Hey folks, I have been off for a few weeks with an office move but now I am back at the trading desk. Markets have not moved much since I have been gone but we’ve see a great 1H of 2023…the second half offers up some surprises and you can get me take here in this week’s Round-Up.
Weekly Sound Bites:
- US indexes ended a week of strong gains, as investors welcomed data showing a continued cooldown in inflation. The S&P is only 6.50% below its all-time intraday high, while the Nasdaq remained 12.94% below its record peak. However, we should note that in the first half of this year, only about 1% of the stocks drove over 80% of the gains while the normal average is between 40-50%. This limited breadth will have an impact on the markets if the laggards cannot play catch-up.
- The signal event of the week appeared to be Wednesday’s release of the CPI. Both headline and core inflation rose 0.2% in June, a tick below expectations. The annual increase in headline inflation slowed to 3.0%, its slowest pace since March 2021, while core inflation slowed to 4.8%, the slowest since October 2021. Meanwhile the PPI inflation data rose only 0.1% over the year ended in June, nearing deflation territory. Core PPI prices rose 2.4% over the period, but near the Federal Reserve’s overall inflation target of 2.0% and at their slowest pace since January 2021. On Friday, markets appeared to get a boost from the University of Michigan’s gauge of current consumer sentiment, which rose well above expectations to 72.6, its highest level in nearly two years, and marked its largest monthly advance since 2006. Consumers surveyed reported better labor market conditions and falling inflation as reasons for improved optimism. Weekly jobless claims, reported on Thursday, fell back more than expected, to 237,000, reversing almost all the previous week’s jump.
- U.S. Treasury prices jumped as longer-term yields retreated on the positive inflation data, with the yield on the benchmark 10-year note falling below 4%. With the FEDs probability of another 25-bps rate hike later this month coming in at over 85%
- Over in Europe the minutes of the ECB June meeting showed support for further rate increases amid concerns about persistently high inflation. The UK economy shrank 0.1% sequentially in May after expanding 0.2% in April. Economists had expected a contraction of 0.4%, according to a poll of economists by FactSet. On a rolling three-month basis, GDP grew 0.1%.
- Japanese equities lagged their Asian peers over the week, missing out on a regional rally driven by favorable developments in the China technology space and hopes of further Chinese stimulus. Growing expectations that the Bank of Japan (BoJ) could adjust its yield curve control framework as early as its July 27–28 meeting (having last tweaked it in December 2022) exerted upward pressure on domestic yields.
- Chinese equities rallied after Beijing telegraphed measures to support the country’s flagging economy. On the economic front, China’s CPI remained unchanged in June from a year earlier and marked the weakest reading since February 2021. Core inflation, which excludes volatile food and energy prices, slid to 0.4% from the previous month’s 0.6%. The PPI slipped to a lower-than-expected rate of 5.4%, its ninth consecutive monthly decline. The data pointed to increasing deflation risks in China’s economy and more evidence that the country’s post-lockdown recovery is weakening. China’s exports fell a larger-than-expected 12.4% in June from a year earlier, the sharpest decline in nearly three years as global demand remained weak. Imports shrank by 6.8%, above expectations.
Enjoy this week’s round-up:
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