Senior Relationship Manager
Good Morning,
Markets are nervous overall and the upcoming US CPI adds fuel to the fire. The ECB did not change rates but was more hawkish than expected by basically announcing a hike in July and openly considering a 50 BPS hike in September.
Christopher comments: The European Central Bank (ECB) confirmed they will hike interest rates at the July meeting by 25 basis points. This is a done-deal. Uncertainty remains regarding the scope of the hiking cycle after the summer. This will depend mostly from the evolution of the HICP and inflation expectations. The eurozone is likely to exit the era of negative rates (this was economic nonsense) by the end of Q3 this year. We think the hiking cycle could be shorter with fewer hikes than the money market expects, especially if growth continues to slowdown in the second part of the year. The risk of recession is low this year. But the eurozone is undoubtedly facing economic stagnation. … Expect the eurozone to exit negative rates by the end of Q3 this year. The era of negative rates was a costly anomaly for the financial sector. This is positive news. We are getting back to normal. But we think the market is probably over-estimating the pace of monetary policy tightening in the medium-term in the eurozone. We think that lower growth could push the ECB to slow the hiking cycle sooner than expected.
The Dax fell and is currently at 14068 , yields rose with the German / Italian spread widening further to now 2.25, EURUSD fell on a stronger USD.
US Indexes also fell with the Dow giving up 1.9%,the S&P 500 2.4% and the Nasdaq down 2.8%. Big Tech was the big loser with Amazon 4.15% lower, Apple 3.6%, Alphabet 2% and Meta down 6.4%. Pls be aware that he ticker FB has changed to META as of yesterday.
Indexes are back in bearish territory so be careful for confirmation in the close tonight.
US 10 year yields remain at a high 3.065 and the USD Index rose above the 103 yesterday. EURUSD is trading at 1.0630, GBPUSD at 1.2507 and USDJPY at 133.70. Gold and Silver dropped to 1845 and 21.70 but are again off the lows at 1840 and 21.55.
A Reuters Poll showed that analyst expectations are becoming more hawkish, while a 50 BPS hike at the next two fed meetings is fairly certain, the expectation for 3 of even 4 such hikes are rising.
Credit Suisse (CSGN:xvtx) continues to swing wildly on rumors of a takeover,, denials my management and speculation, the same is the case of Alibaba (BABA:xnyse) where a possible ANT IPO is sending prices into a whirlwind.
While Chinese Inflation came quite in line with expectations, sentiment soured on renewed COVID related restrictions in Beijing and Shanghai.
Tesla Inc TSLA:xnas has cancelled three recruitment events for China scheduled this month, following the announcement by Elon Musk that he his a bleak economic outlook.
Markets are likely to remain on edge today until we see the CPI numbers at 14:30, the expectation is for the Core YoY to come at 5.9%, and the Monthly at 0.5%.
A higher number should weigh on risk and also push yields higher while in-line or lower should be dovish.
Expiries
JGB1M2 will expire 10th of June at 01:00 GMT
ADM2, BPM2, DXM2, E7M2, ECM2, JYM2, M6BM2, M6EM2, MPM2, MSFM2, NEM2, NOM2, RFM2, RYM2, SEM2, SFM2, CUSM2 will expire 10th of June at 15:00 GMT
CUSM2 will expire 13th June at 04:00GMT
CDM2, MCDM2 will expire 13th June at 15:00 GMT.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.