Market Commentary – June 16, 2021

Kevin Jock

16th June 2021

Wall Street retreated on Tuesday following disappointing retail sales figures alongside faster than expected PPI data fuelling inflation risk. With policy makers set to conclude their two-day meeting on Wednesday, focus will shift towards their outlook and projections, with some analyst expecting the central bank to bring forward their first-rate increase by a year to 2023. Despite this possibility, the VIX index, Wall Street’s fear gauge hit its lowest point since February 2020.

Meanwhile European benchmarks edged higher and the FTSE100 shrugged off lockdown extension worries to gain 0.4% as risk as the potential service job losses is barely expected to put a dent on economic growth this year. In Asia, indices pointed lower in Australia, Japan, and Hong Kong wary of any hawkish indications that might arise out of FOMC.

Bitcoin stabilises around the $40,000 level after MicroStrategy CEO Michael Saylor triples down on the cryptocurrency, currently down 78% of his equity base. The software company turned crypto hoarder raised $400mn to spend on the acquisition of bitcoin.

Crude oil climbed another 1.8% to $72.44 amid continuing signs of stronger global demand. The U.S. dollar index steadied at 1-month highs with the Turkish lira still in focus. The currency weakened 2% to 8.5437 on Tuesday as simmering geo-political tensions drove demand towards the greenback. Elsewhere, gold fell for 3 consecutive days settling at $1,859.

crude oil-Jun-16-2021-07-37-19-71-AM

Figure 1 (Source: IS Prime) Crude Daily : After a brief intermission between March – April. Crude oil has rallied 53% thus far YTD, fueled by continuing demand recovery post-pandemic outweighing supply from OPEC.

Headliner to Review

  • Both retail sales and core sales in the US disappointed consensus contracting -0.7% and -1.3% respectively. The declines largely driven by a rotation in expenditure from goods back to services as social restrictions continue to ease.
  • Both PPI and core PPI rose at a faster pace than anticipated. Substantial increases came from a combination of nonferrous metals and food related goods such as grain, oilseeds, and beef.
  • UK saw inflation increase from 1.5% to 2.1% with prices in clothing, fuel, recreational goods, means and drinks contributing largest in inflationary pressure
  • Leading indicators from China revealed an economy still growing but is beginning to normal after government subsidies fade.
    • Industrial production slows from 9.8% to 8.8%
    • Retail sales grew 12.4% when 14% was expected.
    • Unemployment lower from 5.1% to 5.0%

Headliner to Watch

  • CPI figures out of Canada is expected to stay steady but remain at elevated levels from 0.5% the month before to 0.4% for May.
  • Crude oil inventories intended to remain in deficit. Largely driven by global demand from a recovering economy.
  • No changes in the FOMC is expected, however upward revisions in growth could bring forward the first rate increases by 1 year to 2023.
  • Quarterly GDP out of New Zealand set to reverse course in Q2. The nation is expected to expand 0.5% compared the previous quarters contract of 1%
  • Labour market in Australia expected to add another 30.5K in jobs for May.

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Authors:
Antony Tan
Kevin Jock