Monday, June 27, 2022

Daily Market Overview

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• Markets started the new week on the cautiously positive tone, building on Friday’s risk rebound. The move resumed in Asia and was extended early in European dealings, but sentiment dwindled as the session continued. Eurostoxx 50 gains an unconvincing 0.5%. US indices open about 0.5% higher. Key resistance potentially signalling moderation of the established sell-on-upticks pattern is still quite some way off. The move probably is mainly technical in nature as investors are looking for a new equilibrium after last week’s worrying setback in EMU and US PMI’s. For now, there are few data flagging a sustained improvement both with respect to the still much too fast pace of price rises as well as the cooling in global activity. Admittedly, US durable goods orders printed a solid  0.7% M/M. Shipments non-defense ex aircraft also suggest good investment contribution to Q2 growth. However, the series is notoriously volatile. US consumer confidence (tomorrow) and manufacturing ISM (Friday) will probably be more reliable for growth momentum. US PCE deflators (Thursday) and the EMU flash CPI (Friday) will update the status of inflation. Especially European interest rate markets are pondering whether the ECB has any room to take a more gradual approach on inflation even as growth decelerates. German yields are rebounding (12 bps for 5-y/10 bps for 10y/2y). US Treasuries outperform Bunds with yields rising about 3.5 bps for the 2-y and 5/6 bps for longer maturities. Later today, the US Treasury sells $42 bn in 2-y Notes and $47bn in 5-y notes. Interesting to see investor appetite for the sale in the QT era. The decline in cyclical commodities like copper and iron ore has halted. At the same time, G7 efforts to cap prices of Russian oil don’t impress broader markets. Brent oil continues drifting north ($113,55/b). European gas futures jumped up to 5.0% higher this morning, but reversed most of that gain intraday. Still, gas supply remains a dark cloud hanging over the European economy.
• Global FX markets remain indecisive as all most central banks face a similar balancing act between fighting inflation and preserving growth. DXY is losing a few ticks (103.9). The yen (USD/JPY 135.3) eases slightly on higher core yields and a calmer risk sentiment. EUR/USD is gaining a few ticks as relative yields are euro positive. First resistance (1.0627/42) is still some way off. Social unrest and calls for a 7% public sector pay rise don’t help sterling. EUR/GBP settles north of 0.86(20).The forint (EUR/HUF 403.25) underperforms regional peers, touching a new all-time low against the euro. Markets are pushing the MNB to reaccelerate its anti-inflation campaign at tomorrow’s policy meeting after it reduced the pace of the base rate hikes to 50 bps last month.
News Headlines

• Japan called on businesses and households in the Tokyo area to cut electricity use on Monday as well as for Tuesday. There is a lack of generating capacity that risks triggering a blackout in the capital city. It’s the second blackout alert this year and could restart the debate whether or not Japan should reopen nuclear plants going into the July 10 upper house elections. It’s a highly contentious topic. Japan closed most of its reactors following the Fukushima disaster in 2011 and public opposition is still strong. Tight supplies are expected to continue, with amongst others, a heatwave fueling the need for more electricity.
• The French government has proposed a law to raise purchasing power of its citizens. Among the things included, is a 4% rise in pensions and other state payouts to help offset high inflation, financial newspaper Les Echos reported. The measures will cost about €8bn by April next year, Les Echos calculated and it will be put before cabinet at the start of July. Inflation soared to 5.8% in May and is expected to accelerate further to 6.5% in June. While that’s considerably lower than in many other European countries (EU average 8.1% in May) thanks to mitigating efforts including energy price caps, it is still the highest in several decades.

Graphs & Table

German 10-y yield: European yields looking for a bottom as focus returns to this week’s inflation data.

EUR/HUF: forint touching new al-timel low against the euro ahead of tomorrow’s MNB policy decission.

Dutch Natural gas contract continues to rise as uncertainty on Russian supply intensifies

S&P 500 no indication that sell-on-upticks pattern will change anytime soon .

Note: All times and dates are CET. More reports are available at which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA). Read the full disclaimer.

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