Early Morning Call: China indices outperform; GBP/USD down; oil price falls
Small drop expected in Europe; Chinese markets outperformed overnight as China data benefitted from a release from Covid lockdowns; US tech underperforming. USD on its way up again, while oil is holding at Wednesday’s lows.
European equity markets started Wednesday’s session lower after a mixed session in the US and APAC.
In the Asia-Pacific region, the Japan 225 and Australia 200 ended the day lower. The Hong Kong HS50 spent most of the session in the green but is down in the last hour of trading. China mainland indices rose after the NBS manufacturing PMI came back above 50 after three months of contraction. It rose to 50.2 in June from 49.6 in May.
NBS non-manufacturing PMI jumped to 54.7 in June from 47.8 in May, the fastest rise in 13 months. Japan recorded its worst monthly drop in factory output in two years. Industrial production fell by 7.2% in May month-on-month (MoM), much more than the 0.3% fall expected by economists. This marks the sharpest monthly decline since a 10.5% MoM drop in May 2020.
Here in the UK, final first quarter (Q1) gross domestic product (GDP) data was in line with expectations. The UK economy has expended 0.8% quarter-on-quarter.
Over in the US, markets await core the PCE price index for May. Economists expect the index to decline by a tenth of a percentage point to 4.8% on a year-on-year basis. This could be the next test for the greenback. Yesterday the dollar gained on renewed concerns about higher interest rates and a potential global recession.
Speaking at the European Central Bank (ECB) forum in Portugal, Federal Reserve chair, Jerome Powell, repeated that is was important to bring inflation down, even if measures taken would cause economic pain.
ECB president, Christine Lagarde, made similar remarks. Also expected: personal income and spending for the month of May and initial jobless claims.
The OPEC+ meeting concludes today, and already sources say that no big policy change is to be expected this month.
At its last meeting, OPEC+ decided to raise output each month by 648,000 barrels per day (bpd) in July and August, instead of a 432,000 bpd output increase during three months.
Yesterday EIA inventories showed crude inventories fell by 2.8 million barrels last week, exceeding analysts' forecast of a 569,000-barrel drop.
U.S. gasoline stocks rose by 2.6 million barrels, distillate stockpiles rose by 2.6 million barrels. The EIA added that Oil - US Crude in the Strategic Petroleum Reserve fell by seven million barrels last week to 497.9 million barrels, its lowest since April 1986. US crude production rose by 100,000 barrels per day to 12.1 million bpd, its highest level since April 2020.
Finally, on the corporate front, Walgreens Boots Alliance and Constellation Brands Inc are expected to report quarterly earnings before the market open. After the US closing bell it will be the turn of Micron Technology Inc (All Sessions) to publish its quarterly results. Analysts expect earnings of $2.46 per share, on revenue of $8.68 billion. Markets will be particularly attentive to guidance, in a context of declining prices for memory components and higher logistics costs.
Yesterday the US semiconductor sector took a tumble after Bank of America Global Research shared its opinion that the industry is in for a downturn, citing a slowing 5G smartphone cycle or high inventories for some, China smartphone weakness for others. The Bank of America Corp (All Sessions) lowered price targets for over 20 chip stocks. All the big names are in that list: NVIDIA Corp (All Sessions), Broadcom Inc, Intel Corporation, AMD and Micron Technology Inc (All Sessions).
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