MARKET WRAPS
Watch For:
E.U. summit, business & consumer surveys, ECB Economic Bulletin; U.K. money and credit - lending to individuals, lending to businesses, broad money and credit; Germany provisional CPI and CPI data for North Rhine Westphalia, Hesse, Brandenburg, Baden-Wuerttemberg, Bavaria and Saxony; trading updates from H&M, Serco Group
Opening Call:
Stock futures were little moved in Europe early Thursday, as investors assess commentary by central bankers. In Asia, stock benchmarks were mixed; Treasury yields were little changed; the dollar gained slightly; while oil and gold declined.
Equities:
European stocks may be little changed at the open on Thursday, as investors assess commentary by central bank leaders from around the world at the European Central Bank's annual forum including Federal Reserve Chairman Jerome Powell's remarks that interest rates could rise twice more this year.
Powell said he, "wouldn't take moving consecutive meetings off the table at all."
"Although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough," Powell said.
Central bankers at the gathering struck a hawkish tone, suggesting that interest rates haven't yet peaked, and cuts are not on the cards for some time, Capital Economics said. However, there were some differences in tone.
"Powell was keener to stress that interest rates are in restrictive territory and that the closer they come to the peak, the higher the risk of doing too much," it said.
"Both Lagarde and Bailey seemed more concerned about the risk of doing too little and allowing inflation expectations to become unanchored."
"There's still some level of uncertainty out there about what the Fed's going to do and how many more times they are going to hike," said Chris Fasciano, portfolio manager at Commonwealth Financial Network.
"So I think we are going to continue to see this volatility in the market based on the news or the Fed commentary of the day."
Meanwhile, positive economic data, including the consumer-confidence index published on Tuesday, point to "the soft landing scenario is in play," Fasciano said.
"I think that's all part of this data point-to-data point volatility."
Investors will be watching initial jobless claims data and the final reading of first-quarter GDP Thursday as well as the personal-consumption expenditures index update on Friday to assess the state of the U.S. economy.
Forex:
The dollar strengthened early Thursday amid holidays in some parts of Asia, as concerns of further Fed tightening weighed.
CBA Global Economic & Markets Research said it expected the Fed to raise rates by 25 bps in July, and added that follow-up rate increases were clearly possible, depending on the evolution of inflation and the U.S. labor market.
Bonds:
Treasury yields were little changed, as global central bankers remain hawkish and ahead of key U.S. inflation data due Friday.
Tradeweb notes that Treasurys with maturities of 1-30 years are all within only 10 basis points in either direction of where they closed on June 14, when the FOMC left rates unchanged.
Chair Powell has a public appearance Thursday in Madrid.
Meanwhile, weekly jobless claims are expected to keep the previous week's pace of 264K, while the 3rd reading of 1Q GDP's annual rate is seen +1.4% from +1.3%.
"To a large extent, the resilience of the U.S. economy has assisted the Fed in its efforts to re-establish price stability as a solid jobs market, reasonable growth, and rebounding sentiment has extended the [Federal Open Market Committee's] window of hawkishness through year-end -- or at least that is the collective sense at the moment," said BMO Capital Markets.
"On the flipside, certain components of inflation have proven to be stickier than previously assumed, a scenario that would have presented difficult policy tradeoffs had Powell not had the benefit of solid economic footing at this stage in the cycle," it said.
Markets were now pricing in an 81.8% probability that the Fed will raise interest rates by 25 basis points to between 5.25%-5.5% on July 26, according to the CME FedWatch Tool.
The central bank isn't expected to take its fed funds rate target back down to around 5% until next year, according to 30-day Fed Funds futures.
Energy:
Oil futures were slightly lower in Asia, remaining in a range-bound trading pattern amid weak risk appetite.
Galaxy Futures warned of limited catalysts for the energy commodity in the near term pointing to prevailing pessimism over the interest rates outlook, and uncertainties on long-term demand expectations as a global recession looms.
Crude oil prices thus lack upward momentum.
A widening Brent-WTI price spread over the past six weeks is beginning to "translate into resurgent U.S. crude exports," said DTN.
U.S. crude exports are beginning to "trend higher once more after sliding lower over the past few months."
"It's clear that there is growing global appetite for U.S. sour [oil] barrels following the Saudis announcing supply cuts and lifting OSPs [official selling prices] to a point that they're largely pricing themselves out of the market," DTN said.
Traders are "trying to decide whether we are going into a recession based on price structure that suggests over supply, versus the possibility it is predicting supply tightness later this year," The Price Futures Group said, adding that the market has been very "sensitive to comments by central bank leaders."
With the eurozone, Great Britain and China "barely growing," the demand outlook will continue to depress spot prices in the near term, said Spartan Capital.
"We think spot [WTI] prices are now able to retest the $68 level, and if breached to the downside, $65 dollar oil should be expected," it said.
Metals:
Gold prices nudged lower, as investors weighed hawkish signals from central banks around the world with rising worries over a global economic recession, and mixed signals from latest U.S. economic data.
The precious metal's price outlook is likely to remain clouded for now, Galaxy Futures said.
The commodity could face continued downward pressure in the near term, as buying interest is unlikely to pick up substantially against the backdrop of a strong dollar and persistently tight monetary policies, it added.
Gold "appears to be closing in on $1,900 which could represent the next big test of support for the yellow metal," Oanda said.
"Appetite for gold has dwindled as investors have increasingly come around to the reality that not only could more rate hikes be in the pipeline, but rate cuts this year are now highly unlikely. Inflation is proving even more stubborn than expected on the way down and that's bad news for gold."
Still, gold's ability to hold above the key $1,900 level "shows that the reluctance from investors to fully shift away from this haven asset," said Kinesis Money.
"While interest rate hikes may be softening gold's appeal, the concern that the aggressive stance of central banks will tip economies into recession has made gold's decline very steady, with investors wanting to keep onto their safety blanket for as long as possible while market confidence remains so fragile," it said.
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Copper was steady in Asian trade, but may be weighed by worries over demand in China.
Industrial profits in China fell 12.6% on year in May, confirming fears that the country's commodity-intensive economy still faces headwinds, Commonwealth Bank said.
Also, the first five months of both 2023 and 2020 are showing comparable declines in industrial profits, which further underscores the beleaguered state of China's commodity--intensive economy, it added.
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Iron-ore futures gained in China amid hopes that Beijing will soon launch a new round of property-stimulus measures to shore up the embattled sector.
"At the macro level, there are rumors that China is likely to further ease its real estate policy, which has boosted the optimistic mood in the commodity market," ITF Research Institute said.
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06-29-23 0015ET
