- Commodities: Gold, Silver and Crude Oil traded lower on Friday.
- FX: USDJPY is close to 160, and verbal jawboning has picked up.
- Equities: Muted Friday trading, but equities are up for the week.
- Fixed income: Yields turning higher after a string of economic data.
- Economic data: German Ifo index.
Commodities: U.S. crude oil futures and Brent Crude futures both experienced a reversal in their earlier trajectories, with U.S. crude falling to $80.73 per barrel and Brent Crude settling at $85.24/bbl. This decline was attributed to a stronger U.S. dollar and a balance between improving U.S. demand and falling oil and fuel inventories. Despite this, crude oil saw a weekly rise of 3.73%, while Nymex natural gas fell by 6.11% to settle at $2.7050 mln Btus. Gold prices declined, with Aug gold settling at $2,331.20 an ounce, marking a 1.6% decrease. This reversal was influenced by strengthening the U.S. dollar following robust U.S. business activity data, including the S&P Global U.S. Composite Purchasing Managers Index reaching a 26-month high in June. The earlier rise in gold prices on Thursday, driven by disappointing U.S. economic data and expectations of potential Fed rate cuts, was reversed.
FX: The US dollar closed the week stronger due to concerns over European elections impacting the euro. Additionally, a rate cut by the Swiss National Bank and a dovish stance from the Bank of England supported the dollar. However, the Japanese yen was the weakest performer among G10 currencies, with USDJPY nearing the significant 160 level. Despite increased verbal intervention from FX chief Kanda, the yen remained unaffected. Key yen pairs such as AUDJPY, GBPJPY, and MXNJPY surpassed important thresholds, with AUDJPY above 106, GBPJPY above 202, and MXNJPY breaking its 200-day moving average. The euro faced additional pressure on Friday, breaking below 1.07 following disappointing PMI data. Investors will closely watch the German Ifo survey today.
Equities: On Friday, U.S. stocks showed little change, with technology stocks pulling back further after a previous day’s profit-taking but rebounding by midday to end the day with minimal change. The S&P and Nasdaq briefly entered positive territory before the weekend, but overall market volatility was unaffected by the triple witching options expiration and index rebalances. Market breadth was slightly negative, with weakness in energy, financials, industrials, and utilities, while consumer discretionary, communications, and healthcare sectors saw slight gains. The dollar strengthened after PMI manufacturing data, while gold prices decreased. Key inflation reports are expected at the end of the week, with Q1 GDP on 6/27 and monthly PCE and core PCE inflation data on 6/28. The first Presidential debate between Biden and Trump is scheduled for next week, with new rules in place. Despite touching record highs earlier in the week, major averages experienced sideways trading but managed to secure weekly wins.
Fixed income: On Friday, the yield on the US 10-year Treasury note rebounded from a two-month low of 4.21% reached on June 18th, hovering above the 4.25% mark as strong economic data suggested a reduced need for the Fed to implement a rate cut in the third quarter. PMI data from the S&P indicated that manufacturing and services activity in the United States exceeded market expectations in June, contradicting earlier reports of a slowing economy. Former St. Louis Fed president James Bullard suggested that low inflation could lead to a rate cut in September, aligning with market expectations of two rate cuts by the Fed this year.
Macro:
- Flash US PMIs for June were hot across the board, with manufacturing rising to 51.7 (prev. 51.3, exp. 51.0), and services to 55.1 (prev. 54.8, exp. 53.7), resulting in the composite moving higher to 54.6 from 54.5. European PMIs were a stark contrast and came in weaker than expected. Manufacturing dipped further into contraction at 45.6 in June vs 47.3 in May, while Services eased to 52.6 from 53.2, bringing the Composite index close to the 50-mark at 50.8 from 52.2 in May.
- UK retail sales for May surprised to the upside, coming in at 1.2% YoY ex-auto fuel from -2.5% YoY previously and -0.7% expected. The report led to calls for firmer Q2 GDP growth in the UK as wages have supported consumption, but the outlook is weakening, which has led to the Bank of England hinting at the start of rate cuts at its June announcement.
