📈 Macro-News round-up
#MarketNews
🗣️ Last night, Fed’s Bostic made a series of statements. The general tone of the statements is to hold interest rates longer, emphasising the strength of the US economy: ‘We are in no danger of slipping into a more contractionary environment’ he said, ‘Employment growth has been solid, which reassures me by staying at tighter levels’. Particularly interesting is the following comment: ‘On rates, it is important to move only in one direction’, when we understand that he is referring to the fact that a rate cut prematurely could end up forcing a rate hike months later.
🇺🇸 In less than two weeks, the euro zone is poised to implement what may be the first interest rate decrease by the G7. This expectation has supported the dollar as the Federal Reserve continues to pursue a higher-for-longer policy path for the time being. Bloomberg quoted the Bank of France Governor Francois Villeroy de Galhau as saying in an article recently , “The business cycle is obviously stronger in the US, growth is higher and inflation is a bit more resilient, so our US colleagues will probably wait until they will cut rates,” Before departing Paris to the G7 meeting, French Finance Minister Bruno Le Maire bemoaned to reporters that Europe was experiencing “economic lethargy.”
🇯🇵 Additionally, Bank of Japan Governor Kazuo Ueda emphasised to reporters that such an outcome hasn’t altered the “overall picture” for a recovery there. Ueda’s own economy just had a worse-than-expected start to the year.
🇺🇸 US Treasury Secretary Janet Yellen has also emphasised the contrast between global economies: “America’s robust economic performance continues to serve as a key engine for resilient global economic performance.” “That being said, we are aware that there are hazards to the outlook for the world and that the recovery has been uneven in each of our countries.”
🇪🇺 In Europe, given that President Christine Lagarde stated this week that she is “really confident that we have inflation under control,” a rate decrease by the European Central Bank on June 6 is all but guaranteed.
🇬🇧 UK: Economists at Goldman Sachs Group Inc. and Morgan Stanley among other institutions forecast that the Bank of England will postpone a rate cut until August in response to UK data released on Wednesday that showed inflation slowed less than anticipated.
📊 In macroeconomic data: yesterday, US jobless claims came in slightly lower than expected at 215k vs 220k, which will continue to strengthen the view that the US labour market is strong. New home sales came in weaker than expected at 634k vs 677k and below the previous period. Regarding PMIs, both manufacturing and services PMIs came in above expectations, 50.9 and 54.8 respectively, indicating economic expansion.
🇩🇪 Germany presented its GDP growth rate this morning. It shows
growth for Q1 of 0.2%, with an annualised growth rate of -0.2%.
🇬🇧 The UK published its retail sales figures. Underlying retail sales fall -2% in April, while overall retail sales fall -2.7%. The annualised figure gives an underlying retail sales growth rate of -3%. This data would support a rate cut in the UK.
🗣️ Remember that today we will have monetary policy comments both in Europe from Schnabel of the ECB, and in the US from the Waller of Fed.
📈 Markets:
🇺🇸 The Macro data in US mentioned above, have possibly driven the strength of the DXY dollar in recent hours, which is approaching the 105 point level, as well as an increase in bond yields, with a 2-year bond today offering a return of 4.95%, which would confirm a postponement of the interest rate cut.
📉 Rising bond yields probably caused the pullbacks we have seen in US futures. Nasdaq 100, which was heading for 19,000 points, has retreated to 18,600. The SP500, which was timidly trying to trade above 5350 the last few days, has retreated to 5.300.
🇨🇳 Chinese stock markets, which have been performing spectacularly this year, also seem to have taken fright. The HSI has dropped 1000 points in the last few hours to 18,600. The SSE has retreated slightly to support around 3.050 points.
🛢️ Crude oil continues to fall. The American Petroleum Institute has reported an increase in US stockpiles of 3.10m barrels, versus 2.48m expected. This increases available supply and could contribute to lower prices. In the other hand, the Fed continues to insist that they will hold rates. As the “world’s central bank”, it effectively sows a sense of economic restraint, which does not encourage more activity, which would increase demand.
Geopolitics:
⚔️ Russian President Vladimir Putin signed a decree outlining potential retaliation if the US seizes Russian financial assets that have been frozen since the Ukraine invasion. These assets are not Putin’s assets, but the national assets of millions of Russian citizens. Washington has passed legislation allowing the administration to confiscate Russian state assets held in US banks and transfer them to Ukraine. Russia calls this illegal. The G7 has been discussing exploiting over $300 billion in frozen Russian currency reserves and government bonds to help Ukraine, fueling tensions with Moscow. The decree formalizes the potential for asset seizures targeting private interests in retaliation for any confiscation of Russian state reserves abroad.
🚢 A number of oil tankers entering waters off southern Greece to transfer Russian petroleum were forced to depart again after the Greek navy re-issued notices of exercises in the area. The Laconian Gulf southwest of Athens has become vital for switching Russian fuel and crude cargoes between vessels bound for Asian customers. The Greek Navy started exercises there this month to halt activities assisting Russia’s export operations. Tankers briefly returned after a notice expired but departed again as exercises in the area were resumed until June 3rd. The navy actions are aimed at curbing the logistical workarounds that have allowed Russian oil and fuel trade to continue reaching foreign markets despite sanctions. By declaring live fire exercises across major petroleum shipment routes, Greece is disrupting a key facilitator of Russia’s sanctions-busting exports.
