The spotlight turned to China and the US for most of the week, with the updated Chinese GDP forecast and better-than-expected net US economic updates stealing the show.
The central bank’s hawkish remarks during the European Central Bank’s Forum on Central Banks also weighed on overall market sentiment, especially as the mostly strong data underscores the upbeat outlook.
Did you miss all the market movers this week? Lemme shows you the biggest titles first:
Notable economic news and updates:
🟢 Extensive arguments about market risk
Crude oil It opened a little higher after the failed coup attempt in Moscow, as rebel Wagner convoys returned to bases and charges against Prigozhin were dropped.
The People’s Bank of China has set a reference rate for the USD/CNY pair less than expected during their announcements on Tuesday and Thursday to slow the pace of the yuan’s decline
Chinese Premier Li Qiang He said that growth picked up this quarter and there was more stimulus in store
Crude oil inventories in the US Energy Information Administration It showed a withdrawal of 9.6 million barrels, compared to the estimated reduction of 1.4 million barrels, and the previous withdrawal of 3.8 million barrels.
Most US economic data is upbeat:
- May basic durable goods orders It rebounded 0.6% m/m after a previous drop of 0.3%, with the headline reading rising 1.7% versus an estimated decline of 0.8%.
- New home sales Jumped from 680K to 763K, beating consensus at 677K
- Richmond manufacturing index It improved from -15 to -7 in June versus the estimated figure of -12
- CB US Consumer Confidence Index It jumped from 102.5 to 109.7 in June against an expected reading of 103.9, the highest level since early 2022.
- Unemployment claims rates It came in with a reading of 239K vs. 264K and 265K previously, easing fears of a slowdown in the US labor market.
- Final US GDP for the first quarter Revised upwards to 2% year-over-year growth from 1.2% in previous reports
- US Core PCE for May: 3.8% yoy (3.9% yoy expected; 4.3% yoy prior); Personal income increased +0.4% m/m (+0.3% m/m expected/previous)
Extensive arguments for deflecting market risk
Standard & Poor’s lowered China’s GDP forecast From 5.5% to 5.2% for the year, indicating that an uneven pace of growth can be expected
Australian Consumer Price Index for May Decreased from 6.8% to 5.6% year-on-year versus an estimated decline of 6.1%
Japanese Deputy Finance Minister Kanda They say they watch FX movements closely with a great sense of urgency
Canadian address has CPI It came in line with the consensus at 3.4% y/y from a previous reading of 4.4%, the lowest level since June 2021.
European Central Bank Forum on Central Banking comments:
- Fed Chairman Powell He said that “while the policy is restrictive, it’s not restrictive enough and it hasn’t been restrictive long enough” which raised the odds of two more price hikes this year.
- European Central Bank President Lagarde He pointed to the effect of tightening labor markets on wage increases, which increase inflationary pressures
- Bank of England President Bailey He indicated noticeable signs of sustained inflation in the UK economy and that they would take all necessary steps to bring it back to target
- Bank of Japan Governor Ueda They reiterated their plans to keep monetary policy unchanged while policymakers monitor the impact of higher interest rates on economic activity
Weekly global market summary
Dollar, gold, S&P 500, oil, US 10-year yield, bitcoin overlay Planned by TV
Market players woke up on the wrong side of the bed this week, as risk-off outflows from last Friday and an S&P downgrade in China’s growth outlook over the weekend soured the mood.
Not even Crude Oil, which enjoyed some rally in the aftermath of the news of the military coup in Russia, was able to hold its early gains.
However, the tide turned on Tuesday when the People’s Bank of China surprised markets by setting a stronger-than-expected benchmark rate for the yuan, sending a message that the central bank is keen to slow the currency’s decline.
Riskier assets such as US stocks and commodity currencies saw sharp gains, though rumors that the US government was considering new restrictions on AI-related exports to China led to losses for Nvidia and AMD.
Comdolls quickly extended gains when downbeat Australian and Canadian CPI figures dampened hopes for another round of rate hikes from the Reserve Bank of Australia and Bank of Canada.
Safe havens such as the dollar and gold continued to make gains when the European Central Bank Forum highlighted hawkish rhetoric among the likes of Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey.
Crude oil put up a good fight thanks to improving demand conditions as reflected in the sudden inventory cuts from the API and EIA, but the commodity quickly succumbed to expectations of higher global interest rates.
Later in the week, Treasury yields and the dollar got another boost from upbeat US Initial Jobless Claims data, quelling fears that the labor market could slow down soon. The rise in the final GDP figures for the first quarter also contributed to the dollar’s gains.
Nevertheless, the markets are priced into stronger prospects of at least two interest rate hikes by the Federal Reserve before the year ends as traders look ahead to the US core PCE price report on Friday.
As expected, the Fed’s preferred measure of inflation did not disappoint. Although the core readings weren’t too far behind expectations, the core reading (including the volatile food and energy components) was quite noticeable at 3.8% yoy versus 4.3% yoy in April. Personal Income surprised with a 0.4% MoM reading, while Personal Spending was much lower than April’s 0.6% reading at 0.1%.
On the net, this is likely to lower the Fed’s stance to be less hawkish going forward, which is characterized by a rapid move lower in the US dollar and bond yields after the event. Of course, signs that the Fed might step away from the gas have been net positive for risk sentiment, along with the notion that expectations of an improving interest rate environment will likely help the US avoid a recession.