Chief Investment Strategist
Summary: US equities traded higher in a shortened trading session on Monday ahead of today’s Independence Day holiday, mostly lifted by gains in Tesla and Rivian which together lifted the EV sentiment. ISM manufacturing PMI dipped further into contraction but focus shifts to other labor market indicators in the week, along with Yellen’s visit to China. The threat of intervention in Japanese yen remains and decision from the Reserve Bank Australia will remain a close call. Crude oil prices reversed the gains spurred by Saudi and Russia’s production cuts.
US stocks eked slight gains with price action kept rangebound and the upside capped in a shortened trading session ahead of the Independence Day holiday, while participants also digested weak US ISM manufacturing PMI data. NASDAQ 100 closed higher by 0.2% while the S&P 500 rose by 0.1%. Tesla surged 6.9% following higher than expected delivery and production numbers for Q2, while Rivian surged 17.4%. Apple was down 0.8% after announcing production cuts to its Vision Pro headset. US equity markets will remain closed today for Independence Day holiday.
US Treasuries settled lower (yields were higher) in a choppy session which saw the front-end lead the curve back towards its most inverted levels since 1989. 2-year yields rose 4bps with 10-year up close to 2bps. Treasuries failed to sustain the knee-jerk reaction to the weak ISM data.
Asia Pacific stocks started the third quarter with a green with Hang Seng Index up 2% and CSI 300 up 1.3%. China’s Caixin manufacturing for June expanded at a slower pace as it came in at 50.5 from 50.9 in May, but proved to be better than the official PMI which has now been in contraction for three months. Still, the low valuation of Chinese equities continues to attract some interest, especially in key sectors such as EVs which have government support. PBoC’s verbal support also continues to add to optimism, while Yellen’s upcoming visit in the week ahead is also putting a floor on geopolitical concerns despite the announcement of China curbing exports of some chipmaking metals.
The US dollar initially rose but gains were reversed as US ISM manufacturing data slumped further into contraction in June. Still, the slowdown wasn’t enough to change expectations for Fed hike in July (85% chance), which keeps the focus on labor market data from JOLTs and NFP this week. USDJPY stayed above 144 with threat of a coordinated intervention, while NZDUSD outperformed as it inched higher to 0.6160. AUDUSD also remained above 0.6640 with RBA meeting eyed today and rate hike expectations picking up. EURUSD recovered from an initial slump after revised PMIs for June came in lower and traded above 1.09 subsequently.
Saudi Arabia and Russia announced further cuts to oil production in an attempt to bolster prices. We hinted this in our Spotlight article yesterday, noting that Saudi Arabia may extend its cut to August, and also apply intense pressure on other producers to make additional cuts. The OPEC leader announced it will extend its unilateral 1mb/d production into August and could extend it further depending on market fundamentals. This will bring its output down to around 9mb/d, the lowest in several years. The effort will be assisted by Russia, which will reduce oil exports and production by 500kb/d in August, according to its deputy prime minister, Alexander Novak. Oil prices jumped higher but gains were later reversed as demand concerns continued to underpin after US ISM manufacturing dropped further into contraction.
The headline US ISM index came in below expectations and a 3-year low at 46.0, weakening from May’s 46.9 further and recording an eighth straight month of contraction. The prices paid component brought good news on inflation as it dipped to YTD lows of 41.8 from 44.8 in May. New orders index picked up slightly to 45.6 from 42.6 in May while the production index dipped into contraction as it came in at 46.7 in June from 51.1 previously. Employment index was also in contraction at 48.1 in June from May’s 51.4. While these numbers continue to suggest that manufacturing part of the economy is weakening, it doesn’t spell immediate trouble and the markets continue to price in a July rate hike from the Fed with 85% probability.
Japan's Finance Ministry's Vice Finance Minister for International Affairs Kanda said that he is in communication with various countries, including the US, over currencies. This is sending signals that a coordinated intervention may be coming as USDJPY continues to hover above 144. A coordinated intervention usually has a longer lasting impact on the yen than a unilateral intervention would have.
China imposed restrictions on exporting two metals crucial to the semiconductor, telecom and EV industries, escalating its tech trade war with the US and Europe. Gallium and germanium will be subject to controls starting Aug. 1. Exporters will need to apply for commerce ministry licenses and will be required to report details of the overseas buyers and their applications.
The new Vision Pro has proved to be more complex to manufacture for its supplier Luxshare than initially thought forcing Apple to cut production target to just 400,000 units in 2024 down from expectations of 1mn units in the first 12 months.
After two back-to-back surprises from the Reserve Bank of Australia (RBA), the stage is set for another close decision. While the May inflation print of 5.6% YoY came in significantly below April’s 6.8% YoY and the RBA’s minutes from the June meeting indicated that the call to hike rates was a fairly balanced one, but that has not completely erased all calls for another rate hike by the central bank at the July 4 meeting. As per Bloomberg economic forecasts, 13 of the 27 economists polled expect rates to be raised to 4.35% from 4.10% currently, while the market pricing is still complacent at ~20% chance of a rate hike this week. Even if the RBA held rates unchanged this week, the hawkish commentary is likely to continue.
US electric vehicle start-up Rivian Automotive revealed stronger-than-expected production numbers a day after larger rivals Tesla and BYD reported robust deliveries. Rivian said that it built 13,992 trucks and vans in the second quarter, well above Wall Street expectations of about 11,000, and the company reaffirmed guidance for manufacturing 50,000 vehicles this year. The company delivered 12,640 vehicles to customers during Q2, compared with 4,401 in the same quarter of 2022. Rivian will release its Q2 earnings on August 8.
For a detailed look at what to watch in markets this week – read our Saxo Spotlight.
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Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy