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After a negative surprise in recent US Consumer Price Index (CPI) data, the release of US producer prices for June overnight further bolsters the narrative of easing inflation risks, paving the way for Wall Street to add to recent gains (DJIA +0.13%; S&P 500). +0.61%; Nasdaq +1.58%). The strength was largely concentrated in the growth sectors, with the performance being strongly boosted by big tech stocks again (NVDA +4.7%, GOOG +4.4%, AMZN +2.7%, TSLA +2.2%).
The US core producer price index for June came in at a growth of 0.1% from a year ago, well below expectations of 0.4%. The fundamental side revealed promising progress from tougher policies as well, heading lower to 2.4% versus the consensus of 2.6%. On a monthly basis, core PPI came in at 0.1% (consensus -0.2%).
However, market rate expectations found more conviction in a rate pause from the Federal Reserve (Fed) after July, along with more leeway to cut interest rates through 2024. Treasury yields headed lower, with the US down 10 days. years for the fourth day in a row while the two-year yields widened a gap below the key 5% level.
Looking ahead, US consumer confidence data for July will be in focus, with the reading expected to have risen to 65.5 from 64.4 in June, which would be the third consecutive month of increase. A further recovery in US consumer sentiment is likely to provide some support to hopes for a soft landing, given that previous recessions since 1968 were always marked by lower US consumer confidence data.
Russell 2000 managed to break out of the previous consolidation area to deliver a new four-month high. Its Relative Strength Index (RSI) has held above its key level of 50 so far, as an indication of the buyers’ control, along with the company’s rebound from the 50-day and 200-day moving average (MA) at the beginning of the month. Further upside could leave the key psychological 2000 level in check for a retest, while 1900 would now act as resistance turned support.
Source: IG Charts
Asian Open Championship
Asian stocks appear poised for a positive open, with the Nikkei +0.14%, ASX +0.49% and KOSPI +0.68% at the time of writing. This morning’s economic calendar saw some resilience in Singapore’s second quarter GDP growth rate, with the economy narrowly avoiding a technical recession with a tepid expansion. The quarterly reading was broadly in line with expectations of 0.3%, while the annual reading came in at 0.7%, which slightly beat the consensus of 0.6%.
While we had less dire results than we feared, economic challenges continue to underperform the manufacturing sector (-7.5% yoy vs -6% in Q1), with having to rely on strength in service industries for some cushioning. Heading into the second half of this year, much may hinge on the story of China’s recovery and economic conditions in the United States and other trading partners waiting to build on existing resilience.
After the release of the data, USD/SGD turned more bearish, after already being affected by the sell-off in the US dollar over the past few days. The collapse of the ascending triangle pattern led to a current retest of 1.321. While an oversold reading of the RSI could trigger a near-term rebound attempt, the overall trend continues to tilt to the downside. The Moving Average Convergence/Divergence (MACD) has crossed below the zero level and the confluence of the 1,340 support level has receded, where the Ichimoku cloud stands alongside the 100-day moving average. Further collapse of 1.321 could pave the way for a retest of the one-year low at 1.303.
Source: IG Charts
On the watchlist: British Pounds / US Dollars to a new high since April 2022
Further weakness in the US dollar and a better-than-expected print in the UK’s GDP for May pushed the GBP/USD above the key resistance of 1.300 yesterday. Three-month yoy GDP came in flat (0%), but the feared least worst scenario offered some consolation with estimates looking for a worse outcome of a 0.1% contraction.
The formation of a new higher high and the RSI remaining above the key level of 50 is supporting the general bullish trend in place. More upside movement might put 1.342 under observation as the next resistance level for a retest. IG customer sentiment data shows that 73% of traders are net short in GBP/USD, with more short positions building from last week. The typical contrarian view of crowd sentiment may indicate a stronger bullish trading bias for the GBP/USD pair.
Source: IG Charts
Thursday: DJIA +0.13%; S&P 500 +0.61%; Nasdaq +1.58%, DAX +0.74%, FTSE +0.33%