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Major indices close near session highs

  
Analysis, US Market

The major US stock indices  closed sharply higher and near session highs. The major indices for the week still closed lower, but cut into those declines with the sharp gains today. Retail sales came in better-than-expected which helped. Industrial production was lower and Michigan consumer sentiment came in a little better than expectations and showed a lower inflation expectations for one and 5 years which was a relief to market traders.

All 11 sectors of the S&P index closed higher led by financials which rose 3.51%. Healthcare rose by 2.44% and communication services rose 2.14%.

The laggards in the S&P were utilities which rose 0.21%, consumer staples which rose 0.4%, and industrials which rose 1.58%.

The final numbers are showing:

  • Dow industrial average rose 655.85 points or 2.14% at 31286.101
  • S&P index rose 72.51 points or 1.91% at 3862.80
  • NASDAQ index rose 201.25 points or 1.79% 11452.43
  • Russell 2000 rose 36.86 points or 2.16% at 1744.37

For the trading week:

  • Dow industrial average fell -0.17%
  • S&P index fell -0.99%
  • NASDAQ index fell -1.56%

European bond spreads widening again amid Italy’s political debacle 10-year Italian and German bond yields spread up to 227 bps on the day

  
  Analysis
DEIT10Y

Even though the mood in the bond market is calmer compared to the start of yesterday when Italian bonds slumped, the spreads are widening and that highlights investor concern surrounding the situation. The ECB wasn’t comfortable with the development last month so it will be interesting to see if they will come out to say anything this time around, although the circumstances are a little different.

It was all about fragmentation risks before but now Italian politics is adding another risky element to the picture.

US retail sales the key focus today

  
Analysis, Economy

The US retail sales data today just became a whole lot more critical, after Fed’s Waller sided with a 75 bps rate hike for later this month – only willing to change his mind if retail sales and housing market data are “materially stronger than expected”.

The consensus is for June retail sales to see a monthly increase of 0.8% after the 0.3% drop in May:US retail

The ex-autos reading is expected to see a 0.6% monthly increase after a 0.5% jump in the month before. If meeting estimates, those are some decent numbers for the US consumer but at the end of the day, it is how the Fed interprets them to be is what matters.

An easy way to look at it is that any material beat will push markets to believe that a 100 bps rate hike in two weeks’ time is plausible. However, we’ll have to hear from Fed speakers to confirm that and only Bostic is scheduled to speak today. So, markets may be left to their own devices to think about that.

Meanwhile, any miss on estimates will likely keep market pricing grounded with the option of 75 bps to be cemented. For risk trades, this scenario would be the most ideal after a struggling week – despite modest recoveries late in the session in the past two days.

China on Russian oil price cap: The issue is complicated

  
  Analysis

It is a delicate one and while China cannot outright express their support for Russia on this – or their reluctance to join the pact for that matter – they are at least trying to convince of the optics. The Chinese commerce ministry said that the oil price cap issue is “complicated” and that a solution to all this is to “promote peace talks”. That tells a lot without saying much.

Chinese authorities are eyeing capital controls – concern on flows of funds offshore

  
  Analysis

A bit of market scuttlebutt/gossip at this stage – China is concerned about capital moving offshore.

With rates rising rapidly in Canada, and the same to come very soon again from the Fed, RBA, and many others, there will be a temptation for yuan holders to seek higher returns elsewhere. China is maintaining low interest ratees as the economy tries to find its feet again after ongoing lockdowns. And there is no guarantee there are not more lockdowns to come given the country’s commitment to its zero policy on coronavirus.

Chinese authorities may be eyeing the flows out of yen:

usdyen 14 July 2022 chart 444

PBOC monetary policy is nothing like the BOJ, of course. But still, yuan could do a bot of a cathc-down to yen, no?

usdcnh 14 July 2022
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