US EARLY MORNING: Index futures lower; CAD jobs data due later today ahead next week's key Tier 1 releases

US PRE-MARKETS: After the S&P 500 re-entered a technical bull market on Thursday, equity futures are pausing for breath, currently trading lower in pre-market trade. Treasury yields are widening by 2-3bps, the Dollar Index is slightly higher. Crude benchmarks are also languishing. Soft China CPI data, and the associated arguments surrounding a slowdown of the world’s second largest economy, appear to be putting a downer on markets ahead of a quiet day for data releases. The quiet docket will allow traders to begin focussing on next week’s key Tier 1 events, which include US CPI, FOMC, Retail Sales (and internationally, the ECB and the BoJ are also on the slate) – we include previews for the US events below. Before then, the CAD focussed traders will be looking to the jobs data due before the market open; we share some thoughts from Scotiabank in the section below, previewing today’s events.

S&P 500 TECHNICAL BULL MARKET: The S&P 500 re-entered bull market territory, rising 20% vs October lows. However, the debate on whether this is the beginning of a new bull market, or a bear market rally, continues. Barclays' strategists note that the top five largest stocks have contributed the highest proportion of SPX returns in 2023 compared to the past 20 years. Although the index weight of these stocks has slightly decreased, their returns account for nearly 75% of the S&P 500's overall returns this year. Barclays says that this concentration of returns is unusual, and stems from investors being underweight in key Tech names before the banking crisis-led "flight to Tech-as-Quality" in Q1. Now that these underweights have been mostly corrected, Barclays believes that positioning is taking a back seat to macro and earnings fundamentals. Barclays says the question remains whether these top stocks can live up to the high expectations surrounding their future earnings potential.

PREVIEW - US CPI (13/JUN): CPI is expected to rise 0.3% M/M in May, a little cooler than the prior 0.4%; the annual gauge is seen easing to 4.1% Y/Y from 4.9%. Bank of America is in line with the consensus in expecting the headline annual rate to fall to 4.1%, which would be the lowest reading since March 2021. BofA says the headline will be driven by a 3.0% decline in energy prices. It says that seasonal factors are also expected to contribute to the downward pressure. Food prices are anticipated to increase slightly due to a rise in food away from home, partially offset by a decline in food at home. Meanwhile analysts expect the core measure to rise +0.4% M/M, matching the pace of April's rise; the annual core measure is seen paring to 5.2% Y/Y from 5.5%. BofA says core inflation's rise will be led by a significant increase in used car prices, while core goods prices excluding used cars are expected to remain little changed. For core services, BofA sees a 0.4% increase, underpinned by shelter inflation, but offset by a decline in lodging away from home. BofA says it is closely monitoring supply chain pressures, trends in consumption spending on goods, and the ongoing deceleration in rent and owners' equivalent rent, and looking ahead, it expects a continued moderation in inflationary pressures.

PREVIEW - FOMC POLICY ANNOUNCEMENT (14/JUN): A Reuters poll revealed that economists generally expect the FOMC to hold rates at 5.00-5.25% next week, with only 8 of the 86 surveyed forecasting a +25bps rate rise. Looking ahead, 32 of the 86 economists still foresee at least one more rate hike later this year. Goldman Sachs thinks the Fed will pause in June meeting to assess the impact of previous rate hikes, as well as tighter bank credit, before considering another rate increase, with officials likely seeing a pause as prudent measure to avoid accidentally overtightening. Goldman says that economic downside risks have diminished, with resilience seen in hard data like spending and the labour market outweighing weakness in other survey data. The bank recently lowered its outlook on a recession, assigning a 25% probability (from 35%), and argues that progress towards a soft landing is on track, supported by improvements in the jobs market, reduced labour shortages, and cooling wage growth. GS also notes that although core PCE inflation has fallen less than expected, a significant deceleration is anticipated later this year. The bank says Fed officials have less reason to be concerned compared to last summer as inflation psychology normalizes and signs of cooling emerge.

PREVIEW - US RETAIL SALES (15/JUN): The consensus expects May's advance retail sales data to be unchanged vs the prior +0.4% M/M; the ex-auto and gas component is seen rising 0.3% M/M, paring from a rate of 0.6% previously, while the Retail Control Group is expected to rise 0.2% M/M following the 0.7% in April. Credit Suisse says the main factor driving the May weakness is likely to be a decline in nominal gasoline spending. However, when excluding auto and gas sales, retail sales are still expected to increase. Ahead, the bank has a bearish outlook for retail sales, noting that recent strength in the volatile non-store sales category is not sustainable. CS also expects sales of large durable goods related to housing to remain under pressure due to weakness in the housing market. Additionally, tighter financial conditions, diminishing excess savings, slower household income growth, and the resumption of student loan debt service in Q3 are expected to weigh on consumption growth.










09 Jun 2023 - 09:01- Research Sheet- Source: Newsquawk

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