Are markets misinterpreting signals?

• Global market indices
• Currencies
• Cryptocurrencies
• Fixed Income
• Commodity sector news
• Key data to move markets this week
• Global macro updates

US Stock Indices 

Nasdaq 100 +2.13% MTD and +30.77% YTD 
Dow Jones Industrial Average +2.02% MTD and +1.29% YTD 
NYSE +3.91% MTD and +1.88% YTD 
S&P 500 +2.49% MTD and +11.57% YTD

Mega caps: Alphabet, Amazon, Apple, Microsoft, Nvidia, and Meta Platforms are all down this week as markets consider that the Fed may continue to hike rates in July and beyond which may hit demand. However, Tesla is up this week as it hit a 2023 high when the US Environmental Protection Agency (EPA) confirmed that all versions of the Model 3 sedan now qualify for the full federal EV tax credit of $7.5K.

As noted by Reuters, Amazon shares fell after a Wall Street Journal report said the online retailer and video streamer is planning an advertising-supported tier for its Prime Video streaming service and that it is in talks with Warner Bros Discovery and Paramount about including ad-based tiers of their streaming services through Amazon Prime Video Channels.

Energy stocks were generally up this week on the tightening of supply by OPEC+. Apa Corp (US), Shell, ConocoPhillips, Halliburton, Marathon Petroleum, Phillips 66, Marathon Oil, and Occidental Petroleum were all up. However, Energy Fuels was down this week after jumping up last week due to the passing of the debt ceiling bill that still included the support offered to the nuclear industry in the Inflation Reduction Act.

Materials and Mining stocks were mixed again this week on signs of weaker than expected demand as Chinese manufacturing remains below expectations and slowing global economic growth brought copper prices to a nine month low. Albemarle Corporation, Freeport-McMoran, DuPont de Nemours Inc., Yara International, Mosaic, CF Industries Holdings, Newmont Mining are all up. Nucor Corporation and Sibanye Stillwater are down.

European Stock Indices 

Stoxx 600 +2.00% MTD and +8.45% YTD 
DAX +1.89% MTD and +14.63% YTD 
CAC 40 +1.47% MTD and +11.26% YTD 
IBEX 35 +3.42% MTD and +13.74% YTD 
FTSE MIB +3.85% MTD and +14.12% YTD
FTSE 100 +2.39% MTD and +2.32% YTD 

Other Global Stock Indices 

MSCI World Index +2.80% MTD and +9.76% YTD
Hang Seng +5.58% MTD and -2.68% YTD

Currencies

The USD gained some strength this week on rising Treasury yields as a resilient US economy and still strong labour market are indicating that the Fed may continue to raise rates after July if needed. Investors will be watching Monday’s CPI number closely for further clues as to what the Fed may do. The GBP is +2.77% YTD against the USD, while the EUR is -0.04% YTD against the USD.

Cryptocurrencies

Bitcoin -2.78% MTD and +59.04% YTD
Ethereum -1.28% MTD and +53.73% YTD

There has been a broad based sell off of all the top 10 non-stablecoin cryptocurrencies following the announcement of lawsuits by the SEC against Coinbase and Binance earlier this week. According to Forkast ,Binance founder Changpeng Zhao was issued a summons by a U.S. court that was addressed to a Binance office in the Grand Caymans. It gave him 21 days to respond. Zhao tweeted Wednesday that this was “just part of the SEC compliant process” and that he will not have to appear in court in person.

Fixed Income

US 10-year yield to 3.79%.
German 10-year yield to 2.46%.
UK 10-year yield to 4.25%.

US yields rose to their highest level this week on Wednesday after the Bank of Canada raised interest rates again after pausing in January. This followed the Reserve Bank of Australia also raising rates and warning of more to come. Some investors saw this as supportive to the Fed’s ability to maintain a hawkish stance going into next week’s Fed meeting.

Commodities

Gold futures to $1,957.30 an ounce.
Silver futures to $23.74 per ounce.
West Texas Intermediate crude to $72.53 a barrel.
Brent crude to $76.95 a barrel.

Gold has been range bound this week weighed by an uptick in U.S. bond yields, while investors looked forward to inflation data and the Federal Reserve policy meeting next week for more clarity on the U.S. interest rate path.

Oil prices fluctuated slightly this week before starting to rise again on the OPEC+ decision, led by Saudi Arabia, to cut oil production by 1 million barrels per day from July. The rise in oil was despite demand concerns related to weaker Chinese export data on Wednesday which showed exports fell 7.5% year-on-year in May, the biggest decline since January. Oil also rose due to a drop in US oil stocks, by about 450,000, according to data from the Energy Information Administration, compared with estimates for a 1 million build.

Note: As of 5 pm EDT 7 June 2023

Key data to move markets this week

EUROPE 

Thursday: Eurozone GDP and unemployment change. 
Friday: A speech by ECB Vice President Luis De Guindos.
Tuesday: German Harmonized Index of Consumer Prices, Eurozone Economic Sentiment, German Current Situation and Economic Sentiment. 
Wednesday: Industrial Production.
Thursday: Eurogroup meeting and ECB Monetary Policy Decision Statement. 

UK

Monday: ILO Unemployment rate, Claimant Count Change, Claimant Count Rate, Average Earnings, and National Institute of Economic and Social Research (NIESR) GDP Estimate.
Wednesday: GDP, Industrial Production and Manufacturing Production.
Thursday: Bank of England Quarterly Bulletin.

US

Thursday: Initial jobless claims and continuing jobless claims.
Monday: CPI and CPI ex Food and Energy.
Wednesday: PPI, PPI ex Food and Energy, Fed Interest Rate Decision, Fed Monetary Policy Statement, FOMC Economic Projections, and Interest Rate Projections.
Thursday: Initial jobless claims, continuing jobless claims, Philadelphia Fed Manufacturing Survey, Retail Sales, Capacity Utilisation, and Industrial Production.

Global Macro Updates

Will the Fed play traffic lights? The Fed is widely expected to pause its rate hikes next Wednesday as it evaluates the impact of recent rate increases, though Fed fund futures traders are pricing in an additional rate hike in July. The surprise rate hike by the Bank of Canada (BoC) on Wednesday to a 22-year high of 4.75% after a four-month pause, and the hike by the Reserve Bank of Australia (RBA) on Tuesday by a quarter-point to an 11-year high with warnings of more to come, seem to have investors wondering whether the Fed will follow with its own hike when it meets next week or whether they’ll finally keep rates on hold after 10 consecutive increases. All eyes will be focused on US inflation data on Monday to provide further clues on the Fed’s policy path. 

ECB expected to green light another rate rise. The ECB is highly anticipated to raise rates again next Thursday. The ECB has raised rates by a combined 375 basis points in the past year. ECB President Christine Lagarde has noted that although previous rate increases are already feeding into bank lending conditions, there is no certainty around how much stronger the transmission of the ECB's policy will be. She has made clear in speeches over the past week that the ECB will continue the hiking cycle until it is sufficiently confident that inflation is on track to return to target. This higher for longer message was also supported by ECB Executive board member Isabel Schnabel in an interview with the De Tijd newspaper. "Given the high uncertainty about the persistence of inflation, the costs of doing too little continue to be greater than the costs of doing too much," Schnabel said. She also said that, “A peak in underlying inflation would not be sufficient to declare victory: we need to see convincing evidence that inflation returns to our 2% target in a sustained and timely manner. We are not at that point yet.” In the interview, she also highlighted structural changes that are not reflected in the ECB’s models, namely 1. geopolitical shifts which may imply a decline in globalisation 2. the green transition and higher prices of fossil fuels – “fossilflation” – during the transition phase and “greenflation” due to higher demand for certain metals and minerals used in renewables 3. demographic change and 4. the AI revolution. Schnabel stated that all these factors together made her tend to see structurally higher inflation pressures in future.

A less optimistic OECD. The OECD forecasted global growth at 2.7% in 2023 with a modest rise to 2.9% in 2024. It noted that rate hikes by major central banks over the last year are increasingly dragging on private investment It said. “Significant uncertainty about economic prospects remains, and the major risks to the projections are on the downside.” It forecast that the UK will have the highest rate of inflation of any leading economy in 2023 with headline inflation set to be 6.9% in 2023, higher than Germany's 6.3%, France's 6.1% and the OECD average of 6.6%. OECD Chief economist Clare Lombardelli said, “A substantial risk is that inflation proves to be more persistent and in response interest rates need to be higher for longer.” The OECD expects the Fed to peak at 5.25-5.5% with “modest” cuts in the second half of 2024 while in the Eurozone, it expects the ECB to keep raising rates with a peak to 4.25% which it would maintain through 2024. The OECD forecast the US economy would grow 1.6% this year before slowing to 1% in 2024 due to the lagged effect of rate hikes. Eurozone growth is expected to accelerate from 0.9% this year to 1.5% in 2024 as lower inflation weighs less on incomes while UK growth will rise from 0.3% in 2023 to 1% in 2024 as real income growth starts to improve.

The World Bank also cited the growing impact of rate hikes as it raised its forecast this week for world growth this year to 2.1% but for 2024 cut it back to 2.4% from a previous 2.7% forecast.

A bruising week for Crypto. This week saw two of the biggest crypto currency exchanges, Binance and Coinbase, sued by the US Securities and Exchange Commission (SEC). However, Cathie Woods, founder of ARK Investment Management LLC and manager of Ark Innovation ETF, bought 419,324 shares of the cryptocurrency exchange operator Tuesday as it tumbled as much as 21%, data compiled by Bloomberg show. On Wednesday she said that Binance Holdings Ltd.’s US legal problems will benefit Coinbase Global Inc. because it would eliminate its main competition. Ark is the fourth-largest holder of Coinbase.

In the UK, as noted by the Financial Times, a survey by the FCA showed that almost one in 10 people . approximately 5 million adults owned cryptocurrencies in 2022, more than twice the number a year earlier, despite regulators warning that crypto investors could lose their entire investment. The FCA survey revealed that 40% of respondents purchased crypto assets as a gamble, and around 30% expressed regret over their crypto investments.This news comes as the Financial Conduct Authority (FCA) is finalising regulations aimed at crypto marketing to address the "growing mismatch" between consumers' investment decisions and risk tolerance. The new rules, set to take effect on October 8 after a four-month transition period, require clear risk warnings, non-misleading advertisements, and a cooling-off period for first-time investors. The regime will apply to all crypto asset businesses marketing to UK customers, regardless of whether they are based in the UK or overseas. Some Members of Parliament (MPs) however think that cryptocurrency industry should not have a similar treatment to other financial services but instead be treated as a form of gambling.

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