Wall Street’s rally took a breather after central banks signalled to keep their tightening policies, while the AI-hype rally lost steam. Economic concerns took the central stage again as recession fears mounted, with spiking rates in both Europe and the US rattling global markets. This could be either a profit-taking moment or an entrance for bears, but one thing that can be confirmed is that the US stock markets face risks of an immediate correction after a multi-month rally ahead of the earnings season. And this week, we will look into the US final Q1 GDP data and its PCE deflator for May. The US PCE is the favorite economic gauge for the Fed to decide on the interest rate, which will be key to steering market movements.
China’s economic growth has been a nightmare for commodity markets, particularly in oil and industrial metals, such as copper and iron ore. The Hang Seng Index continued its downtrend due to PBOC’s disappointing rate cuts and its manufacturing PMI will be a focus for the regional stock markets and commodity prices. The Japanese market’s outperformance will also be in check by looking ahead to the country’s core Tokyo CPI. The Nikkei 255 halts a 10-week gain.
In addition, the Singaporean yearly CPI for May came in at 5.1%, which is 40 basis points below analyst expectations. This provides some optimism with regard to Singapore's inflation trajectory as the government continues to clamp down on rising property prices in an inflation-impacted economy that's proving stickier than expected.
What are we watching?
- The USD resumed gains: Risk-off sentiment mounted and lifted the king dollar again, along with a jump in the US bond yields. The dollar index was moving in a tight range last week, with near-term pivotal support around 102.
- The Japanese Yen weakened broadly: The Yen weakened against most of the currencies due to the BOJ’s insistence on its ultra-loss monetary policy, diverging from its peers in the Western world. USD/JPY hit a 7-month high. At the same time, both GBP/JPY and CHF/JPY reached record highs.
- A possible overbought market in tech: The AI-led tech rally is most likely being overbought after a few mega caps hitting their all-time highs. Put options of Nasdaq on 20 June 2023 are being mostly traded among the June contracts, implying heavy bets for a market correction.
- Chinese stock markets slump further: The Chinese government’s stimulus measures did not satisfy investors’ risk appetite, along with a faltering economic rebound. The Western central banks’ terrifying hawkish rhetoric added fears to the selloff.
- Crude oil market is at stake: Crude oil prices slumped as sentiment soured in risk assets amid softened China’s economic outlook, and major central banks’ rate hikes. But it is worth keeping in mind that OPEC+ may cut output further to sustain oil prices’ stability.
- Bitcoin surges: Bitcoin soared about 17% last week to the highest since May 2022 as the cryptocurrency market was on fire amid BlackRock’s filing of a spot Bitcoin ETF, suggesting the US regulator may start giving the green light to the asset class.
Economic Calendar (26 June – 30 June)
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