Stocks were mixed at midday, with the US Dollar, Bonds and Oil the only bright spots. A European seminar hosting central bankers sounded a hawkish tone, generally expected but still chilling the market’s mood. Chip stocks are under pressure amid fears that the US may do more to curb exports of artificial intelligence chips to China.
Bottom line – risk-off.
TODAY'S MAJOR NEWS
Central bankers unite to fight inflation
Central bankers meeting in Portugal earlier today communicated a united front to confront inflation. Fed chair Jay Powell pointed to a tight labor market, supporting troubling wage inflation. Powell said he doesn't see inflation excluding volatile food and energy prices getting back to 2% this year or next. “If you look at the data over the last quarter, what you see is stronger than expected growth, a tighter than expected labor market and higher than expected inflation,” said Powell. “So that tells us that although policy is restrictive, it may not be restrictive enough and it has not been restricted for long enough.”
Powell went a step beyond his wait and see stance, hinting at rate hikes at "consecutive" meetings, prior policy before the Fed held rates steady last month for the first time since January 2022. Asked whether the Fed would consider raising rates at every other meeting, Powell replied: "I wouldn't take moving at consecutive meetings off the table, either." The European Central Bank is likely to make another rate hike in July, according to ECB president Christine Lagarde, as is the Bank of England. Bank Governor Andrew Bailey said its recent 50-point rate hike reflected a resilient economy and persistent inflation, adding that they will continue to do "what is necessary."
No AI chips for China
The US is considering new restrictions on exports of artificial intelligence chips to China, the Wall Street Journal reported yesterday. Shares of Nvidia Advanced Micro Devices have fallen 5% and 3%, respectively, in the past five trading days. Reports suggest that the Commerce Department will stop the shipments of chips made by chip companies to customers in China as early as July.
China’s declining birth rate an economic threat
Marriage registrations in the first quarter of this year rose by 40,000 year-on-year in China to 2.147 million, but was still nearly half the 4.282 million registrations posted 10 years prior. Having a child out of wedlock in China is taboo, so lower marriages means lower birth rates for the country, which is already seeing its population in decline due to China’s previous one-child policy. While family size has been raised that to three children, the one-child policy is deeply engrained into the culture. Divorce registrations increased by 127,000, more than triple the increase in marriage registrations during the period, further threatening the birth rate.
Investors favor US, Europe but not Asia
- State Street’s investor confidence index for equities rose to 95.8 in June, up from 89.7 the previous month
- The index is a measure of investor confidence in the markets, measured by changes in investor holdings of equities, with 100 is considered neutrality
- The North America index rose 4.9 points to 90.0
- The European index rose 5.0 points to 104.9
- Asian investor confidence index fell 4.3 points in June to 96.7, echoing concerns about China's economy
Rising inventories point to consumer confidence
- The Commerce Department reported that US wholesale inventories in May fell 0.1% month-over-month, after a 0.3% drop in April – they were up 3.6% year-on-year
- Retail inventories in May rose 0.8% month-over-month – they advanced 7.0% year-on-year
- Higher inventories can indicate retailer confidence in future demand
Oil stocks fall
- US commercial crude oil stocks, excluding the Strategic Petroleum Reserve, fell by 9.6 million barrels to 453.7 million barrels in the week ending June 23, worse than expected, and roughly 1% below comparable levels for this week
- Gasoline stocks rose by 0.6 million barrels, about 7% below seasonal levels.
- Distillate stocks increased by 0.1 million barrels during the week, 14% below the five-year average for the week
TODAY’S MAJOR MARKETS
Equity markets
- The Nasdaq Composite and Russell 2000 were flat this morning, with the S&P 500 off 0.3%
- Global markets were pretty un-inspired, with the DAX and FTSE 100 indexes flat and up 0.5%, respectively, while the Nikkei 225 rose 2.0%
- The VIX, Wall Street’s fear index, fell again to 13.7
Currencies and Bonds
- The dollar index rose 0.5% against a basket of currencies to 102.6
- Euro/dollar and Sterling/dollar cross-rates fell by 0.4% and 0.8%, respectively
- Yields on 2- and 10-year Treasuries were a shade lower at 4.72% and 3.73% respectively
Commodities
- Gold prices were unchanged at $1,922 per ounce
- Crude oil prices rose 2.8% to $69.6 per barrel, with falling US stocks cited as one reason
- The sell-off in the grain and oilseed sector continued amid wetter forecasts for dry areas of the Midwest
Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com
Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com