US stocks finished mixed after a deluge of central bank rhetoric but shook off Nvidia woes

NS

Wednesday, June 28, 2023 at 09:40 AM

US stocks ended mixed following a choppy session with catalysts of risk sentiment being on the lighter side. Participants also digested the Sintra Forum's central bank commentary which pointed to more rate hikes. Despite this, the SPX ended flat and the NDX posted modest gains as it shook off the negative Nvidia sentiment that persisted throughout the session.

USD was bid, and DXY briefly climbed back above 103.00 in the wake of the Sintra Panel Discussion with Fed Chair Powell and ECB President Lagarde. BoJ Governor Ueda, and BoE Governor Bailey revealed little new information, although Powell reiterated that two rate increases this year seem appropriate, and will ultimately depend on the data.

Highlights for the future include New Zealand ANZ Business Survey and Australian Retail Sales.

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Looking Ahead

Highlights include the New Zealand ANZ Business Survey and Australian retail sales, Japanese retail sales, and supply from Japan.

US TRADE

US Stocks

After a mixed performance, the market ended with a choppy performance. The catalysts for risk-sensation were on the lighter side. Participants also digested the Sintra Forum's central bank commentary which pointed to more rate hikes. Despite this, the SPX ended flat while the NDX posted modest gains as it shook off the negative Nvidia sentiment that persisted throughout the session.

SPX

-0.04% to 4,377

NDX

+0.12% to 14,965

DJIA

-0.22% to 33,853,

RUT

+0.47% to 1,859.

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For a summary in detail.

NOTEABLE HEADLINES

When asked if it was a pause or skip, Fed Chair Powell said that they were maintaining the FFR level at its current level. He also noted that the policy has not been restrictive for a very long time.

Powell said that he

The labour market is driving more restrictions, according to a majority of those who voted in the Dot Plots.

He also said that the risks become more balanced as you get closer to your target.

He wouldn't rule out the possibility of moving between meetings.

Fed says 23 banks that were tested had projected losses of USD 541.1bln but maintained capital ratios above the required levels. Stress tests also showed large banks to be well-positioned to continue lending during a severe recession.

Their trading books remained resilient in a rate-rising environment.

US President Biden wants tax loopholes closed for crypto traders and hedge funds managers.

The US CBO predicts US public debt to be 181% of GDP by 2053, compared with 98% in 2023. It also projects a slightly lower debt-to-GDP long-term ratio than February 2023 or July 2022 because the debt ceiling bill has spending caps.

Nvidia's (NVDA) CFO stated that they were aware of the reports about new China export restrictions, but did not expect any material changes to earnings.

The CFO also added that

China accounts for 20-25% of Data Centre Sales and the China Export Ban will result in lost opportunities.

DATA RECAP

US Advanced Goods Trade (May) -91.1B (Prev. -97.1B)

US Wholesale Inventories (May) -0.1% (Prev. -0.1%)

Fixed Income

US Treasuries

The belly led the way to a strong 7yrs auction and a month-end expectation.

FX

USD

DXY briefly climbed back above 103.00 in the wake of the Sintra Panel Discussion with Fed Chair Powell and ECB President Lagarde. There was little new information disclosed, although Powell reiterated that two rate increases this year seem appropriate but ultimately determined by data.

EUR

The euro fell against the dollar, with EUR/USD briefly falling below the 1.0900 level despite a flurry of comments from ECB officials that kept the prospect of a hike in September on the table.

GBP

After giving up 1.2700, the pressure to sell in GBP/USD was exacerbated.

JPY

The yen continued to fall against the dollar, with USD/JPY reaching a new YTD peak north of 144.50.

Maechler, of the SNB, said that the underlying price dynamics were persistent and that inflation pressures were too high to inspire trust in money. She also added that inflation in Switzerland is spreading more widely.

COMMODITIES

Crude Oil

The price of crude oil was higher after the EIA weekly data showed a larger than expected decline.

US EIA Weekly Crude Stocks W/e - 9.603M vs. -1.7M (Prev. -3.831M)

The Norwegian Industri Energi Labour Union has reached an agreement with DSO and SAFE unions on a wage package for oil drilling workers. They will not strike.

India has identified 30 minerals that are critical in its clean energy drive. These include nickel, vanadium, titanium and tungsten.

It also stated that the priority should be given to prospecting, exploring and mining critical minerals, as any delays could affect climate mitigation timelines.

GEOPOLITICAL

US Secretary of state Blinken stated that Taiwan is an issue for almost the entire world.

The US State Department has approved the sale to Poland of an integrated air and missile defense battle command system, as well as related equipment, for a price estimated at USD 15 billion.

The European Diplomats have told Iran that they intend to keep the ballistic missile sanctions in place until October.

Reuters citing sources.

ASIA-PAC

APAC HEADLINES TO NOTE

US officials are reportedly considering tightening up the export rules for AI chips to China, based on the computing power. An update to the rules could come as early as late July.

According to Reuters sources

One source warned that US actions against China are often delayed.

The top US diplomat for East Asia, Kritenbrink, said that they had seen an upward trend in Chinese coercion and China's provocation poses risks to businesses.

While Kritenbrink said that the US and China also discussed ways to increase flights commercially in a gradual manner.

Liu Pengyu, a spokesperson for the Chinese Embassy in Washington, said that US and China working groups will discuss journalist issues and China has not seen any positive US initiatives regarding semiconductors.

Liu also added that

US must lift sanctions before engaging in military discussions with China

S&P has affirmed China as A+ with Outlook Stable. They also stated that China’s economic recovery would continue, but at a slower rate. S&P stated that China's economy will rebound from COVID locksdowns in 2022, but also added that the weak global demand and an overhang in China's property sector dampens recovery.

It was also noted that the

The rating of China is based on the reform agenda of the Chinese government, its robust growth prospects, and external metrics.

Ueda, the BoJ Governor, said that the JPY was influenced by a number of factors. He will continue to monitor the situation and noted that intervention falls under the MoF's jurisdiction.

Ueda stated that the BoJ expects inflation to decrease towards the end the year, then increase thereafter.

When asked about YCC, they responded that if they became reasonably certain about the second part the forecast of inflation, it would make sense to reconsider policy changes.

He also said that

The economy will continue to grow slightly above its potential for a while and inflation expectations are rising, but still not in line with their target.

EU/UK

NOTEABLE HEADLINES

The UK Chancellor Hunt, CMA and the UK Department of Health agreed to move the update on competition and unit prices in the grocery sector forward to July.

While the UK Treasury stated that the BoE would finalise its plan of action regarding the food supply chain, margins and other details in August.

BoE Governor Bailey stated that the UK economy has proven to be more resilient, and that data shows clear signs of persistent inflation. They will do whatever it takes to bring inflation back to target.

Bailey commented on this as well.

The headline inflation rate will fall dramatically this year

Note that

The market doesn't think that the BoE has finished its work yet.

Lagarde, ECB president, said that there was still a lot of policy ground to be covered and the ECB relies on data. She added that if the baseline remains unchanged the ECB would likely raise rates again in July and that September's decision will also depend on data.

She also stated that the

ECB does not see enough tangible evidence that inflation is falling and is not considering a pause for the time being.

De Guindos, ECB's de Guindos, said that there was still much to cover in terms of rates. The September rate increase will be dependent on data while the July hike is already set.

Centeno, ECB's Centeno, said that rates would remain restrictive

They do not see clear second-round impacts.

Muller, ECB's Muller, said that they must bring inflation to lower levels. It is still too early to predict where rates will be.

While they need to examine data for rate increases beyond July.

Stournaras, ECB's Stournaras, said a hike in July is likely if baseline developments develop as they believe.

While he added, it is

It is too early to predict what the ECB's September policy will be, and he can't say if the July hike will be the final one.

Vasle, ECB's Vasle, said he is biased in favor of further tightening. He needs to be convinced that a rate increase beyond July isn't necessary.

Villeroy, ECB's Villeroy, said that inflation expectations are well-anchored. He is confident of a soft landing with some pain.

Vujcic, ECB's Vujcic, said that there was no need to predict what the ECB will do in September. However he added that there is a high probability of a rate hike in September.

Enria, the non-Governing Council of the ECB, said that banks' capital position remains strong and asset-quality developments are mixed.

While the increase in arrears was not expected,

All the banks ECB examined have a plan in place to replace TLTRO financing.

ECB officials are reportedly relaxed about the pace of QT at the moment and believe that the passive depletion of the balance sheet may be enough for the time being.

Econostream is a company that provides a variety of services.

The EU rejected a US proposal to eliminate tariffs on aluminium and steel.

According to FT.

DATA RECAP

German GfK Sentiment (July) -25.4 vs. -23.0 (Prev. -24.2)

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