Financial Markets Today: Quick Take – June 23, 2022

Financial Markets Today: Quick Take – June 23, 2022

Macro 6 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  Equities tried to piece together a rally yesterday in the US, but only managed a very choppy session with no real direction by the close of trading. Elsewhere, crude oil plunged more than seven dollars per barrel intraday before cutting losses into the close and industrial metals continue to slide. In testimony before a Senate panel, Fed Chair Powell expressed the hope that the Fed tightening will not take the US economy into recession, but that it is possible.


What is our trading focus?

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

Yesterday’s session was a volatile session that looked very weak initially before turning around and going briefly above the 3,800 level in the S&P 500. However, S&P 500 futures ended the session slightly lower and this morning the index futures are trading around the 3,755 level with the 3,800 level remaining the key one to watch on the upside; a close above 3,800 would confirm that US equities could continue their rebound from the recent lows. Today, we will get a new data point on initial jobless claims which will give a glimpse of whether the US labour market is continuing to weaken.

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

... climbed 1.3% and 0.7% respectively. Auto makers jumped following report that the Chinese government may extend tax exemptions on electric-car purchases. BYD (01211), Li Auto (02015), NIO (09866), XPeng (09868), Geely (00175) and Great Wall (02333) surged 6% to 10%. Alibaba (09988) rose over 6% following a Bloomberg report suggesting that Ant might apply to the PBoC to become a financial holding company as part of the effort to clear the way for a potential IPO of Ant. Industrial metal mining stocks declined. Jiangxi Copper (00358) was down 11% and China Molybdenum (03993) declined 9%.

EURUSD and USD pairs 

The price action in USD pairs remains inconclusive as the USD rally yesterday was reversed, seemingly in inverse correlation with the equity market, which rallied from early weakness. Still, AUDUSD continues to look heavy as the focus there is on weak commodity prices, particularly for industrial metals. Traders are watching the cycle lows near 0.6830 there, with considerable “white space” on the chart on a break. EURUSD is caught in tactical limbo between 1.0400-50 downside pivot levels and the upside resistance zone of 1.0600-50. Watching the Eurozone flash June PMIs this morning for the impact on the euro, while the US dollar will react to swings in risk sentiment and US treasury yields as we are set for another day of Fed Chair Powell testimony.

USDJPY and JPY crosses

As noted below, the JPY was sharply stronger overnight on comments from a prominent former official, but the recent extension of JPY weakness looks rather at odds with a considerable consolidation lower in global bond yields. In any case, we now have a modest reversal that provides a “hook” for a tactical bearish case in USDJPY as long as the price action remains below the cycle top of 136.70 as we watch for whether the pair follows through the next important area near 135.00. A further rally in US Treasuries that takes 10-year Treasury yields lower toward 3.00% would offer considerable background support for a JPY rebound.

Crude oil (OILUKAUG22 & OILUSAUG22) trades weak on recession fears

Prices hit a one-month low on Tuesday and have remained low since as worries about recession and its potential negative impact on demand rips through cyclical commodities like oil and industrial metals. Brent’s top to bottom correction since June 13 has almost reached 15 dollars, still a relative normal correction considering the moves seen during the past few months. Recession, for now, remains the key talking point and driver after Fed chair Powell warned achieving a soft landing could be very challenging. Tight supply, however, remains, and will likely cushion the market with focus now on the previous area of support around $100/barrel. EIA’s weekly stock report has been delayed due to systems issues while the API reported a 5.6 million barrel rise in crude stocks.

Gold (XAUUSD)

Gold remains rangebound, and while other commodities, including silver (XAGUSD) trades lower on mounting growth and demand fears, gold has been supported by safe haven bids and lower bond yields after Powell acknowledged that steep interest rate rises could tip the US economy into recession. Holdings in bullion-backed ETFs have remained unchanged during the past month when US yields surged and the Dollar Index hit a twenty-year high, a sign that investors hold onto their gold for other reasons, and as we have mentioned on a regular basis, one of the other reasons being the risk of stagflation, now rising. For now, however, gold remains stuck in a wide $1780 to $1880 range, but with recession concerns on the rise and US yields potentially topping out, the bullish outlook in our opinion remains.

US Treasuries (TLT, IEF)

US Treasury yields remain in tactical limbo here, with the 10-year benchmark yield pushing slight below the lower part of the pivotal 3.15-20% area (the pivot high from May on the way up was 3.2%). A rally in bonds that sees downside resolution would prove an interesting test of market sentiment elsewhere: something to be celebrated due to easing pressure on valuations and the economy or simply a crystallization of growing fears that the outlook for the economy is darkening as we move toward recession?

What is going on?

Yen gains on intervention possibility

USDJPY was heavy in the Asian session, sliding to 135.18 from 136.26 at the open. The move unfolded after former FX chief at the Ministry of Finance Takehiko Nakao was speaking to Bloomberg TV and said that intervention in foreign exchange markets to stem the yen’s slide can’t be eliminated. He also said that the current weak yen is not good for Japan’s economy, a divergence from what we have been used to hearing that a weak yen is good for the economy but it’s the pace of depreciation that has been a problem. This reaffirms our view that yen’s weakness has gone beyond the point of providing any benefits to companies. He also blamed the monetary policy for the current weakness in the yen.

Powell's testimony invokes more recession fears

Fed Chair Powell’s testimony to the Senate Banking Committee yesterday jolted the markets as he endorsed the market’s pricing of future FEd hikes, and while hoping that this would not lead to a recession, said that it was a “possibility”. He has kept the doors open for everything, by not even ruling out a 100bps rate hike but also saying that he saw rates going modestly above neutral (~2.5%) by year-end as against the current market pricing of 3.50% through the December FOMC meeting. The market doesn’t seem to be buying his 100bps remark or really anything that he said yesterday, as rate expectations have moved little over the last week.

The French central bank revised downward its growth forecast to 2.3% 

... which is (more aligned with our expectations) from a mid-March forecast of between 2.8 % and 3.4 % this year. It was overly optimistic. GDP growth contracted in Q1 and inflation continues to rise across the board (reaching potentially 5.6 % this year). Like in other eurozone countries, inflation is broad-based. The central bank expects GDP to reach 1.2% next year (the March forecast was at 2.0%). This is certainly optimistic. We believe that growth will probably be much lower, under the 1 % threshold. Several companies are currently reviewing their business plan for the second part of 2022 and 2023 and are looking to cut costs – meaning postponing investments and hiring, most of the time. There won’t be any golden decade for the French economy.

Okwind Group is going public on Euronext Paris

In June 2022, there were many IPOs on the Paris Stock Exchange. This year, there are almost none. Okwind, a small cap specialized in self-consumption of electricity from renewable energy, is going public in early July. The operation takes the form of a capital increase of 20 million euros. This company has solid financial figures (EBITDA margin of 7.9 % in 2021, for example).

The world’s top five global miners (ex-China) loose 27% market cap since April 1

Led by BHP, RIO & Glencore the group have seen their market cap slump since peaking above $600 billion on April 1, and during this time, the Bloomberg Industrial Metal index has lost 22% with aluminum, tin and iron ore down by more than 30% while copper has lost around 15%. Weakness driven by China growth worries as lockdown continues to impact demand, global recession fears as central banks slam the brakes in order to kill inflation, and thirdly, investors booking profit on what for many has become a few remaining profitable positions.

What are we watching next?

Norway’s Norges Bank out this morning and set to hike rates

Observers are divided on whether the bank will hike 25 or 50 basis points (from the current level of the official deposit rate at 0.75%), with a majority expecting another cautious 25 basis point move. The bank was one of the first G10 central banks to begin hiking rates, but has hiked at a very slow pace after lift-off last September. Forward guidance on the intended pace of future hikes will be particularly important for NOK as many expect the bank will begin hiking at every meeting even if it hikes by the smaller amount. EURNOK trades near the pivotal 10.50 area ahead of the meeting.

US jobless claims today and Final Jun. University of Michigan sentiment and inflation expectations tomorrow.

While most indicators on the US labor market remain very robust, including the payrolls growth, current unemployment rate and record levels of job openings, one of the classic leading indicators on the US labor market, the weekly initial jobless claims, has trended in the wrong direction for over a couple of months after posting record low levels, adjusted for population. The market is looking for 226k in new claims after 229k last week and the almost five-month high of 232k the week before last. Tomorrow, the market will closely watch for any revision to the 5-10 year inflation expectations survey within the final June University of Michigan sentiment survey after the initial reading of 3.3% raised eyebrows as it jumped well clear of 3.0% to the highest level since a one-off spike in 2008 (and before that since the mid-1990's). Inflation expectations are an important input into Fed considerations for setting the appropriate level of monetary policy.

Earnings Watch

Today's focus is FedEx which is expected to deliver 9% y/y revenue growth and EBITDA margin of 13.4% up from 10.4% in the previous quarter reflecting expectations that FedEx will begin harvesting the benefits from the TNT integration. Accenture is also reporting today expected to deliver 21% y/y revenue growth driven by its cloud business, but the key question to watch is to what degree its customers are dialing down on business spending.

  • Today: FedEx, Accenture, Darden Restaurants, FactSet
  • Friday: Carnival, China Gas, CarMax

Economic calendar highlights for today (times GMT)

  • 0715-0800 – Eurozone Jun. Flash Services and Manufacturing PMI
  • 0800 – Norway Norges Bank Deposit Rate Announcement
  • 0830 – UK Jun. Flash Services and Manufacturing PMI
  • 1100 – Turkey Rate Announcement
  • 1230 – US Weekly Initial Jobless Claims
  • 1345 – US Jun. Flash Services and Manufacturing PMI
  • 1400 – US Fed Chair Powell to testify before House Panel
  • 1430 – EIA Natural Gas Storage Change
  • 1800 – Mexico Rate Announcement
  • 1800 – ECB's Villeroy to speak
  • 2301 – UK Jun. GfK Consumer Confidence
  • 2330 – Japan May National CPI

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

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

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

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. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

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

The information or the products and services referred to on this site 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 are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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