Saxo Spotlight: US PCE is the focus, China PMI to contract – June 26-30

US PCE and diverging Fed speakers may keep rate hike expectations measured

Last week brought back the fear of more rate hikes and higher-for-longer interest rates. That will bring the focus this week on Fed’s preferred inflation gauge, the PCE index, which will be reported on Friday. While headline PCE is expected to cool to 0.1% MoM from 0.4% in April, the core measure is still expected to stay firm at 0.4% MoM. As long as there is no upside surprise, markets will continue to challenge Fed’s projection of two additional rate hikes given growth metrics are also cooling as seen with the Flash PMI release on Friday. Prior to the PCE release, the latest consumer confidence report is also due out Tuesday after the index hit a six-month low in May. Meanwhile, speeches from Williams, Powell and Bostic will also be monitored, especially after Bostic’s recent comments where he signalled that he doesn’t see more rate hikes this year.

China's Manufacturing PMI to remain in contraction, non-Manufacturing PMI to decline

The median forecast from Bloomberg’s survey of economists is for the official NBS manufacturing PMI to tick up marginally to 49.0 in June from 48.8 but remain below 50 the threshold below which indicating contraction. The stabilization of demand for commodities and steel as revealed in high-frequency data may have contributed to the projections of a small pick-up. The continuous sluggishness in the property sector and the potential deceleration of the initial post-reopening boom in services activities may have caused economists to project a decline in the non-manufacturing PMI to 53.2 in June from 54.5 in May. The NBS PMIs are scheduled to release on Friday. Earlier in the week, investors will have the May industrial profit data.

Quarter-end rebalancing in US stocks

Throughout the week, rebalancing flows in the US equities will be one of the foci of equity traders as it approaches the month and quarter end this Friday. It is estimated by analysts that the pension fund rebalancing will be a sale of stocks for as much as USD27 billion.

Fed’s annual stress test for banks

The Fed is scheduled to release the results from its annual stress test for banks. The test is examining the 23 biggest US banks’ abilities to stand under some stress scenarios, including a 10% unemployment rate and an “exploratory market shock” to banks’ trading books.

Eurozone’s core inflation rebound may not bring EUR higher

The eurozone is set to release preliminary inflation data for June on Friday. The headline rate of inflation is expected to moderate, but underlying inflation is expected to tick higher. Expectations are for YoY HICP to fall to 5.6% from 6.1%, but with the core metric expected to rise to 5.4% from 5.3%. ECB policymakers continue to be hawkish and make a case for more rate hikes, and a July rate hike is priced in with ~90% probability. A firmer core inflation print could bring that higher and bring 4% terminal rate in play, but may not necessarily mean a push higher for EURUSD as growth concerns have escalated after the disappointing flash PMI for June reported last week.

Japan’s Tokyo CPI and intervention risks on watch

With USDJPY back at fresh highs amid higher Treasury yields, FX intervention risks are picking up in Japan. Finance Ministry's Vice Finance Minister for International Affairs Kanda was on the wires in early Asian hours on Monday with verbal intervention to support the yen. He is Japan’s top currency diplomat and commented that they will respond to FX moves if it becomes excessive and will not rule out any options. The widening divergence between US and Japan yields continues to weigh on the Yen, along with other factors as mentioned here. Market continues to test the patience of the BOJ in tweaking its policy, and the June Tokyo CPI release this week may be another catalyst. Bloomberg consensus expects headline CPI to be firmer at 3.4% YoY from 3.2% previously, while core core CPI is expected to be 4.0% YoY from 3.9% in May. This could fuel expectations of a firmer nationwide CPI as well, and for inflation forecasts to be revised higher in the outlook report at the July BOJ meeting.

Australia’s inflation slowdown may further weaken July rate hike chances

Australia reports May inflation on Wednesday and it is expected to show a decline after inflation jumped in April. Bloomberg consensus expects CPI to fall from 6.8% YoY in April to 6.1% in May as gasoline prices fall. While the labor market has remained firm, the RBA minutes from the June meeting noted that the decision to hike was a very finely balanced one. This means that a further improvement in inflation could suggest that July could well provide the bank with a chance to pause. AUDUSD, which has been the underperformer on the G10 board last week on slow China stimulus and global growth concerns, could face further pressure.

Commodities: Russia instability in focus

Over the weekend, we saw risks of a civil war and a coup in Russia. Wagner Group leader Yevgeny Prigozhin led a convoy towards Moscow and loyal parts of the Russian military attacked it. While the move has been averted for now with Prigozhin sent to exile, it has exposed that Putin is not invincible. The uncertainty could underpin financial markets, with commodities coming under the scanner most prominently once again. Oil prices started the week firmer in Asia and could see a bigger impact as the European markets open. Agricultural prices, which have been moving higher in recent weeks due to El Nino concerns, may also see further gains as geopolitical risks ramp up with uncertainty around Putin’s response. Gold prices could also gain as safe-haven demand picks up, although higher real rates continue to bring short-term headwinds to metals.

Earnings Focus: Micron faces revenue decline amidst Chinese ban, eyes AI demand for recovery; Nike's FYQ4 results to reflect slower growth in North American markets

Analysts are expecting Micron’s (MU:xnas) FY Q3 revenues to fall by 57% to USD3.7 billion from USD8.6 billion a year ago and to slide into a USD1.58 per share loss versus a profit of USD2.59 per share when reporting this Wednesday. After the Chinese Government’s ban on certain Chinese manufacturers to use DRAM and NAND chips from Micron, the memory chip maker is expected to see their China sales halved, representing an about 12% loss to its total revenue. Investors will pay attention to any updates from the earnings call. Investors will also scrutinize the company’s comments on AI-related demand. It is believed that AI servers use 6 to 8 times more DRAM chips than regular servers and present a promising opportunity for Micron. Updates on Micron’s effort to catch up with SK Hynix in the high bandwidth memory (HBM) products that are used in AI-related GPUs will be another focus.

On Thursday, Nike (NKE:xnys) is reporting FYQ4 results. The consensus estimate is projecting a modest 2.8% Y/Y increase in revenue to USD12.57 billion from USD12.23 billion, reflection slower growth in North American markets, in particular North American wholesale channel. Adjusted EPS is expected to plunge to USD0.67 from USD0.90.

Earnings this week: