European markets have edged higher in anticipation that China’s efforts to support its property sector may translate into further measures to support a rebound in economic activity.
Europe
Trading activity however is somewhat subdued with the markets treading water to some extent ahead of tomorrow’s US CPI numbers for June. Luxury retail is leading the gainers as shown by the outperformance in the CAC 40 with solid performances from LVMH and Hermes.
The FTSE100 is lagging, with a slightly stronger pound acting as a slight drag on the valuations of some of the bigger cap US dollar earners. The FTSE250, on the other hand is slightly higher after retail sales numbers from the British Retail Consortium rose 4.2%, with the warmer weather helping to lift sales volumes.
The latest UK wages numbers won’t have been welcome news for the Bank of England after coming in at a record high of 7.3%, for the 3 months to May, equalling the levels in April. The strength of the numbers has prompted markets to price in the possibility that we might see a 50bps rate hike from the Bank of England at the beginning of August, instead of the 25bps which is already priced in.
There haven’t been any notable standouts from today’s price action, with basic resources amongst the best performers and health care the laggards.
US
US markets initially took their cues from the broadly positive tone from today’s European session, opening higher as investors continue to look towards this week’s US inflation numbers and the start of earnings season on Friday when we get Q2 numbers from JPMorgan, Citigroup, and Wells Fargo. These numbers should offer a solid insight into how the US economy is doing and how consumers are faring.
Rivian shares are on focus as it looks to build further on the gains of the last 9 days and make history with 10 days of gains.
Salesforce shares are higher after the company announced it was raising prices.
The Nasdaq 100 will be in the spotlight over the course of the next few days after it was announced that on the 24th July the index would be rebalanced to reduce the weightings of the so-called Magnificent 7 which has driven a lot of the gains so far this year. The rebalance which would be the first of its kind would reduce the combined weightings of Microsoft, Meta, Nvidia, Tesla, Alphabet, Apple and Amazon, from just over 50% to just over 40%.
FX
The Japanese yen has continued to make gains today, pushing up to 3-week highs, shaking out US dollar long positions, ahead of tomorrow’s US CPI numbers.
The pound has pushed up to a 15-month high against the US dollar after the latest UK wages data for the 3-months to May stayed at a record high of 7.3%, after the April numbers were revised up to the same level. All the while the unemployment rate moved up from 3.8% to 4%, although this wasn’t because of job losses, rather it was people returning to the workforce, as the rising cost of living continued to bite. The pound also rose to its highest levels against the euro in almost 2 years, as markets looked to price in a 50bps rate hike in August. While today’s wages data will be not be welcomed by the Bank of England the rise in the pound does have a silver lining as it helps to deliver a deflationary impulse given how much the UK imports.
The euro has slipped back after the latest Germany ZEW survey for June came in much weaker than expected, pointing to an expectation of significant further weakness for the German economy heading into year end. This weakness may well constrain the ECB in how much they feel they can raise rates in the coming months.
Commodities
Crude oil prices are slightly higher on the back of optimism that further stimulus measures out of China will see a pickup in demand. There is also increasing evidence that the recent output cuts are now starting to have an effect with a tightening of supply.
A slightly weaker US dollar is helping to push gold prices up towards their recent range highs, ahead of tomorrow’s June CPI numbers. A weak inflation number could help push gold prices back towards their June highs, above $1,950.
Volatility
Shares in Facebook owner Meta saw an active start to the week, threatening to break above the $300 mark for the first time in 18 months before retreating. There’s a lot of positive news circulating around its new Threads micro-blogging service but again this is a stock with a massive market cap seeing significantly elevated levels of price action. One day vol stood at 62.77% against 50.53% for the month.
Palladium was something of a standout in terms of commodities. Underlying prices briefly dipped below the $1200 mark in Monday’s trade before recovering, but the metal remains under pressure. It’s a key component in catalytic converters for traditional cars, but the rising popularity of electric vehicles is seen as having the potential to sideline demand. One day vol stood at 52.83% against 44.21% for the month.
Chinese tech stocks found support yesterday as traders looked beyond the clamp downs seen in recent years. There’s a belief that calmer waters lie ahead and that was sufficient to bolster CMC’s proprietary basket of 10 Chinese companies involved sectors including e-commerce and financial services. One day vol on the basket advanced to 41.01% against 37.28% for the month.
And in fiat currencies, activity was relatively subdued with EUR/CHF being the only cross to show elevated levels of price action on the day. A lack of risk appetite appears to be moderately favouring the Swiss Franc but the erratic nature of gains here is elevating vol levels which stood at 5.91% on the day versus 5.27% on the month.
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