Financial Markets Today: Quick Take – June 27, 2022 Financial Markets Today: Quick Take – June 27, 2022 Financial Markets Today: Quick Take – June 27, 2022

Financial Markets Today: Quick Take – June 27, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Market sentiment brightened at the end of last week as the final June US University of Michigan Survey revised long term inflation expectations lower after a shockingly high read in the initial survey earlier this month. The riskiest assets rebounded the most and the US dollar eased lower, although US treasury yields failed to drop in response to the news. This week features plenty new Central Bank jawboning as the ECB hosts a prominent conference, and quarter-end on Thursday.

What is our trading focus?

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

Friday’s session was the biggest 1-day gain this the current drawdown began on 1 January blasting through the opening gap on the 13 June trading session around the 3,890 level closing at the 3,916 level. Momentum has changed in the short-term and with the positive indications out of China claiming success in controlling Covid in Shanghai S&P 500 futures could extend to 4,000. Sentiment and expectations have simply become too negative relative to the actual economic dynamic so economic figures and earnings releases might be a positive catalyst going forward beating expectations.

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

Chinese equity indices continue to climb. Hang Seng Index (HSI.I) is up 2% and Hang Seng TECH Index (HSTECH.I) is up 4% with technology leading the gains with the biggest movers being Xiaomi (+10%), Alibaba Health (+6%) and JD Health (+7%), Sunny Optical (+7%). Consumer stocks, such as home appliance retailers, sportwear and catering also registered gains. In A-shares, tourism, airlines, auto and other consumption stocks outperformed.  CSI300 (000300.I) is up 1%.

EURUSD and USD pairs

The USD situation has been in limbo since the June 15 FOMC meeting saw the Fed hiking the most since 1994 with the 75 basis point move. Since then, the market has pulled forward the anticipated time frame of peak Fed funds rate to early next year as it predicts conditions will allow the Fed to ease off by then. The US dollar has only consolidated gently since mid-month, and we watch further developments in risk sentiment and US yields for where the US dollar is headed next, with key upside resistance in EURUSD at 1.0600 and the downside cycle lows at 1.0350 just ahead of the lows since back in 2003. An ECB-hosted conference this week could test ECB credibility.


This week features an ECB-hosted central bank conference in Sintra, Portugal Mon-Wed, with numerous ECB speakers and speakers from other central banks. Sweden’s Riksbank meets on Thursday and is likely set for a 50 basis point rate hike bringing the policy rate to +0.75% after a sea change in its policy outlook at the previous meeting, while the ECB has pre-announced a 25 basis point hike for its July meeting, taking the policy rate to –0.25%.  The euro faces risks going forward due to existential concerns on the central bank’s awkward attempt to both tighten policy while shifting balance sheet holdings to prevent yields from rising sharply for peripheral EU countries like Italy and Greece. EURSEK is poised near the highs of the range since March, as the SEK is often seen as a kind of proxy for the regional economic outlook and is sensitive to risk, but should policy credibility from the Riksbank weigh more heavily in the balance? At the same time, Riksbank policy tightening threatens a crisis of its own in the domestic Swedish housing market, pumped to bubbly heights by years of easy monetary policy.

Crude oil (OILUKAUG22 & OILUSAUG22)

Crude oil pulled back higher on Friday, suggesting a stabilization in the price action as this cemented a local rejection of the sharp sell-off that materialized last Wednesday. But a sharper rally back above 115/barrel in WTI and 120/barrel in Brent would be needed to suggest that the recent large sell-off wave from the cycle top is merely a consolidation and not a more significant reversal. The US-Iran are set to renew talks on the 2015 nuclear deal this week, with the talks mediated by the EU.


Copper posted its biggest weekly loss in a year last week, driven by global recession fears and China lockdown hurting growth and demand in the world’s biggest consumer of industrial metals. While the Bloomberg Industrial Metal index trades down 6% on the year, copper is currently 15% under water with around half of that loss realised this week when Fed chair Powell reiterated his commitment to bring down inflation, thereby raising the risk of a hard landing. In addition, Chile’s mining giant Codelco has reached an agreement with workers to end a strike that could have led to a price supportive reduction in supply. Below $3.86 the next key level of support can be found at $3.50/lb, the 50% retracement of the 2020 to 2022 rally.

US Treasuries (TLT, IEF)

The big headline on Friday was the revision lower in the June University of Michigan sentiment survey inflation expectations (more below), but while other markets supposedly celebrated this news as a signs that it would prompt the Fed to ease off on signaling a faster pace of tightening, US treasuries actually weakened late Friday all along the curve after the 10-year Treasury benchmark yield traded close to 3.00% on Thursday, closing above 3.10% on Friday an back at 3.15% this morning. The US Treasury is set to auction 5-year notes today and 7-year notes tomorrow.

What is going on?

US June Final University of Michigan Sentiment Survey sees 5-10 year inflation expectations revised lower

This had a significant impact on market sentiment, as the preliminary June survey put long-term inflation expectations at 3.3%, a sudden 0.3% jump and the highest reading since the early 1990’s save for a single month in 2008. This was widely seen as inflation potentially getting unanchored, but the revision took the number back down to 3.1%, and thus back within the recent range, if at the very top. Still, the overall Michigan Sentiment figure was revised lower to 50.0 - the lowest in the 44-year history of the survey.

Japan likely to issue power crunch advisory

After Australia, now Japan is facing a power shortage. The trade ministry will issue an advisory if reserves are expected to fall below 5%, and risk of blackouts remains. The country’s power supplies have been stretched thin since last week’s strong earthquake. Power reserves are also limited as older oil-powered plants have been retired and most nuclear reactors remain shut after Fukushima. This raises the possibility of switching back to traditional energy sources such as coal, as Australia is doing, but also a greater shift to nuclear sources.

Volatility in equities calms before end of quarter

Volatility in equities (as measured by VIX) has fallen 21% from its June high and looks to be calming before end of Quarter and Half-year rebalancing, which has helped to push the S&P500 and the Nasdaq into a technical uptrend on the short-term charts. Beyond quarter-end selling pressure may resume on Q2 company earnings, where expectations look 

Turkey bans lira loans, sending TRY sharply higher

Turkey moved to support its currency by restricting lending to corporate borrowers who hold more than 15 million lira in foreign currencies, potentially affecting thousands of companies. These companies might be prompted to dump their foreign currency holdings if they want to continue accessing credit in TRY. After trading as high as 17.37 on Friday, USDTRY traded in the low 16.00’s today.

What are we watching next?

Quarter-end on Thursday and portfolio rebalancing flows

After a terrible quarter-to-date for global equities (the first quarter ended on a high note), rebalancing flows may buoy equities into quarter end on Thursday. There is also talk of an enormous option structure (a put spread on the S&P 500) held by JP Morgan with a key strike price in the structure at 3,620 that expires on Thursday, one that some believe has helped to hold up the market as that level approached.

Food prices continue to jump

This is only the beginning. It is partially related to the pandemic and the Ukraine war (especially for countries most exposed to agricultural imports from Russia and Ukraine). But other factors are playing a major role too: weather, especially la Nina, has severely affected crop production (too dry conditions in Brazil, the United States and Brazil and too wet conditions in Australia and Southeast Asia) and avian flu has caused a sharp increase in poultry and egg prices all across the globe. In France, roughly 8 % of egg-laying hens have been culled since late last year, for instance. Within the eurozone, food prices have risen most this year in Lithuania, Latvia and Portugal. In this country, they have increased by 7.6 percentage points. For the lowest 15-20 % income quintile, it is now getting harder to buy meat and high-quality food. Rice could be the next agricultural commodity to increase. According to the United Nations’ Food and Agriculture Organization Food Price Index, international rice prices are up for the fifth consecutive month in May, at a 12-month high. Protectionist measures (ban on imports, for instance) and a substitution of wheat (which is now too expensive) by rice could lead to a more unbalanced market and it could lower existing stocks too. Ultimately, it could push rice prices much higher in the short-term.

Australian inflation to worsen and spook markets

Australia’s Federal Treasurer conceded Australian inflation will worsen over the coming months before only improving in 2023. Jim Chalmers said the RBA’s forecast of 7% y/y inflation is too low and ‘widely off the mark’.

Earnings Watch

The Q2 earnings season is coming up in about two weeks and in the meantime a few important earnings releases are published this week. Our main earnings focus is on Nike, General Mills, Micron Technology, and Walgreens Boots.

  • Monday: Nike,, Jefferies Financial Group, Prosus
  • Tuesday: Wise, Alimentation Couche-Tard, TD Synnex
  • Wednesday: Acciona Energias Renovables, Kabel Deutschland, Paychex, General Mills, McCormick & Co
  • Thursday: Constellation Brands, Micron Technology, Walgreens Boots Alliance, Shaw Communications
  • Friday: Nitori

Economic calendar highlights for today (times GMT)

  • ECB conference kicks off today, to last through Wednesday.
  • 1230 – US Preliminary May Durable Goods Orders
  • 1400 – US May Pending Home Sales
  • 1430 – US Jun. Dallas Fed Manufacturing Survey
  • 1730 – ECB President Lagarde to speak

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