As we approach the open... - 6/23/21

As we approach the open... - 6/23/21

As we approach the open of trade of equities in NY, US futures trade with a mild upside bias.  SPX, NDX, and RUT all indicated to open green but by around a tenth of a percent or less.  

In U.S. corporate news:

IHS Markit (INFO 113.00, +1.29): +1.2% after beating top and bottom-line estimates and raising its FY21 guidance. Carvana (CVNA 306.50, -6.60): -2.1% after the stock was downgraded to Neutral from Overweight at JP Morgan. Huntington Banc (HBAN 13.98, +0.30): +2.2% after the stock was upgraded to Strong Buy from Outperform at Raymond James. Patterson Companies (PDCO 31.13, -3.99): -11.4% after missing EPS estimates on above-consensus revenue and guiding FY22 EPS below consensus. 

And I haven't mentioned it in a while, so I'll mention it today.  While the market is fixated on every word from every Fed speaker this week, the important stuff says the path is upward for now.  I mentioned real interest rates last week (they remain negative, and those are a tailwind until they hit 1%) and just as important are financial conditions.  They continue to hit record lows (lows in this case are good).

Asia

Major equity indices in the Asia-Pacific region ended Wednesday on a mixed note. Japan's Nikkei: UNCH Hong Kong's Hang Seng: +2.0% China's Shanghai Composite: +0.3% India's Sensex: -0.5% South Korea's Kospi: +0.4% Australia's ASX All Ordinaries: -0.5%.

Japan is reportedly considering stricter regulations of foreign companies that invest in Japanese companies with sensitive technology. 

In economic data, as noted last night, global PMI's out.  In Asia, Japan's Manufacturing PMI expanded for the fifth consecutive month while services contracted (and both decelerated from May) while Australia's Manufacturing PMI expanded for the 13th consecutive month.  Japanese LEIs did improve.

Japan's May Leading Index 103.8 (last 102.4) and Coincident Indicator 2.4% m/m (last 2.6%). June flash Manufacturing PMI 51.5 (last 53.0) and flash Services PMI 47.2 (last 46.5).  “Panel members commonly associated disruption to operating conditions to ongoing COVID-19 restrictions, coupled with severe supply chain pressures, notably for manufacturers,” the Japan survey said.

Australia's June flash Manufacturing PMI 58.4 (last 60.4) and flash Services PMI 56.0 (last 58.0)

Singapore's May CPI 2.4% yr/yr (expected 2.2%; last 2.1%)

Europe

Major European indices trade on a mostly lower note. STOXX Europe 600: -0.4% Germany's DAX: -0.7% U.K.'s FTSE 100: +0.2% France's CAC 40: -0.6% Italy's FTSE MIB: -0.6% Spain's IBEX 35: -0.5%.

The British government will reportedly lift mask and social distancing requirements on July 19. Officials from the EU and the U.K. are reportedly closing in on a solution to the Irish border check dispute. European Central Bank policymaker de Guindos said he expects strong growth in the second half. Germany's cabinet will reportedly support plans for net borrowing of EUR100bln in 2022.

In economic data European PMI's came in very solid with overall EU activity at a 15 year high.  “The eurozone economy is booming,” IHS Markit’s Chief Business Economist, Chris Williamson.  IHS Markit said businesses cited “surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.... Overall, the PMI confirms a picture of accelerating growth over the course of Q2 as restrictive measures are eased. We expect growth to accelerate in Q3 before it levels off a bit, but overall our base case is one for strong converging growth numbers across the eurozone in 2021.”

Germany, the bloc’s largest economy, led the charge. The nation’s manufacturing PMI printed 64.9 in the flash read. The services PMI rose to 58.1. At 60.4, Germany’s composite PMI sits at a 123-month high. The new orders gauge touched the highest since January 2011.  France missed expectations but still came in well above 50. “It means the French economy has enjoyed its best quarterly performance since early 2018.”

In addition we appear to be seeing some relief here as well from choked supply lines and scorching prices.  “Supply shortages still remain widespread, but a fall in the number of goods producers reporting longer lead times and rising material prices are perhaps the first signs that the worst of the disruption has now passed,” IHS Markit’s Phil Smith said.  Services prices and disruptions were increasing though.

Eurozone's flash June Manufacturing PMI 63.1 (expected 62.1; last 63.1) and flash Services PMI 58.0 (expected 57.8; last 55.2)

Germany's flash June Manufacturing PMI 64.9 (expected 63.0; last 64.4) and flash Services PMI 58.1 (expected 55.5; last 52.8)

France's flash June Manufacturing PMI 58.6 (expected 59.0; last 59.4) and flash Services PMI 57.4 (expected 59.4; last 57.0)In news:

U.K.'s flash June Manufacturing PMI 64.2 (expected 64.0; last 65.6) and flash Services PMI 61.7 (expected 63.0; last 62.9) 

Commodities/Currencies/Bonds

Bonds - 10-yr yields trade slightly higher but remain below 1.5% at 1.485%.  

And in today's installment of "How the Fed Turns" Bostic was out with a dovish message on NPR.

And I thought I would bring you Deutsche Bank’s Aleksandar Kocic's exasperated musings on everyone's attempts to "read" anything into the dot plot.

The plot represents a survey of 18 Fed members regarding their view where position of short rate across different horizons should be. At each time slice there are 18 points, and when one rotates the paper by 90 degrees counterclockwise, each time slice corresponds to a histogram. 18 points are not enough for any meaningful statistics to be useful. The histogram is not capable of generating a contours of any rates distribution. The meaning of either mean or median, or any other distributional moment, cannot be a useful summary of the plot and even less so should one attempt to interpret it as having anything to do with expected future rates – even if one had a large sample survey capable of generating a robust histogram, that would not in any way correspond to the pricing distribution.

That said he does note that if you're going to take something from the dot plot, it's the overall concept that it's sending.  “The fact that the median corresponds to two hikes carries little significance, but the fact that now a majority believe that rates should be higher, although not clear by how much, is important.  The fragmented consensus within the Fed reflects the declining confidence in their original narratives of transitory inflation,” Kocic went on to say, adding that “this dispersion is a sign that we are entering a period of high sensitivity to the incoming data which could work towards shaping of a new consensus and firming up the timing and size of rate hikes and, possibly, contours of the tightening cycle.”

Dollar - Testing the 200-DMA this morning at 91.64.  I'm still betting it breaks through.

VIX - Continues to fall to 16.35.

Crude - Up with WTI back over $73 to $73.89 despite headlines out this morning that OPEC+ will look to raise output by 500kbd above what is currently scheduled.  Given the rumor was output was increasing it seems a mild increase is a relief.  

As Russia apparently feels an Iranian deal is close.

Nat Gas - Continues to bounce after it's successful test of the 20-DMA with a second consecutive strong morning.

Gold - Up a touch as it takes a second try at the 100-DMA it failed at yesterday.  

Copper -  Continuing to build on its break of its 100-DMA.  Technicals starting to firm up.

US Data

Mortgage apps increased again this week  - US MBA Mortgage Applications Jun 18: 2.1% (prev 4.2%) - with both refi's and purchase apps increasing again this week despite rates increasing to the highest level in a month.  Refi's were up by 3% w/w and purchases 1%.  They are lower by 9 and 14% y/y as they continue to lap the unprecedented strength from last summer.

From the report:

“Mortgage rates increased last week, with the 30-year fixed rate rising to 3.18 percent – the highest level in a month. Despite the jump in rates, refinances increased for the second consecutive week, pushed higher by a 4 percent bump in conventional refinance applications,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase applications have regained an upward trend over the past few weeks. Activity was slightly higher for the third straight week, but remained lower than the same week a year ago. Government purchase applications drove most of last week’s increase, which also contributed to a slightly lower overall average purchase loan size.”

...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.18 percent from 3.11 percent, with points increasing to 0.48 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

We'll get US PMI's, new home sales, and EIA later today.  I'll write on all three.

Misc.

Random stuff:

Republicans block the Democrats' prized voting bill.  This will certainly not help any spirit of bipartisanship.

Which may already be showing in Manchin starting to accept some previously off limit concepts of Biden's infrastructure plan.  Think reconciliation is becoming more likely path.  The Dems are going to run out of time if they don't start moving on that.

And another CB rate rise.

As Bank of Canada looks for mandate change to run the economy hot.

As WSJ notes that tapering does not equal higher (or lower) bond yields (although the actual process of tapering does normally flatten the curve).

As Canadian retail sales were weak.

And appears there may be a temporary truce in the "Sausage War". 

And mentioned this a while ago, but shipping rights through the melting Artic sheet is going to be a highly prized possession (WSJ).

To see more content, including summaries of some of today's economic reports and my nightly Summary go to https://sethiassociates.blogspot.com