Nasdaq extends rally as traders digest last week’s good inflation data

Stocks extended last week’s rally, with the Russell 2000 and Nasdaq especially buoyed by good news on inflation. The dollar continues to be weak, reflecting a growing belief that US interest rates are close to peaking. Oil and precious metals saw profit taking on disappointing economic data out of China.

Bottom-line: risk-on

TODAY’S MAJOR NEWS

Russia ends Ukraine grain initiative

Russia formally suspended participation in the Ukraine grain initiative with hopes for an extension now appear to be evaporating. The agreement facilitated shipment of 33 million metric tons of corn and wheat over the past year. While this will cause hardship to consumers in Europe and Africa, the price impact was muted. Wheat and soybean prices were well-off their session highs after Russian announcement, suggesting that traders had already accounted for the risks.

Ukraine has also previously stated that it was prepared to continue the initiative without the participation of Russia. The question is, will Russia allow that to happen, or will it do something to send a message that it is unsafe for ships to move through the region? If so, will Ukraine then retaliate against Russian shipments? The final outcome is likely to be messy. Global wheat supplies remain adequate as long as Russia continues to dump cheap supplies onto the world market, and with a big Brazilian ‘safrinha’ harvest.

China’s Q2 GDP at low end of expectations

China’s gross domestic product rose 6.3% year-on-year in China in the second quarter, less impressive when compared to last year when Covid lockdowns were in place. Growth beat Q1’s 4.5%, but was below the low end of analyst expectations. Second quarter growth was up just 0.8% on the quarter, down from 2.2% growth the previous quarter. Total retail sales slowed to 3.1% growth in June year-on-year, down from 12.7% in May. Consumer confidence continues to slide, creating a drag on consumer spending. Domestic spending is sluggish and export demand is down due to decoupling by Europe and the US. China still needs to stimulate its economy, but its ability to do so is limited by monetary tightening in other major economies and by its own domestic debt issues.

Tech and bank earnings due this week

This week sees more key quarterly results, including Bank of America and Goldman Sachs on Tuesday and Tesla on Wednesday. Second quarter earnings for S&P 500 companies are predicted to fall 7% in aggregate.

TODAY’S MAJOR MARKETS

Equity markets

• Markets continued to rally in morning trade after a strong prior week, with the Russell 2000 up 1.2%, with the Nasdaq and S&P 500 up 0.7% and 0.3% respectively
• Global markets saw profit taking, with the FTSE 100 down 0.4%, with the DAX and Nikkei 225 off 0.2% and 0.2%, respectively
• The VIX, Wall Street’s fear index, was unchanged at its 12-month low at 13.5

Currencies and Bonds

• The dollar index was unchanged against a basket of currencies at 99.6
• Yen/dollar, Sterling/dollar and Euro/dollar were also unchanged
• Bonds were similarly unchanged, with yields on 2- and 10-year Treasuries at 4.73% and 3.81%, respectively

Commodities

• Crude oil prices were off 1.6% at $74.2 per barrel
• Silver prices saw profit taking, off 0.7% at $25.0 per ounce
• Gold prices fell 0.4% to1,957 per ounce
• Grain and oilseed markets were mostly higher overnight on Russia's formal withdrawal from the Black Sea Grain Initiative, but corn and wheat prices sold off by midday

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com