASX200 rose just 0.2%. Stock markets had steadied on Friday after another volatile week, but will struggle to make much headway in the medium term given the darker global outlook. Recent comments from Jerome Powell about it becoming more difficult to avoid a 'hard' landing for the US economy have raised recession fears, which are rising even as central banks continue to tighten policy. After weeks of earnings, today sees a relatively quiet calendar ahead, with just the US Empire State mfg index on the list of notable events. 

 

[MongiIG]

Asian markets were under heavy pressure overnight, as markets reeled from the worst day for Wall Street since 2020. What began as an intraday pullback turned into a disorderly selloff, pushing the S&P 500 back below 4000, wiping 1000 points off the Dow and crushing tech stocks. The mood was not helped by earnings from Tencent, which reported its slowest ever revenue growth, while Standard Chartered cut its growth forecast for China to 4.1% from 5%. The brief bounce in risk assets in the first half of the week looks to have now turned entirely, as inflation and growth fears reassert themselves. The inability of stocks to rally for more than a few days sends a message that investors remain firmly pessimistic for the time being. 

 

[MongiIG]

The see-saw week may be ending with something of a recovery for markets. Asian indices rebounded overnight following a move to ease monetary policy by the People's Bank of China (PBoc). The CSI 300, Hang Seng, Nikkei and ASX 200 all made gains as the PBoC cut interest rates for the five-year loan rate to 4.45% from 4.6%. Fears about shrinking global growth and tighter monetary policy have driven the recent selloff, so this move to boost the economy has provided a shot in the arm for sentiment, although it is unclear how long it will last. Markets face a broadly-empty calendar to end the week, with a period of calm likely to be welcomed by those on both the bullish and bearish sides of the debate. 

 

[MongiIG]

US markets briefly skirted into bear market territory on Friday, hitting the required 20% fall to qualify for this, before surging to finish the day with small gains. Last week saw the volatility step up a gear, with markets see-sawing between gains and losses. Overnight Asian markets fell back, as the usual mixture of growth and inflation worries prompted some weakness. The Hang Seng was down 1.9%, and mainland indices also dropped as Covid cases in Beijing rose sharply. The ASX200 was flat, while Japan bucked the trend with gains for the Nikkei and Topix. German IFO data and the monthly Chicago PMI in the US are the main economic events today, while in the UK BoE governor Andrew Bailey is due to speak at 3.15pm. 

 

[MongiIG]

Monday's solid gains for markets were countered to an extent by the news of poor earnings from Snap, which put pressure on tech stocks and saw S&P 500 and Nasdaq futures fall back. Stocks had been given a lift on Monday by comments from President Biden, who raised the possibility of easing tariffs on China. Despite the impressive rebound from Friday's lows, it looks like enthusiasm for a further rally is already ebbing away, and the hawkish turn from the ECB yesterday, which said that it planned to end the regime of negative interest rates by July, acted to dim enthusiasm for equities still further. A drumbeat of flash PMI numbers continues throughout the European and US sessions.

 

[MongiIG]

Asian markets managed to make some headway overnight, coming after another weak session in the US. Tech stocks once again bore the brunt of the selling, although a late bounce did claw back some lost ground. Better earnings from Chinese tech firms supported sentiment, helping the CSI 300 to rise, while the ASX 200 drew its strength from commodity prices, which have firmed up once again. A rise in New Zealand rates to six-year highs reminded investors of the tightening monetary policy environment, and FOMC minutes tonight should also highlight how the US central bank is expected to maintain its pace of rate increases. 

 

[MongiIG]

It was a better session for Europe and the US yesterday, markets making headway and being bolstered by Fed minutes which showed that policymakers were happy to push on with 50bps rate hikes, but were also encouraged by the strength of the US economy. Some of this optimism carried over into Asia, but it was dimmed by comments from the Chinese premier, who said that the Chinese economy was in some ways worse off than in the early days of the pandemic. While tech stocks have struggled, the Dow and S&P 500 have managed to claw back some lost ground, although the gains have been tentative as investors fret about the potential for a fresh downward move. Bank holidays in much of Europe for Ascension Day mean that the European session will be quiet, while in the US weekly jobless claims and the second estimate on Q2 GDP are the main events to watch. 

 

[MongiIG]

Stock markets are firmly in rally mode, following on from a very strong end to the week for European and US markets. Asian markets reached a three-week high as the global rebound gathered pace. The much-talked about pause in Fed tightening lays behind the move, but it has been given fresh impetus by the news that Shanghai authorities will lift many restrictions on businesses from Wednesday, easing the two month lockdown in one of China's most important cities. Whether this temporary respite from all the gloom and doom of recent weeks becomes something more permanent remains to be seen. The week begins in subdued fashion, with just German CPI on the calendar for the day, while US markets are closed for Memorial Day. 

 

[MongiIG]

May looks to be ending on a better note, after a very torrid time for equity markets. Indices across Asia were mixed however, following news that the EU had agreed to block most Russian oil imports into the region by the end of the year, pushing oil prices higher and risking the reignition of fears about inflation. China's official manufacturing PMI rose to 49.6, a marked improvement on last month's 47.4, but still just shy of expansion territory. However, the continued easing of restrictions gives hope that a continued rebound in activity in the world's second-largest economy is still in progress.

US futures rejoined the fray after Memorial Day and are holding their ground; there is some hope that this recovery will have a bit further to go, even if it is unable to recover all the losses for the year so far. Eurozone CPI today means that price growth remains on the agenda, along with the Chicago PMI and a look at US consumer confidence, with the latter worth watching to see if higher prices continue to make US citizens nervous about their future. 

 

[MongiIG]

The final day of the week for UK markets is here already, and traders in London already have their eye on the long weekend. But for other markets there is the prospect of the new month and quarter to contend with. Asian indices were firmly mixed overnight, following on from a lacklustre session in the US and Europe yesterday where markets struggled to make headway. After last week's enthusiastic rebound, a more cautious atmosphere prevails, and a weaker Caixin manufacturing PMI has not helped matters, counteracting some of the optimism felt in the wake of the better official manufacturing index number. 

Inflation concerns will feature heavily today as the Bank of Canada, and rates are expected to rise to 1.5%. Also look out for the ISM manufacturing PMI in the US, and for a speech from ECB president Lagarde at midday. 

 

[MongiIG]

The week has begun with a mixed session for Asian markets, as investors look towards this week's CPI readings from China and the US, plus central bank decisions in Australia and the eurozone. The Nikkei, Hang Seng and the Shanghai composite all made headway, but the ASX200 finished the day in the red. A weaker Caixin services PMI did not help sentiment, and the memory of Friday's strong US jobs report means that equity investors will have little reason to hope that the Fed will pause its hiking efforts in the near future. In addition, the surge for oil prices towards the end of last week leaves inflation concerns at the forefront of investor minds. Holidays in France, Germany and Switzerland mean it will be a quiet start for European markets, compounded by the lack of any US economic data, but in the UK a possible no confidence vote in Boris Johnson could unsettle sterling in the short term.

 

[MongiIG]

Another mixed session for Asian markets demonstrates the uncertainty afflicting global markets. Monday's session had seen Europe and the US make headway, but Wall Street was unable to hold gains during the day and finished with only a small rise. Overnight Tokyo and Shanghai eked out a move higher, but markets in South Korea and Australia suffered losses. The RBA's move to fight inflation with a 50bps rise in rates came as a surprise to many, since a 25bps move had been expected. More rises are expected, as the bank joins others in hiking rates, though it still expects to see inflation back in the 2-3% range next year. Futures point to a weaker start for European and US markets, although we have yet to see the start of another full-blown downward move for indices.

 

[MongiIG]

Tech stocks have led the way in Asia, making headway after China approved a raft of video games. This matched the better session for US stocks, which recovered after an early wobble following a warning from Target on inventories and margins. The gains came despite a cut to growth forecasts from the World Bank, but whether the rises in equities can be sustained will depend largely on how the market views Thursday's policy decision from the ECB, plus the US and Chinese CPI readings on Friday. The fresh rises in oil prices that have been seen so far this week point to a continuation of inflation concerns into the summer.

 

[MongiIG]

Stocks lost ground in Asia overnight, with inflation and growth fears once again taking their toll. The rebound in risk assets has stalled across the globe after the recovery from the May lows, as the usual bugbears about high prices and a slowdown returned to haunt investors. This week has seen first the World Bank and then the OECD cut forecasts, and with oil prices rising once again there seems no chance of any respite from the cycle of higher prices and tighter interest rates. The ECB meeting today will add to this, and while a rate hike today is not expected, the bank is very likely to signal that one is coming at its next meeting in late July. Also on the calendar for today are weekly US jobless claims. 

 

[MongiIG]

Markets are once again looking at what the Fed might do at this week's and upcoming meetings, after a CPI reading on Friday that slew hopes that price growth might be abating. Talk of a 75-bps rate hike has returned, perhaps even as early as this week, as the Fed looks to tame inflation. Asian markets matched the heavy losses seen at the end of last week in Europe and the US, with the Hang Seng down 2.9%, the Nikkei off by almost 2.8% and the Kospi dropping 2.8%. Further losses are expected in Europe and on Wall Street, while in FX markets the dollar seems to carry all before it once again. UK GDP shrank by 0.3% in April, which was worse than expected, underlining the cost of living crisis which is squeezing UK consumers. 

 

[MongiIG]

US markets slumped yesterday, and the S&P 500 re-entered a bear market, as the selling across equities entered a higher gear. Losses continued in Asia, where Australia fell 4.6% and the Nikkei lost 2%. Expectations seem to be climbing by the hour for the Fed decision on Wednesday; from expecting 50 bps a week ago, many banks now expect the committee to increase rates by 75 bps, and even 100 bps is being contemplated as a possibility. The hit to earnings forecasts from higher inflation and interest rates continues to be revised higher, leading to further expectations of losses for stock prices. Meanwhile the dollar has been given new life thanks to the US CPI figure and the changed expectations surrounding the Fed, prompting losses for the euro and sterling against the greenback. A developing spat with the EU over the Northern Ireland Protocol meant that the pound was under additional pressure yesterday. 

 

[MongiIG]

Losses have stabilised for the time being across indices, or at least have slowed from the rapid pace of falls seen at the beginning of the week. The Fed decision is now hours away, with a tense atmosphere prevailing as investors await the bank's decision. From 25 bps, expectations have moved up to 50bps, then 75bps, and even 100bps might be needed. Projections suggest the US interest rate will reach 4% by early 2023, and with the current rate just 1% some quick and dramatic moves will be needed to get the Fed to that point. Also on the calendar for today are US retail sales and weekly crude oil inventories.

 

[MongiIG]

Stock markets have recovered across the globe following the Fed decision to raise rates by the largest amount at a single meeting since 1994. Powell's comments that such increases would not become the norm also helped stabilise sentiment in the short term for equities, while taking some of the shine off the dollar. The FOMC still expects a 'soft landing', i.e. avoiding a US recession next year, and that inflation will come down in coming quarters. But it will be interesting to see if this positivity in equities can be sustained, given the cautious outlook given by Jerome Powell. Attention now turns to the Bank of England, where a 25bps rise is still viewed as the most likely event. Also on the calendar for the day are US weekly jobless claims and the Philadelphia Fed index. 

 

[MongiIG]

Asian markets were mixed once again, as investors prepared for a quiet Monday thanks to a US holiday. The  Nikkei and the ASX 200 both lost around 1%, while in China the decision to keep its 1- and 5-year loan prime rates unchanged helped to keep markets from falling. Last week saw a fresh burst of worries about inflation, interest rates and growth, which prompted more losses for stock markets around the globe. This will ease off to an extent this week thanks to the general absence of policy decisions, although speeches from ECB president Lagarde, BoE MPC member Catherine Mann and FOMC member James Bullard mean that there will still be a focus on this topic. 

 

[MongiIG]

Stock markets in Asia moved higher overnight, as some of the concerns about inflation and growth appeared to ease. After the heavy losses of the past week a brief reprieve may develop across markets for the time being, now that central bank decisions are out of the way. A speech by RBA governor Lowe reminded investors that rate rises are still expected, as the RBA looks to rein in inflation towards the 2-3% level. Comments from MPC member Catherine Mann yesterday also took this line, although the impact on sterling was limited due to the cautious approach to rate hikes taken by the BoE. Today's calendar sees the Chicago Fed national activity index and US existing home sales released. 

 

[MongiIG]

After a solid day for US markets yesterday the picture in Asia was much less optimistic. Sentiment remains fragile, and a weaker open is expected for European and US markets. While the economic calendar today has Canadian CPI and eurozone consumer confidence, the main event will be the first day of testimony in front of US lawmakers by Fed president Jerome Powell. The potential for some market-moving comments is high, with equities and the dollar firmly in focus for any volatility. The yen hit a new 24-year low against the dollar, as further selling hit the Japanese currency following the lack of any commitment to intervention by the Bank of Japan. In addition, oil prices fell on reports that President Biden was considering suspending the federal tax on gasoline for a temporary period, in order to help US consumers with the rising cost of fuel. Early data this morning saw UK CPI come in at 9.1%, in line with expectations, but still up on last month's 9%. 

 

[MongiIG]

Stock markets continue to be buffeted by recession fears, with a mixed session in Asia overnight following on from a see-saw day in European and US markets. Stocks had rallied as Jerome Powell spoke to US lawmakers, mainly because he failed to say anything particularly new, although his words did carry a warning about the potential for a US recession. The CSI 300 rose overnight, as did the Nikkei, but other markets like South Korea were down. Some small weakness in European markets is expected on the open. Powell continues his testimony today, while the calendar is devoted to flash PMIs from around the globe, along with weekly US jobless claims and the delayed EIA crude oil inventory figures. 

 

[MongiIG]

Asian stock markets rose on Friday on the back of a solid session on Wall Street overnight with US indices expected to snap a three-week losing streak. Federal Reserve Chair Jerome Powell said in a testimony to Congress that his commitment to bringing down price increases is “unconditional.”
In Asia, the Kospi rose for the first time in three sessions, while the Nikkei traded at an over one-week high despite the core consumer price index in Japan increasing to 2.1% in May 2022 from a year earlier, exceeding the Bank of Japan’s (BoJ) target for a second straight month. Stocks in Hong Kong extended gains while China hovered at its highest levels in three months on optimism about further policy support from Beijing.
European markets are expected on the open higher with investors focused on the German IFO business climate for June and US new home sales for May.

 

[MongiIG]

Asian stocks made headway overnight, marking a strong start to the final week of June. The Nikkei was up 1%, while the ASX 200 rose 1.7%, and Chinese markets also made gains, including the Hang Seng, which touched its highest level in almost three months. Sentiment was bolstered by positive news from Shanghai, where authorities declared victory over the recent Covid outbreak. Friday's surge in US and European markets seems to have been driven by a combination of bargain-hunting and some hopes that the pace of US rate hikes might slow to an extent. However, while there could yet be some further upside for stocks, the broader outlook of high inflation and rising rates seems to point towards a continuation of the slowdown in both economic growth and earnings, suggesting the selling is not yet at an end over the medium-term. US durable goods orders and pending home sales provide the main interest on the economic calendar today. 

 

[MongiIG]

As June heads towards its close some of the optimism in equity markets has ebbed away, although indices are holding their ground as Tuesday begins. US stocks gave up some of their gains yesterday, but futures are holding steady once again, helped to an extent by the rise in durable goods orders yesterday. However, it looks like oil prices are poised for more gains, as a sequence of supply concerns regarding output in smaller nations, plus the proposed G7 price cap on Russian oil raised the prospect of a return to higher prices and thus further high inflation readings. With only US consumer confidence on the calendar for the day markets may struggle for direction. 

 

[MongiIG]

Stocks have reversed course over the past 24 hours, putting the risk rally that began last week of coming to an end in sudden fashion. It appears that the expected end of lockdown measures in China has not produced much of a boost for sentiment, while fears about higher inflation and slower growth remain strong. US consumer confidence dropped yesterday to a 16-month low, creating further worries that the economy will head towards a recession. As a result the dollar is gaining strength again as investors move back towards safe havens. The central banking forum in Sintra continues, so investors should watch out for any commentary from the heads of the ECB, BoE and Fed. 

 

[MongiIG]

The gloomy session in Asia overnight ensured that, for that region at least, the quarter would end on a sour note. The MSCI Asia-Pacific index was down 0.5%, which means it has lost 10% in a quarter. Japanese industrial output was down 7.2% in May, adding to the cautious tone of the session. Meanwhile, the dollar remains in high demand, particularly following Jerome Powell's comments about the need to combat inflation and the risk that this policy could involve 'some pain'. Today's focus will be on inflation once again, as the US releases its core Personal Consumption & Expenditure index, the Fed's preferred measure of price change. 

 

[MongiIG]

The second half and third quarter has begun on a gloomy note, picking up very much from where the first half ended. Markets across Asia fell, taking their cue from the US, with only the ASX 200 eking out a small gain. Hong Kong was closed for a holiday, but other indices were hit by heavy selling. A retest of recent lows seems likely, but the losses are unlikely to stop there. Once more it is inflation and growth fears that predominate, as growth forecasts are cut and expectations of a recession become stronger. US markets had a tough first half, and the S&P 500 was down by 20.6% for the period, its worst start for over 50 years. Investors still expect the index to finish the year around 3700/3800, but if the impending Q2 earnings season is poor then more downside seems likely, even if there is a year-end rally. 

 

[MongiIG]

After a mixed start to the month last week, markets have steadied, although the absence of US traders for Independence Day will mean that light volumes are the order of the day for other major indices. The MSCI Asia ex-Japan index was flat, while the Nikkei rose 0.6%. This week will see investors focus on US job numbers and wages, as a prelude to the vital Q2 earnings season, which begins next week. Growth and inflation fears continue to stalk markets, and it is not clear whether investors would prefer a strong jobs report that strengthens the case for more rate hikes, or a weaker one that might give the Fed pause, but also raise fears of a US recession this year.