Macro: Sandcastle economics
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Morning Brew June 1 2023
Erik Schafhauser
Senior Relationship Manager
Summary: Case for a "Hawkish Pause in June"
Saxo Morning Brew
The fact that the debt ceiling vote passed the house in strides failed to spark any excitement, in Equities gave up some ground. US Indexes lost 0.4-0.6%,. The GER40 could not hold above the 16k and is at 15740 now -despite falling inflation. For May, the US500 gained 0.26%, the Dow lost 3.5% and the Nasdaq gained 5.8%, quite a mixed picture. Nvidia lost 5.7% to trade at 378 – have we seen the top?
We heard rather dovish comments from Philip Jefferson and Patrick Harker, who argue there should be at least a pause in rate hikes to better assess the data. The probability of no action at the next meeting is now 60% but the the market still predicts the June meeting to be a “hawkish pause with a hike in July nearly fully priced in. the year end rate is seen at 4.95% or 13 basis points below the current level.
2 year yields are off the top at now 4.4% and the 1 month is trading at 5.3%, half a percent below Tuesdays level. As Althea pointed out in her yield outlook, expect yields to be spike in the near future due to refinancing needs.
The USD Index dropped to 104.35 from this weeks high at 104.70 despite EUR losing on lower than expected EU Inflation data. The German CPI came at only 6.1% vs 6.5% expected. Todays EU HICP expected at 5.5% will be a strong indicator for the next ECB meeting. Expectation has shifted to 97% for a 25 basis point hike and the 50 are basically off the table.
EURUSD Is at 1.0675 while JPY and GBPUSD moved to 139.65 and 1.2430. Gold and Silver could gain to 1962 and 23.50 – bulls are celebrating for now- let us see how we close the week after the nonfarm Payroll.
Bitcoin is in one of it`s calm phases meandering the 27k.
Focus today will be on the EU Inflation, US ISM and employment data and any bumps in the road for the debt ceiling vote. It needs to go through the senate and be signed by Joe Biden before Monday.
Tomorrows Non Farm Payroll and surrounding Data will be the key event of the week most likely.
Thursday 1 June
U.S. ADP private employment (May)
U.S. Initial jobless claims (weekly)
U.S. ISM manufacturing index (May)
Eurozone CPI EU harmonized (May)
Japan Investment in plant and equipment (Q1)
China Caixin manufacturing PMI (May)
Earnings: Broadcom, VMware, Lululemon Athletica, Dell Technologies, MongoDB, Zscaler, Dollar General, Hormel Foods, Bilibili
Friday 2 June
U.S. Non-farm payrolls, average hourly earnings, & unemployment rate (May)
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