Saxo Spotlight: Fed’s June meeting question lingers while China sentiment may be at a trough – June 5-9

Saxo Spotlight: Fed’s June meeting question lingers while China sentiment may be at a trough – June 5-9

Macro
APAC Research

Summary:  More US economic data such as ISM services and jobless claims will be on tap to see how divergent Fed policymakers could get at the June meeting as a pause remains priced in for now. Meanwhile, Eurozone recession concerns could pick up if German data continues to disappoint, suggesting EUR downside. China has a deluge of data due in the week ahead, from trade to inflation to credit supply, and sentiment may be starting to trough after Caixin PMIs surprised on the upside last week. Central bank meetings from Australia and Canada could see more pauses, but hawkish commentaries remain likely. On the companies front, AI focus shifts to France and Apple’s big headset launch will be on watch.


US: More eco data on tap to shape Fed expectations

Friday’s nonfarm payrolls was another Goldilocks for the markets, suggesting a still-tight labor market but rising unemployment levels. This has kept Fed expectations hinting at a pause in June to allow for further evaluation of the pass-through but a rate hike for July has been priced in as prices pressures are still rampant. This rhetoric will again be tested in the week ahead with the ISM services report due on Monday and initial jobless claims out on Thursday. Bloomberg consensus expectations point to stronger May ISM services print of 52.4 from 51.9 previously. The prices paid component will also be key, after a very strong print of 59.6 in April which suggested that the Fed will have to keep its foot on the pedal. Jobless claims will likely remain sub-250k but expected to rise ahead as more industries are announcing layoffs given the uncertain economic outlook.

Eurozone: German data in focus as recession concerns grow

Recent data has highlighted that the Germany economy slid into a recession in Q1 as dwindling global demand added downside pressures on the industrial economy. This makes German data a key focus in the week ahead, with April trade data due on Monday, factory orders for April out on Tuesday and industrial production released on Wednesday. March factory orders saw a huge over 10% MoM plunge and industrial production was also down 3.4% MoM. Early indicators from German car manufacturers suggest that pressures have ramped up further in April, suggesting further downside risks for Q2 growth as well. Meanwhile, the disappointing Q1 GDP growth from Germany suggests that the final print of Eurozone GDP growth, due on Thursday, may also see a downward revision. If the quarterly growth print goes into negative territory, this means that Eurozone is also in a technical recession after Q4 GDP printed -0.1% QoQ. EURUSD and EURGBP may face downside pressures this week if Eurozone growth risks escalate.

China: CPI expected to tick up in May, PPI deflation to widen

Economists participating in the Bloomberg survey anticipate a modest recovery in China’s CPI inflation during the month of May. Projections indicate an increase to 0.2% Y/Y from 0.1% in April's 0.1 Y/Y. This revival is anticipated to be attributed to the low base last year and upward pressure on food prices, offsetting a deceleration in energy prices and other non-food items due to sluggish demand.  Conversely, consensus forecasts paint a gloomier picture for the PPI in May, projecting a wider deflationary trend attributed to diminished commodity prices. Economists predict a PPI inflation rate of -4.2% Y/Y for May, compared to April's -3.6% Y/Y.

China: New RMB loans expected to see a seasonal surge

According to the latest Bloomberg survey, economists anticipate a seasonal upswing in new RMB loans during the month of May. Projections indicate a rise to RMB1,688 billion, surpassing April's figure of RMB719 billion. However, it is worth noting that this May's estimate falls short of the RMB1,890 billion recorded in the same period last year, reflecting a comparative decrease. Furthermore, the survey highlights expectations for a seasonal increase in new aggregate financing during May, reaching RMB1,757 billion compared to April's RMB1,217 billion. Nonetheless, this projected figure remains significantly below the RMB2,842 billion recorded in May 2022. The primary factor dampening aggregate financing growth stems from the subdued issuance of corporate bonds.

China: Export growth to slow and imports to contract

According to Bloomberg's consensus forecasts, China is anticipated to experience a deceleration in export growth, measured in USD terms, during the month of May. Projections indicate a decline of -2% Y/Y, a significant drop from the 8.5% Y/Y growth observed in April. Similarly, the median forecast in the Bloomberg survey suggests that import growth in USD terms is expected to exhibit a slightly more negative trend in May. Projections indicate a contraction of -8% Y/Y, compared to the -7.9% Y/Y decline in April.

Japan: Wage growth expected to quicken, but not enough for a BOJ move

Japan’s April wage growth numbers are due on Tuesday, and likely to have accelerated as a result of the pay raises agreed in the spring wage negotiations. Nominal wage growth is expected to come in at 1.8% YoY from a revised 1.3% YoY in March while real earnings are expected at -2% YoY from -2.3% YoY in March. Gains in wages are expected to pick up further in May, but still won’t be enough to drive any expectations of a policy move from the Bank of Japan, as wage growth remains below the 2% inflation expectation and won’t be enough to ensure sustained price pressures going forward. JPY is likely to remain a play of US yields for now, as well as that of risk sentiment with economic growth concerns accelerating.

Central banks: RBA and Bank of Canada may go for hawkish holds

The Reserve Bank of Australia faces a tough meeting this week on Tuesday. RBA’s moves have thoroughly confused the markets as it resumed rate hikes in a surprise move last month despite softer inflation. Now, this month has brought inflation edging higher once again to reaffirm price pressures. April CPI rose to 6.8% from 6.3% previously and 6.4% expected. But some would argue that the quarterly CPI prints remain more important than the monthly prints, and next quarterly print is only due in end-July. This gives room to the RBA to hold rates again but continue to keep the door open for further tightening in the months ahead. The other option for the RBA could also be to respond to monthly inflation print with a smaller rate hike – say taking the cash rate to 4% from 3.85% currently.

A very similar setup is seen for Bank of Canada, where policy announcement is due on Wednesday. Although no rate hike is expected, but stronger-than-expected GDP and CPI metrics, as well as a buoyant housing market have brought some possibility of a 25bps rate hike and a rate hike for July is priced in with 90% probability. A hawkish commentary could bring that higher, supporting CAD which has also been boosted by the surge in oil prices.

This French semiconductor firm is poised for growth amidst AI giants

Beneath the technology giants dominating the AI landscape, a modest French semiconductor company named Soitec is poised to report earnings this week. Soitec is a French-based semiconductor company with a market value of €4.6bn and revenue of €863mn in the past year up 48%. The company has 2,000 employees with 20% of those people working in R&D. The company possesses a patented engineering substrate solution that facilitates the precise layering of wafers crucial to chip manufacturing.

Analysts are very positive on the company expecting revenue to grow to €1.9bn in the FY26 (ending 31 March 2026) with EBITDA growing from currently €276mn to €731mn as the operating margin expands. Analysts have a price target of €189 compared to the current price of €130 (45% upside potential) but shares of Soitec are down 15% this year reflecting a very different development than what we have seen in US semiconductor stocks.

Recognizing the company’s significance, Peter Garnry, Saxo’s Head of Equity Strategy, draws attention to the earnings announcement from Soitec on Wednesday and suggests heeding the company’s progress.

Apple holds Worldwide Developers Conference

Apple’s Worldwide Developers Conference commences today. Analysts are expecting the company unveil a mixed-reality headset, and an update to the MacBook Air or might be to the Mac Studio workstation as well.

Earnings this week:

  • Monday: Science Applications International
  • Tuesday: J M Smucker, Thor Industries, Ciena
  • Wednesday: Campbell Soup, Brown-Forman, Smartsheet, GameStop, Voestalpine, Inditex, LXI REIT, Soitec
  • Thursday: Toro, Vail Resorts, DocuSign, Trip.com
  • Friday: NIO

Key economic events this week:

  • MON: Chinese Caixin Services PMI (May), German Trade Balance (Apr), EZ/UK/US Final Services and Composite PMIs (May), EZ Sentix Index (May), US Durable Goods (R), ISM Services PMI (May).
  • TUE: RBA Announcement, EZ/UK Construction PMI (May), EZ Retail Sales (Apr)
  • WED: BoC Announcement, Australian Real GDP (Q1), Chinese Trade Balance (May), German Industrial Production/Output (Apr), US Goods Trade Balance (R) (Apr), Canadian Trade Balance (Apr), US-UK Meeting in Washington
  • THU: Japanese GDP (Q1), EZ GDP (R) and Employment Final (Q1), US-UK Meeting in Washington
  • FRI: Chinese Inflation (May), Canadian Jobs Report (May)
  • THIS WEEK: China Aggregate financing, New RMB loans, M2 (May) 

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.