Oil retreats, bonds yields take a breather seeing equities calm before end of HY, while the eco derailment remains the biggest question

What's happening in markets?

APAC markets in the green

Australia’s ASX200 trades 0.3% higher on Friday and up 1.1% on the week...

with the Tech Sector and Property sectors up the most 6.4% and 3.4% this week, ahead of next week’s close of the Australian financial year on June 30. This is a time when the best performers of the financial year usually see profit taking and the worst performers might see a pickup in buying as fund manager bring asset allocations back into alignment.

CSI300 Index (000300) made new high on improved sentiment and quarter-end rebalancing

Sentiment towards Chinese equity markets continued to improve, taking CSI300 to a new high at 4375, last seen in early March. EV battery and makers, home appliance, alcohol and beverage led the charge higher.  With still light positions ahead of quarter end in Chinese equities and the urge to catch up with the Chinese markets’ recent outperformance, investors are bringing up Chinese equity exposure to rebalance.  Analysts also tend to read recent Chinese headlines through favorable lens.  For examples, President’s mentioning of “striving to achieve the full year social and economic targets” in the BRICS Business Forum and remarks in the Central Comprehensively Deepening Reforms Commission meeting that “supporting platform enterprises to service the real economy” are cited by analysts as reasons to cheer for “boosting growth” and “reducing regulation”. However, the “economic targets” are not specified and can be a general rhetoric. Likewise, the bulk of the readout of about the platform economy is about enhancing regulations not reducing but analysts still picked up that one single sentence and interpreted in positive light.  In Hong Kong, Hang Seng Index (HSI.I) was up over 1% with EV makers and tech names took the lead.

Most commodities continue to lower vs coal supported as Australia and Germany ‘band aid’ the energy crisis

• Copper futures suggest further selling pressure is ahead. Copper has already fallen to a 15-month low and could face further strain as copper supply rises and demand remains weak with China’s lockdown likely to continue.  
• Iron ore (SCOA) price has lost 20% from its high the technical indicators suggest it could go lower
• Coal Futures. Amid the push for coal in Australia and Germany, the Newcastle Coal futures price has edge back up into record territory.

What to consider? 

Powell’s message remains the same; but Bowman raises the hawkish bar

The second day of Fed Chair Powell's testimony had little new, reaffirming his commitment to reigning in inflation is 'unconditional'. Perhaps the only points to note were that Powell said the Fed would not raise its inflation target and the end-point for the balance sheet is roughly USD 2.5tln-3.0tln smaller than it is now. More hawkish, however, was Fed's Bowman who is a voter. She said another 75bps rate hike will be appropriate in July – which seemingly is the consensus view now – but she also added that hikes of at least 50bps may be seen at the next few subsequent meetings.

Global PMI plunge raises recession fears

Eurozone PMIs were at 16-month lows in June, falling below expectations. Manufacturing was at 52 from 54.6 in May, while more importantly services plunged to 52.8 in June from 56.1. EURUSD slid below 1.0500 on the report but as noted yesterday, the lows at 1.0350 were not tested because of the focus on US slowdown concerns. Later, US PMIs disappointed as well, with manufacturing at 52.4 from 57 in May. Overall, the PMI releases have shifted focus some more on slowdown/recession from inflation, and more of that is likely to be seen in the coming weeks. What is really worth noting is that services PMI also slowed substantially, so all the demand moving from goods to services also doesn’t have much room to run.

Japan’s inflation doesn’t move the yen

Japan’s May CPI continued to stay above the Bank of Japan’s 2% inflation target. Headline inflation came in at 2.5% y/y, core at 2.1% y/y. USDJPY was marginally higher in a knee-jerk but the move was quickly reversed to resume its decline. Ex-MOF Takehiko Nakao’s comments continue to support the yen as expectations of unilateral intervention continued to rise.

How are Saxo clients positioning themselves?

APAC clients most traded stocks, shares this week

Saxo Australian clients, most traded stocks, shares this week

News worthy global currency move at Saxo? 

The most interesting currency move in the AUDUSD – and we’ve increasing been seeing sells/shorts the AUD – when compared to their stance this year – that’s because the iron ore price and copper are likely to see more selling .

News worthy global index positions at Saxo?

Potential trading and investing ideas to consider?

Panic is building with recession talk picking up

Markets have been battling the double whammy of inflation concerns and recession fears lately. Recession or not, U.S. economic momentum is set to slow into the second half of the year as pent-up demand cools and higher interest rates take a toll. This, along with an earnings recession, means that equity markets may have more room to run on the downside. Bonds may become relevant again as a tool for portfolio diversification but improving the ‘quality’ of a portfolio should be the consistent objective in bear markets.

Metals face more demand and supply pressures

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