Market Briefing - Markets Drop After Consumer Confidence Erodes

The dollar is bid and equity futures are pointing to a drop at the open after yesterday’s selloff reawakened bearish tendencies in the financial markets. Risk appetite fell after the Conference Board’s consumer confidence index dropped to 98.7 in June from 103.2 in the prior month, below market forecasts that had been set just above the 100 mark. Worse, a measure of consumer views on income, employment and business conditions - the expectations index - fell to 66.4 from 73.7 in May.

Oil prices are down slightly, but both global benchmarks remain higher on the week as inventories fall and political turmoil in Libya halts crude exports.

The Canadian dollar remains deeply rangebound, struggling to push through resistance at the 1.28 mark. A supportive energy price backdrop is failing to overcome tighter financial conditions and declining consumer sentiment levels in driving short-term price behaviour.

European bond yields slumped earlier this morning after several German states reported weaker than expected inflation numbers, with prices in North Rhine-Westphalia falling 0.1 percent month-over-month. But the move reversed after Spanish inflation printed above the 10 percent threshold, and as European Central Bank officials - including Holzmann, Lane, Simkus, and Wunsch - set out aggressive timetables for rate hikes into the autumn months. The euro is up marginally after having failed to decisively break through the 1.06 mark during yesterday’s session.

The US will release final first quarter gross domestic product, personal consumption and core personal consumption expenditures data at 8:30 am. Given that this represents a third look at the numbers, markets are unlikely to respond.

A flock of central bankers will speak beginning at 9 am today in Sintra, Portugal. The Bank of England’s Bailey, European Central Bank President Lagarde, and Federal Reserve Chair Powell are all likely to make hawkish noises while trying to avoid encouraging the growing number of recessionistas in financial markets.

Little known fact: A group of hawks is called a “kettle”, a “boil” or a “cast”. Investors may need casts if this kettle boils over.

Unusually, the Energy Information Administration will release inventory data for a two-week period covering June 10 to 24. A bigger-than-expected drop in inventories, particularly at Cushing, could see oil prices rise ahead of tomorrow’s OPEC+ announcement. The cartel is widely expected to confirm an end to pandemic-era production cuts by September, but output in many member countries is falling well below target. Earlier in the week, French President Macron was caught on camera telling President Biden that Saudi Arabia is willing to increase production, but “they don’t have huge capacities”.

Traders are entering positions warily ahead of tomorrow’s personal consumption expenditure release. The core index is estimated to have hit 4.8 percent in May from a year earlier, down from 4.9 percent in the prior month, but still well above the Federal Reserve’s target.

Canada will report April gross domestic product and release an estimate for May, but with the US personal consumption number landing at the same time, it will be difficult to discern how markets are reacting.

Quarter-end flows should exhibit a degree of mean reversion through the next few days, but the broader themes that dominated in recent months - inflation, tighter financial conditions, and growing concerns about global growth - are likely to remain in play into the second half.

Upcoming Events

WEDNESDAY

USD Department of Energy Weekly Inventories

CNY    Purchasing Manager Indices, June

THURSDAY

EUR    Unemployment Rate, May

USD    Personal Consumption Expenditure, May

CAD    Gross Domestic Product, April

USD   Weekly Jobless Claims

CNY    Caixin China Manufacturing Purchasing Manager Index

USD    OPEC+ Meeting

FRIDAY

EUR Consumer Price Indices, June

USD    ISM Prices Paid

USD    Baker Hughes Weekly Rig Count