Financial Markets Today: Quick Take – June 21, 2022 Financial Markets Today: Quick Take – June 21, 2022 Financial Markets Today: Quick Take – June 21, 2022

Financial Markets Today: Quick Take – June 21, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  A quiet session yesterday with US equity markets closed saw the mood around the rest of the world brightening somewhat, as the crypto market stabilized again after a traumatic weekend, and US futures are up sharply again overnight after testing cycle lows late last week. The US Fed’s Bullard continues to beat the hawkish drum for the Fed, arguing that US inflation expectations risk becoming unmoored if the Fed doesn’t follow through with more tightening.

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

Nasdaq 100 and S&P 500 are rebounding with the S&P 500 futures trading around the 3,730 level this morning in Europe with the 3,744 level being the first resistance level to watch on the upside. Commodities are coming down due to increased risks of recession and China’s economy still struggling to shift gear easing pressures on inflation and companies’ margins. The VIX forward curve is mostly flat with the VIX sitting around the 31 level and the US 10-year yield rebounding a bit together with equities to 3.28%. Overall, our thinking is that the downward pressure on equities has slowed for now as recession fears will keep a lid on the factors that have been negative for equities, so a rebound to the 3,800 level in S&P 500 futures is potentially where the market goes next.

Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I)

The two indices were up 1.6% and 0.2% respectively. Digital health service platform stocks surged, with Alibaba Health (00241) up 11%, Ping An Healthcare (01833) up 3% and JD Health (06618) up 4%. In A-shares, steel manufacturers rose. China is studying plans to help downstream manufacturers on rising input costs and to narrow the profitability gap between upstream and downstream industries. The Chinese authorities are also going to roll out relief measures helping coal-fired power plants.

EURUSD and USD pairs

Major USD pairs have generally triangulated within their ranges since the FOMC meeting last week and will likely have to choose a direction this week, one that will likely hinge on whether the market continues to ratchet rate expectations ever higher, which could drive a further tightening in liquidity conditions and a stronger US dollar. On the flip side, if sentiment brightens and we slip into a period of calm over the summer, the US dollar may be in for a bit of consolidation after its run to its highest level, by many measures in some twenty years.

USDJPY and JPY pairs

Yields rebounded in Europe yesterday and never really consolidated much, relative to their US treasury counterparts. If the global yield picture continues to rise again – and especially if the longer end of the US yield curve presses higher to new cycle highs of 3.50% and beyond, USDJPY and other JPY crosses are likely set for a renewed surge higher as the Bank of Japan has lost control of its balance sheet and the Japanese Government Bond (JGB) market is dysfunctional as it defends the 0.25% yield cap on 10-year JGB’s.  The BoJ bought $81 billion of JGB’s to defend the cap last week, a record amount.


The crypto markets are slowly making a comeback after the traumatic weekend, and Bitcoin is trading above $21k this morning. According to a newly published report by CoinShares tracking digital asset funds, the short-Bitcoin investment products saw a record-high outflow last week, hinting that negative investor sentiment has peaked for now.

Crude oil

Crude oil (OILUKAUG22 & OILUSJUL22) trades higher, and after Friday’s correction on global growth worries, the focus has already returned to a continued tight supply outlook driven by sanctions, peak summer demand, and several OPEC+ producers struggling to raise output to agreed levels. The cost of fuel products remains near a record level with refineries commanding record margins for their products. In addition, China’s economic activity is showing signs of picking up this month and hopes that mass testing in Shanghai may lead to a gradual reopening soon. Brent found support after correcting 50% of the April to June surge at $111.40 with a break above the 21-day moving average needed to signal renewed upside momentum. In the short-term we expect consolidation leading to sideways price action.


Gold (XAUUSD) and other precious metals are stuck in a range as the tug of war between inflation and recession concerns pans out. While gold remains an inflation hedge, the surge in US treasury yields will continue to cap gains especially if we get closer to pricing in another 75bps rate hike from the Fed in July. Only after recession concerns take over inflation and US yields top out do we see a case for sustained gains in Gold, but we maintain our bullish view on gold and expect it to print a new high in the second half of this year.

US Treasuries (TLT, IEF)

US Treasury yields in the futures market pressed back higher overnight after the important 10-year US treasury market yield failed to dip significantly below the prior cycle high of 3.20%. All eyes on the cycle highs at 3.50% for whether the market can keep a lid on yields or whether, as the US St. Louis Fed President Bullard says, inflation expectations risk becoming “unmoored”. Notable auctions this week include a 20-year T-note auction tomorrow and a 5-year TIPS auction Thursday.

What is going on?

US Fed Voter Bullard maintains his hawkish stance

No surprise to see Bullard, FOMC voter and president of the St. Louis Fed out with his latest set of hawkish comments. He argued that it is important for the Fed to bring the tightening the market expects and to prevent the “unmooring” of inflation expectations that is currently a risk if the Fed fails to get ahead of the curve. “The current US macroeconomic situation is straining the Fed’s credibility.”

The ECB is here to close the peripheral bond spreads

ECB’s president Christine Lagarde confirmed yesterday to the European Parliament the central bank’s willingness to design a new tool to counter bond market panic. Expect this new tool to have at least three main features : 1) it should be country-specific ; 2) it needs to be applied only when the debt sustainability of the countries in question is validated by a process that ensures political legitimacy (but it should not be conditional on European Stability Mechanism approval, for instance) and 3) it needs to be coordinated with interest rate decisions. Lagarde mentioned that risks to financial stability have considerably increased since the beginning of the year too. She fears we may see a correction of real estate prices in several countries. This is something to monitor closely. The Germany-Italy yield spread is at the low end of the range since early May, just under 200 basis points as of yesterday’s closing prices.

Revlon (REV) shares will be on watch after jumping 91% in the prior session

Revlon shares are still down a long way (78%) from their high as the ailing beauty brands business has seen revenue roll away, before filing for bankruptcy. The company will continue to operate but filing for bankruptcy gives the company time to reorganize debt and give the company a much needed makeover. This could also serve as an opportunity to be taken over. But the issue is Revlon’s debt exceeds revenue 1.5 times and it has weak liquidity in a very competitive market. Revlon expects to receive $575m in debtor-in-possession financing to support operations.

Agriculture prices are finally showing signs of easing...

... with traders digesting an improved outlook for global food supplies. The weakness seen so far this month has been led by wheat and edible oil, the two categories which led the March surge after Russia’s attack on Ukraine raised concerns about supplies from a major exporter of food commodities. While those worries have not gone away, the outlook for wheat production in Russia and the U.S. have picked up, this to the point CBOT wheat (ZWN2) has broken support at $10.37 with the next level of support around $9.6. Palm oil futures in Malaysia has slumped by 20% this month on burgeoning exports from Indonesia.

What are we watching next?

US Fed Chair Powell semi-annual testimony this week before House and Senate committees

The Fed Chair will be in the hot seat this week in the required semi-annual testimony before Congress, where politicians on the committees often take a chance to grandstand on their own political positions and observations, but after several months of decades-high inflation and record gasoline prices, will this week’s testimony show that the political pressure on the Fed is mounting? The market will also watch for any new comments from the Fed Chair, although we are just a few days removed from the FOMC press conference.

U.S. housing data out today

The US housing market is decelerating, and quickly. Prices are up almost 40 % since the outbreak, mostly reflecting stimulus-fueled demand during a period of record low rates in 2020-21 that now feels ancient history. With high inflation across the board pushing consumer confidence downward and mortgage rates surging following the U.S. Federal Reserve’s tightening cycle, the risks of hard landing are rising. Over the past few weeks, several large real estate firms such as Redfin Corporation have warned against the risk of slowdown. Expect a drop in May’s existing home sales and perhaps a new plunge in the number of new home sales after disappointing data in April (minus 16.6 %). The U.S. housing market is certainly the most vulnerable segment of the U.S. economy at the moment. It will be key to monitor the upcoming data in order to assess whether there is a material risk of recession.

Earnings Watch

Today’s earnings focus is Lennar, the second-largest US homebuilder, which is naturally going to see a slowdown in revenue growth and profitability due to the rapid rise in interest rates. The key thing to watch is their order book and how it has been impacted over the past three months.
  • Today: Lennar
  • Thursday: FedEx, Accenture, Darden Restaurants, FactSet
  • Friday: Carnival, China Gas, CarMax

Economic calendar highlights for today (times GMT)

  • 0715 – Bank of England Chief Economist Pill to speak
  • 1000 – UK Jun., CBI Trends in Total Orders and Selling Prices
  • 1230 – US Chicago Fed National Activity Index
  • 1230 – Canada Apr. Retail Sales
  • 1400 – US May Existing Home Sales
  • 1600 – US Fed’s Mester (Voter) to speak
  • 1930 – US Fed’s Barkin (Non-voter) to speak
  • 2350 – Japan BoJ Minutes of April Meeting

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