Saxo Spotlight: What’s on investors and traders radars this week?

US sentiment indicators to tilt the balance further towards slowdown fears

Markets have been seeing a double whammy of inflation concerns and recession fears later, with more and more US activity data now point towards a slowdown in economic activity. Key focus is beyond the Fed surveys to housing and consumer data now. Monday sees durable goods and pending home sales, but highlight for the week will be the PCE data on Thursday which is a key input for Fed’s policy. Consumer confidence is key as well to gauge the impact of higher prices on consumer, and the ISM manufacturing survey will likely re-affirm the global slowdown message sent by the PMI data last week. Finally, a third revision of the Q1 GDP will continue to show a significant decline, and with Atlanta Fed now predicting a flat growth in Q2, technical recession is looking likely in the US. We can also expect another busy week of Fed Speak.

China PMIs are expected to rebound to expansionary territory

The June Emerging Industries PMI (EPMI) released last week climbed to 52.5 from 48.9 in May, getting back to expansionary territory.  Citing the EPMI and high frequency data, analysts are expecting the official Manufacturing PMI and Non-manufacturing PMI to return to expansionary territory, rising to 50.3 (vs 49.6 in May) and 50.1 (vs 47.8 in May) respectively according to Bloomberg consensus.  While Bloomberg consensus is anticipating 49.4 for June Caixin Manufacturing PMI, quite a few street economists are forecasting this data point also going above 50, returning to expansionary territory. 

Eurozone inflation pain may embolden the ECB

A new record high of 8.3% y/y in expected for the Euro-area inflation after 8.1% y/y print in May, as energy and food prices continued to drive pressures. The jump in natural gas prices as Russia’s Gazprom announced further cuts to gas supplies via its Nord Stream pipeline to Germany is likely to feed into price pressures for the coming months. We believe this will raise the expectation of a 50bps rate hike at ECB’s July or September meeting, with the only factor to consider being the anti-fragmentation tool.

South Korea export growth set to decelerate in June

Bloomberg survey of economists is calling for a deceleration in South Korea’s export growth to 4.9% YoY in June, down from 21.3% in May.  As there were fewer working days in June this year than last year, the headline number may have overstated the weakness and the underlying trend growth may remain in double digit.

Japan’s eco data to be supported by reopening

Japan reports industrial production, Q2 Tankan survey and Tokyo CPI data in the week ahead. Industrial production possibly recovered in May from June’s -1.5% m/m, but still remained in negative territory as the key regions of China remained in some form of a lockdown. June Tokyo CPI is likely to show further price pressures after the national CPI report for May showed inflation remaining above the Bank of Japan’s 2% target. Q2 Tankan survey is key to gauge business sentiment, which may have been supported by the non-manufacturing sector as the border curbs were lifted. We also get a look at Japan’s labor market, which should re-affirm strength from the services side. Jobless rate is likely to remain unchanged at 2.5%. The focus still remains on any further jawboning by the officials to reverse the weakness of the yen, raising risks of an actual intervention or a policy shift.

OPEC’s delayed oil report, and a look at US agri supply

Energy prices ran lower last week on fears of demand destruction even though the market remains tight. OPEC’s Annual Statistical Bulletin is scheduled to be launched on June 28 and will be key to watch to gauge the supply situation in energy markets. We do not see enough reason yet to change our bullish view on commodities, as the demand destruction is unlikely to bring the market back in balance. OPEC+ is seen reconfirming plans for an oil output rise of 648k BPD in August at its meeting this week, according to Reuters. Metals will continue to look at China’s reopening as the next key catalyst. Also on the radar is an update on US weather developments to gauge the agri production and inventory levels, with a monthly update on crop acreages and inventories from the US Department of Agriculture due.

Volatility in equities calms before end of HY, June 30

Volatility in equities has fallen 21% from its June high and looks to be calming for now. This coincides with end of Quarter and Half-year rebalancing which has pushed the S&P500 and the Nasdaq into a technical uptrend on the daily charts. [Rebalancing is where fund managers take profits from asset class that have done well like Commodities; (Oil, Grains) & Defense, and then top up/buy those assets that have fallen (Tech, Property). So, the S&P500 and Nasdaq are likely to rally up ahead of Thursday from a technical and theoretical perspective, while in Australia its end of financial year so rebalancing may be heavier. But selling pressure is likely to resume and volatility could pick up next week, as the big picture suggests the US’ benchmarks S&P500, the Nasdaq 100 and ASX200’s weekly and monthly charts are still in downtrends as we go through a slowdown. At Saxo, we also think more downside is ahead as earnings estimates for company earnings are still too optimistic. Once Q2 company earnings and downgrades for the year come in, the market is likely to be disappointed and possibly head lower again, while also grappling with tightener liquidity.

The world’s biggest mining company, BHP could come out of bear market this week

Shares in the world’s biggest mining company, BHP (BHP) have fallen 23% from April as China’s lockdown has ground down industrial metals demand and prices in iron and copper. However this week, BHP shares could see buying pick up for three reasons; firstly its EOFY in Australia and BHP shares are down 16% YOY; so we may likely to see fund managers top up BHP positions as it’s the largest commodity stock in the world and the biggest stock on the ASX. Secondly, the technical indicators suggest BHP shares could rally on a daily charts as it's in oversold territory. And thirdly, sentiment picked up in China after it declared victory over Shanghai’s covid outbreak. This resulted in the iron ore price jumping 3.7% today the technical indicators suggest buying may continue in the short term, meanwhile, the Copper price jumped for the first time in five days. However, caution remains over the medium term in BHP and as the industrial metal commodity rally could be short lived, until we have consistent news from Chin that restrictions are easing. BHP’s financial year ends this week. And we await their operational review due July 19, which will probably give a dimmer outlook on commodity demand. BHP’s financial results are due August 16.

Key economic releases & central bank meetings this week

Monday June 27

China Industrial Profits (May)

Thursday June 30

China Manufacturing PMI (June)

China Non-manufacturing PMI (June)

South Korea Industrial Production (May)

Friday July 1

China Caixin Manufacturing PMI (June)

South Korea Exports, Imports & Trade Balance (June)