US EARLY MORNING: Equities are lower after sentiment was knocked following PMI data from China and Europe; FOMC minutes ahead

US PRE-MARKETS: US equity futures are lower, Treasury yields are lower along the front-end of the curve but unchanged further out, the dollar Index is flat. Crude futures are mixed. Global sentiment has been knocked after China services activity data released overnight, which fell short of expectations, while the trade frictions between China and the West have been exacerbated after the world’s second largest economy slapped export restrictions on some metals used in the manufacture of semiconductors. The tone of final PMI data out of the Eurozone has also been on the soft side, with the aggregated Eurozone metrics seeing the composite index for the month slip into contraction. Traders will note the FOMC meeting minutes due later today, while traders will also keep an ear on OPEC’s energy summit, which will feature commentary from the Saudi and UAE ministers. 

PREVIEW - FOMC MEETING MINUTES (19:00BST/14:00EDT): The Federal Reserve held rates steady in June, as expected, but surprised markets by raising its rate projections for 2023 and beyond. The forecasted rates for 2023 were increased by 50bps, indicating two further 25bps rate rises ahead. The more hawkish forecasts were driven by an improved view of GDP growth, higher inflation expectations, and a lower projected unemployment rate. Despite the upward revisions, the long-term “neutral” rate remained unchanged. Fed Chair Powell acknowledged the progress made, but emphasised that the impact of tightening policy was yet to be fully realized. While most policymakers anticipate further rate hikes, they expect subdued growth to persist. Powell noted signs of improvement in the labour market’s supply and demand balance, although demand still exceeded the available workforce. Inflation remains above the 2% target, but has moderated; Powell cautioned that reducing inflation may require below-trend growth and labour market adjustments. During his Q&A, he made a reference to the decision not to hike rates as a “skip,” hinting at a possible rate increase in July. He emphasised the need for a more moderate pace of tightening. Powell said that a rate cut was unlikely and expressed limited concerns about the banking turmoil’s impact. He discussed potential challenges in commercial real estate and projected a fall in the RRP and reserves during the TGA rebuild. Since the meeting, Chair Powell has reiterated that it would be appropriate to lift rates at least a couple of times (in keeping with the Fed’s forecasts), stating that incoming data will be the influencing factor; he also has said that a majority of Fed officials support a couple of further rate hikes.

RECAP - ISM MANUFACTURING (MON): The headline printed 46.0 in June (exp. 47.0, prev. 46.9), prices paid fell to 41.8 (exp. 44.0, prev. 44.2), while the forward-looking new orders index rose to 45.6 from 42.6. Analysts at Capital Economics said the data indicates a weakening manufacturing sector, and raises concerns about a possible recession. The decline in the index, along with falling production and employment indices, suggests a potential decrease in manufacturing jobs and output. While new orders did improve slightly, it remains historically weak. The survey, however, also suggests that core goods prices may soon start to fall, as supplier deliveries, orders backlogs, and prices paid indicate a trend towards lower inflation.

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We below recap on US equity news that was released since after Friday’s close.

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05 Jul 2023 - 09:30- MetalsData- Source: Newsquawk

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