Global Market Quick Take: Europe – July 5, 2023

What is our trading focus?

US equities (US500.I and USNAS100.I): Waiting for Q2 earnings

US equities are coming today after yesterday’s holiday with Chinese equities expressing negative sentiment as the PMI services slowed further from the month before highlighting that the Chinese economy is still not rebounding. We expect a quiet trading session as the equity market is preparing for the Q2 earnings season that starts next week with earnings from JPMorgan Chase, Wells Fargo, and Citigroup on Friday.

European equities (EU50.I): focus on miners

STOXX 50 futures declined in yesterday’s low-volume trading session following China’s decision to introduce export controls on two critical raw materials, Gallium and Germanium, that are critical for semiconductor manufacturing and various military applications. As in the US, we expect a quiet trading sesion with some focus on miners as copper and iron ore fell in the Asian session.

FX: Dollar edges stronger, AUD wilts in Asian session

The US dollar edged back to the strong side in the Asian session, with AUD tilting broadly lower as the Chinese renminbi once again came under pressure and metals priced fell. Key local AUDUSD resistance comes in the 0.6700 area. The incoming US data in the days ahead will likely provide the spark for the next USD move, with the long end of the US yield curve in focus as the 10-year Treasury yield benchmark trades at the upper end of the persistent range capped just ahead of the 4.00% level. For EURUSD, the range supports around 1.0850 are a focus for the risk of a capitulation lower if strong US data drives a USD rally. USDJPY should also trade with high sensitivity to the direction in US treasury yields (higher yields = higher USDJPY) as the 145.00 round level has been a focus of late.

Crude oil: gains return as traders weigh Saudi output cuts

Oil prices gained in a thin trading session yesterday as traders contemplated further curbs in supply after the announcement that Saudi Arabia will extend its unilateral 1mb/d production cut into August. Meanwhile, Russia’s cuts have little impact on the market given it could continue to export oil to continue its war in Ukraine. China’s services PMI due today may be key for oil traders before focus shifts to FOMC minutes in the US session and labor market data in the rest of the week.

Gold: the 1930 re-test to continue

Gold prices re-tested the key $1930 level at the start of the week as dollar traded range-bounded due to the US holiday and manufacturing PMI release brought some inflation relief with the slide in prices paid component. Our technical analyst Kim Cramer has noted a bottom and reversal pattern in Gold after it bounced from 1900, and focus remains on $2000. Hawkish FOMC minutes later today may however cause some bumps, and labor market data from the US remains key this week.

Bonds: FOMC minutes, US data to push further inversion (2YYM3, 10YM3, 30YM3)

We expect the US yield curve to continue to flatten throughout summer. If inflation eases slowly and the economy remains resilient, long-term yields will continue to rise, with front-term yields soaring at a faster space, contributing to a further inversion of the yield curve. However, weaker than expected data on growth might provoke drops on the longer part of the yield curve providing an even faster flattening. Today the focus is on the FOMC minutes, and tomorrow it will turn on jobs data with the JOLTS numbers and non-farm payrolls on Friday. Ten-year Treasury yields remain in an uptrend on their way to 4%, and two-year yields are rising towards 5% as markets push expectations for rate cuts further in the future.

What is going on?

Meta’s Threads app could be a rival for Twitter

Meta plans to launch a Twitter-rivalling microblogging app called Threads, days after Twitter boss Elon Musk attracted criticism by announcing a temporary cap on how many posts users can read on the social media site. Threads is expected to be released on Thursday and will allow users to retain followers from photo-sharing platform Instagram.

China Caixin June Services PMI softer than expected

The Caixin Services PMI for June was out at 53.9 overnight, far below the 56.2 expected and the 57.1 in May. It was the weakest reading since January. Hong Kong shares trade lower as the Hang Seng Index continues to wind around its 200-day moving average.

Tesla China June deliveries up 20% from May

Total shipments of Tesla China is June were reported to be 93,860 cars from the Shanghai factory, preliminary data from China’s Passenger Car Association showed. That compares to 78,906 units shipped in June 2022 and 77,695 units in May. While PCA didn’t break out local deliveries and exports, Tesla typically focuses more on the domestic market in the last month of each quarter.

What are we watching next?

Important rest of the week ahead for US data

The rest of the week continues to deliver a string of key macro data, with FOMC minutes tonight not particularly in focus as the Fed is seen as reactive to incoming data. Tomorrow, the US reports the June ISM Services survey after May’s print was the worst for the cycle at 50.3. Another survey, the S&P Global Services PMI, on the other hand, registered its strongest reading in over a year in April at 55.0 and the initial June reading only dipped slightly to 54.1 (tomorrow sees the final reading for this survey). Tomorrow also sees the June ADP private payrolls data after a strong +278k reading in May. Finally, Friday brings the official June US labor market data, especially the Nonfarm Payrolls Change number after a strong surge in payrolls of +339k reported in May, while the Unemployment Rate is expected to dip back lower to 3.6% after an odd surge to 3.7% in May. Average Weekly Earnings/Hours are also in focus as these have both been on a declining trend since early 2022.

Technical update

• S&P500.Likely to move higher to resistance at 4,546
• Nasdaq 100 Close to testing strong resistance at 15,265. Close above potential to 15,653-15,882
• DAX resuming uptrend. Could test all-time high
• AEX25 closed above key resistance at 777. Room to 800 resistance
• CAC40 testing key resistance at 7,403. If closing above likely move to all-time highs at 7,581
• EURUSD rejected at 1.10. Range bound short-term between 1.08 and 1.10 but uptrend intact. Resistance at 1.11
• GBPUSD below support at 1.2667. Could correct to 0.618 at 1.2515. Uptrend intact
• USDJPY Uptrend to 146.60. Uptrend stretched. Resistance at 145.30
• EURNOK rejected at rising trendline. Shoulder-Head-Shoulder reversal pattern could unfold
• GOLD bottom and reversal pattern indicating downtrend is over. Short-term bounce to 1,964 could be seen

Earnings to watch

There are no important earnings releases this week. The Q2 earnings season starts next week with US banks kicking off the earnings season.

Economic calendar highlights for today (times GMT)

• 0715-0800 – Eurozone Final Jun. Services PMI
• 0830 – UK Final Jun. Services PMI
• 1400 – US May Factory Orders
• 1800 – US FOMC Minutes
• 2000 – US Fed’s Williams (Voter) to speak
• 0130 – Australia May Trade Balance