Financial Markets Today: Quick Take – June 17, 2022 Financial Markets Today: Quick Take – June 17, 2022 Financial Markets Today: Quick Take – June 17, 2022

Financial Markets Today: Quick Take – June 17, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  The Bank of Japan continues to swim against the stream as it insisted on maintaining its yield-curve-control and negative policy rate at the meeting overnight, with daily operations to defend the yield cap on Japanese government bonds. Elsewhere, US equity markets continued to new lows even as US treasuries found strong support as a batch of weak US data points raises concerns on the US economic outlook.


What is our trading focus?

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

The Nasdaq 100 and S&P 500 futures fully reversed and more the FOMC pump with S&P 500 futures closing at the 3,671 level yesterday down 3.2%, while technology stocks fell even more. The current drawdown is now the second deepest at the same time into the drawdown compared to previous historical drawdowns underscoring the seriousness of the current market regime. Initial jobless claims weakened yesterday, and the Philly Fed survey showed significant downward pressure on new orders hitting levels typical of recessions. The fear of recession could short-term keep a lid on interest rates and thus ironically support equities and maybe cause a mild rebound over the coming weeks. The VIX forward curve remains well behaved suggesting no panic yet in US equities.

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

The indices were up more than 1% despite ugly selloffs in overseas markets overnight. The fall in property prices in the top 70 cities slowed to -0.2% m/m vs April -0.3%.  Property prices in Tier-1 cities rose 0.4% m/m and the declines in Tier-2 and lower-tier cities moderated. On the other hand, JD.COM’s (09618) JD Retail CEO told Bloomberg that recovery in consumption in China had been slow from the reopening of cities, such as Shanghai. The Company was expecting that it would take a long time for household consumption to recover as the economy and household income had been severely hit over this wave of lockdown.

EURGBP and GBPUSD

Sterling rallied hard yesterday in the wake of the Bank of England meeting yesterday on the guidance the meeting produced rather than due to the smaller 25-basis point hike. its reversal yesterday took GBPUSD well away from the cycle lows of 1.2000 posted earlier this week, trading as high as 1.2406 late yesterday, just above a major local 61.8% Fibonacci retracement of the recent sell-off at 1.2387 and far above the prior low-water mark from May of 1.2156. A full reversal in GBPUSD requires another rally surge through 1.2500. Elsewhere, sterling hopefuls should have a look at EURGBP, where the latest leg higher above 0.8600 has been sharply reversed, suggesting a more well-defined reversal. Watching the 0.8500 area for whether we follow through lower and back into the range extending below 0.8300 again.

USDJPY and JPY pairs

With the Bank of Japan voting 8-1 to maintain course and the 0.25% cap on 10-year JGB yields, the JPY weakened sharply after a bout of speculation this week that Governor Kuroda and company might relent on its policy and bring a sharp resetting of the JPY higher. In the background, ironically, a powerful rally in global bonds yesterday was a JPY-supportive development that has eased the JPY-negative impact of the overnight BoJ decision. The BoJ statement did say that the Bank needs to pay attention to the FX level, from which one might infer that there is a JPY weakness level that the BoJ would find unacceptable and could prompt a change of course in the future. From here, the only route to a higher JPY is via a new drop in bond yields and shift away from CB tightening elsewhere or if the Bank of Japan is seen as giving up on its policy at a later date, possibly on coming inflation releases and risks of a weaker JPY raising the cost of living to an unacceptable degree.

Crude oil (OILUKAUG22 & OILUSJUL22)

Crude oil is heading for its first weekly decline in six with global growth concerns and prolonged lockdowns in China being the main catalyst. On top of that the short-term technical outlook has weakened following several failed attempts to break higher, but given the tight supply outlook, highlighted by the IEA earlier in the week. Support in Brent is likely to emerge already between $116 and $113.25. NY Harbor Diesel (HOc1) and gasoil (GASOILUKJUL22) both trades higher on the week, a reflection of the tightness that despite growth concerns, is likely to keep the energy sector supported. 

Gold (XAUUSD) 

Gold remains rangebound following a two-day rally that was supported by US growth concerns and a continued rout in cryptos and global stock markets. Together with another dose of weak U.S. data (see below) they helped send US treasury yields and the dollar lower on Thursday, thereby easing some of the recent pressure on bullion.  Total holdings in bullion-backed ETFs have declined by less than 0.25% this past week, a strong sign that investors look to gold for protection against the rout in global markets, together with increased focus on the need to hedge against the risk of stagflation.  On a relative basis gold’s year-to-date outperformance against the S&P 500 has reached 24%, long-end bonds 26% and 75% against blockchain (BKCH:arcx).

US Treasuries (TLT, IEF)

US treasuries rallied hard yesterday amidst ugly sentiment in the equity market and on a set of weak US data points pointing to a decelerating housing sector (more below), with weekly jobless claims remaining near the highs of the last few months. The US 10-year treasury yield has declined back to the pivotal area around 3.20%, which was the cycle high before the latest surge toward 3.50%. An extension of the rally that takes yields significantly back below that 3.20% mark would suggest that we have reached a cycle peak for now and further consolidation is set to follow, perhaps on concerns for an incoming recession.

What is going on?

Bank of Japan defies the global tightening wave

The Bank of Japan maintained the negative 0.10% policy rate today, confirming that it won't join the Federal Reserve and other major global central banks in tightening monetary policy. The Japanese central bank will keep its target for the 10-year Japanese government-bond yield at+0.25% and announced daily operations to ensure the cap on yields is maintained. While the central bank said we will take additional easing measures without hesitation if needed, there was a rare reference to the yen weakness.

Swiss National Bank surprises with 50 basis point hike yesterday

The Swiss National Bank, according to surveys, was not expected to hike rates yesterday, though a rapidly growing minority of observers were looking for a rate rise. The hike of 50 basis points brought the policy rate to –0.25% and makes it clear that the SNB is happy to separate itself from ECB policy and allow the CHF to strengthen as one of the tools to combat rising inflation risks in the country. EURCHF sold off below 1.0200 after trading above 1.0400 ahead of the decision. USDCHF slid to lows of 0.9632 from above parity the day before the decision.

The Bank of England hikes 25 basis points, sharpens forward guidance language

The majority of observers were looking for the 25-basis point move from the BoE, with some residual uncertainty on whether the bank might hike by more due to the large Fed rate hike this week and the weakness in sterling. Three MPC members of the nine voting wanted a 50-bp hike. At the same time, the BoE predicted that CPI would peak slightly above 11% in October, said that it would respond “forcefully” on any signs of worsening inflation, language that kept the short end of the UK yield curve pinned near the cycle highs.

China centric commodities remain under pressure

China centric commodities such as iron ore SCON2), coal and copper (COPPERUSSEP22) remain under pressure after China advised its covid restrictions probably won’t ease until next year. In addition, the recent spate of weaker than expected economic US data combined with central banks stepping up their fight to combat inflation have raised concerns about the outlook for global growth in general.

US economic indicators weaken

US building permits and housing starts eased in May to 1.695mn and 1.549mn respectively while the initial jobless claims were at 229k versus 217k expected. Further, Philadelphia Fed manufacturing survey printed a negative figure of -3.3 for June, the first such contraction since May 2020. More so, the future activity index was contractionary for the first time since the GFC.

Adobe shares slip 5% in extended trading on revenue outlook miss

As we highlighted on our podcast yesterday Adobe’s earnings were a test of business investment in marketing and content activities. While the business remains sticky the company put out a revenue outlook at $17.7bn vs est. $17.9bn due some demand weakness, Russia impact and USD headwinds.

What are we watching next?

US recession concerns rising

The mix of data this week generally raises concerns that the US economy is decelerating, but the evidence is patchy and will need confirmation for this to become a a more entrenched theme. At the same time, equity traders have to figure out whether they should celebrate weak data as something that will eventually lead US yields lower and see the pace of Fed tightening eventually reversing or fret weak data because of the implications for corporate profits. The next US data points of interesting include the preliminary Services and Manufacturing PMI surveys for June next week.

Fed blackout period ending

The Fed speakers will be back in action as the blackout period ends. Chair Powell is speaking later today at the inaugural conference on the International Roles of the US Dollar. Other Fed speakers are due as well including Esther George who voted for a 50bps rate hike this week.

Earnings Watch

Next week’s earnings calendar is light but there are three important earnings releases to watch and those are Lennar, FedEx, and Accenture that all will give insights into the US housing market, logistics, and recruitment dynamics.

  • Monday: Kanzhun
  • Tuesday: Lennar
  • Thursday: FedEx, Accenture, Darden Restaurants, FactSet
  • Friday: Carnival, China Gas, CarMax

Economic calendar highlights for today (times GMT)

  • 0900 – Eurozone May Final CPI
  • 1200 – Poland May Core CPI
  • 1230 – Canada May Teranet/National Bank Home Price Index
  • 1245 – US Fed Chair Powell to make opening remarks at a conference
  • 1315 – US May Industrial Production / Capacity Utilization
  • 1430 – UK Bank of England Chief Economist Pill to speak

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

Apple Sportify Soundcloud Stitcher

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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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-sg/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 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning 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. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

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 are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.