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Euro Market Open: APAC stocks followed suit to the gains on Wall St; DXY was slightly softer

  • APAC stocks ultimately followed suit to the gains on Wall St where major indices clawed back opening losses; S&P 500 +1.0%.
  • European equity futures are indicative of a firmer open with Eurostoxx 50 +1.1% after the cash market closed lower by 0.8% yesterday.
  • DXY is a touch softer but still on a 104 handle, antipodeans lead G10 FX and GBP shrugs off a tough night for the Tories.
  • UK PM Johnson's Conservatives lost the two by-elections, triggering the resignation of Conservative Party Chairman Dowden.
  • Looking ahead, highlights include UK Retail Sales, German Ifo, US New Home Sales, Speeches from Fed's Bullard & Daly, ECB's de Cos, BoE's Pill, Supply from Italy.

US TRADE

  • US stocks were firmer but saw choppy price action as growth woes on poor PMI data were countered with the continued fall in yields and commodity prices.
  • SPX +0.97% at 3,796, NDX +1.47% at 11,697, DJIA +0.64% at 30,677, RUT +1.11% at 1,709.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • Fed Chair Powell said inflation expectations are anchored but added it is not enough as over time they will come under pressure, while Powell said he would be reluctant to cut rates when asked. Powell also said the Fed would not raise its inflation target and that the end-point for the balance sheet is roughly USD 2.5tln-3.0tln smaller than it is now.
  • Fed said all banks passed the stress test and that 34 large US banks have strong capital levels and could continue lending in an economic downturn, although it noted that banks suffered slightly more hypothetical losses in 2022 severe test than last year with USD 612bln in projected losses as capital ratios fell to 9.7%, according to Reuters.
  • White House official said weekly US jobless data is consistent with low unemployment and is not at all what a recession labour market looks like, according to Reuters
  • US Senate passed the bipartisan gun safety legislation to send the measure to the House, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

  • Ukraine and Moldova won candidate status in their bid to gain EU membership, as expected, while the EU agreed on a conditional path to the EU for Georgia, according to Reuters.

OTHER

  • North Korea will boost frontline military units' action plan and vowed to strengthen war deterrent, while leader Kim said they will bolster powerful self-defence capabilities to overwhelm hostile forces, according to KCNA.

APAC TRADE

EQUITIES

  • APAC stocks ultimately followed suit to the gains on Wall St where a decline in yields and lower commodity prices helped the major indices claw back from the opening losses which were triggered by disappointing PMI data.
  • ASX 200 was positive with tech stocks encouraged by US counterparts which benefitted from the lower yield environment although gains in the index were capped by weakness in the commodity-related sectors after the recent pressure in energy and metal prices.
  • Nikkei 225 found early momentum alongside currency flows and held on to gains despite the JPY reversal.
  • Hang Seng and Shanghai Comp. were positive after officials recently suggested ample policy space to sustain a steady economic performance and with the PBoC upping its liquidity efforts.
  • US equity futures were higher in tandem with the gains in Asia-Pac and after the E-mini S&P (+0.7%) broke through resistance at 3,800.
  • European equity futures are indicative of a firmer open with Eurostoxx 50 +1.1% after the cash market closed lower by 0.8% yesterday.

FX

  • DXY was slightly softer but maintained 104 status alongside the positive overnight risk tone and after recent Fed comments in which Powell stuck to the script and Bowman joined the chorus for another 75bps hike in July.
  • EUR/USD eked mild gains although price action was capped after recent disappointing PMI data from the bloc.
  • GBP/USD gained amid the cyclical-conducive environment and despite PM Johnson's Conservatives losing two by-elections, which was then followed by the resignation of Conservative Party Chairman Dowden.
  • USD/JPY was choppy and failed to sustain an early foray at the 135.00 handle after inline CPI data.
  • Antipodeans were firmer owing to the risk environment with NZD slightly outperforming despite the absence of New Zealand participants for a holiday.
  • Mexican central bank raised its interest rate by 75bps to 7.75%, as expected, through a unanimous decision, while it noted the Board intends to continue raising the reference rate for the next policy meetings and will evaluate taking the same forceful measures if conditions require.

FIXED INCOME

  • 10yr USTs traded subdued after a pull back from above 118.00 and with demand hampered by gains in stocks.
  • Bunds were off yesterday's highs but held on to most of the spoils from the disappointing EZ PMI releases.
  • 10yr JGBs remained afloat following the prior day’s after-hours advances although further upside was capped by the risk tone and with the BoJ only in the market under its daily fixed-rate operations which haven't seen any take-up in recent days.

COMMODITIES

  • Crude futures remained choppy after disappointing EU and US PMI data stoked growth concerns.
  • OPEC+ is seen reconfirming plans for an oil output rise of 648k BPD in August at its meeting next week, according to Reuters sources.
  • US Energy Secretary Granholm expressed interest in lifting summertime fuel specifications during the refiners meeting and downplayed banning fuel exports as a viable short-term option to reduce gas prices, according to Reuters sources. Granholm also commented that oil companies must deliver solutions to ensure secure and affordable supply.
  • EIA said a status update on the weekly DOE oil inventories report will be provided on Monday.
  • Spot gold was stuck near a weekly low with a weaker dollar offset by a lack of haven demand.
  • Copper found some mild reprieve from recent selling with price action helped by the risk tone.
  • Chile state copper miner Codelco reached an agreement with workers to end the strike, according to Reuters.

CRYPTO

  • Bitcoin traded rangebound and remained above the recently reclaimed 21,000 level.

NOTABLE APAC HEADLINES

  • PBoC injected CNY 60bln via 7-day reverse repos with the rate at 2.10% for a CNY 50bln net daily injection, according to Reuters.

DATA RECAP

  • Japanese National CPI YY (May) 2.5% vs. Exp. 2.5% (Prev. 2.5%)
  • Japanese National CPI Ex. Fresh Food YY (May) 2.1% vs. Exp. 2.1% (Prev. 2.1%)
  • Japanese National CPI Ex. Fresh Food & Energy YY (May) 0.8% vs. Exp. 0.8% (Prev. 0.8%)

EU/UK

NOTABLE HEADLINES

  • UK PM Johnson's Conservatives lost the parliamentary seat in the Wakefield by-election to the Labour Party and lost the by-election in Tiverton and Honiton to the Liberal Democrats, according to Reuters. Subsequently, PM Johnson has been warned to "watch out for a coup", according to reporting in The Telegraph. Furthermore, Conservative Party Chairman Dowden has resigned following the by-elections.
  • ECB's Kazimir said the ECB rate could be at 1.5%-2.0% in a year, while he reiterated his call for a 25bps hike in July and 50bps in September, according to Reuters.

DATA RECAP

  • UK GfK Consumer Confidence* (Jun) -41 vs. Exp. -40.0 (Prev. -40.0)
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