Market Commentary – June 23, 2021

Kevin Jock

23rd June 2021

Wall Street applauds Federal Reserve Chair Jerome Powell’s balancing act yesterday testifying before the House Select Subcommittee. Nasdaq has since recovered all losses from last week’s hawkish turmoil to record fresh highs, with the S&P500 set to follow suit today and Dow Jones under way. From his opening statement, Powell took a dovish tone, reiterating “a pretty substantial part, or perhaps all of the overshoot in inflation comes from categories that are directly affected by the re-opening of the economy”. Meanwhile, acknowledging “that these effects have been larger than we expected, and they may turn out to be more persistent than we expected”.

In contrast, European and UK markets crept lower over lack of domestic headlines. Elsewhere, overnight U.S. risk-on appetite did not flow into Asia’s open. The S&P200 contacted 0.5% following weaker than expected manufacturing and services PMI. Meeting minute releases from the BOJ weighed down the Nikkei. Board members noted “uncertainty over the pace and effect of coronavirus vaccinations, which could heighten downward pressure on economic activity”.

Mixed performance on the U.S. dollar saw the index holding steady. In focus, the USDCNH notching its’ 8th consecutive rally to 6.4800 after the PBOC’s intervention to ensure institutions hold greater foreign reserves. Crude oil traded above $73 on an industry report illustrating declines in U.S. stockpiles. And gold edges lower to $1,778 following Fed chairs transitory inflation remarks.

Bitcoin briefly wipes out all its’ gains for the year after tumbling 12% on Tuesday touching as low as $28,824. The cryptocurrency is down more than 50% from its’ April peak of $64,900. Persisting sweeping regulatory crackdown to reign in on the largely unregulated market has put the digital asset under immense pressure. On Monday, Chinese authorities summoned officials from major banks and Alipay to reiterate a ban on cryptocurrency services. Beyond China, global regulators have also advised the toughest capital requirements for holding bitcoin and similar tokens.

USDCNH-Jun-23-2021-05-38-05-11-AM

Figure 1 (Source: IS Prime) USDCNH Daily : Following PBOC intervention China’s renminbi depreciates 1.5% for the month of July as Beijing fears exports may be impacted should the appreciation continue.

Headliner to Review

  • Flash manufacturing and services PMI out of Australia saw a slight contraction to 58.4 and 56.0 respectively. Respondents noted the sudden lockdown in Victoria affected results in a re-evaluation of demand conditions.
  • Likewise, Japan’s flash manufacturing PMI figures declined from 53 to 51.5. Momentum in the figures have been waning the past 2 months ahead Tokyo’s Olympic games. Respondents noted restrictions in the places is underscoring household confidence.

Headliner to Watch

  • Plethora of manufacturing and services PMI figures out of the EU, UK and US today
    • In Europe:
      • Manufacturing to decline from 63.1 to 62.4
      • Services to increase from 55.2 to 58.1
    • In UK:
      • Manufacturing to decline from 65.6 to 64.1
      • Services to increase from 62.9 to 62.9
    • In US:
      • Manufacturing to decline from 62.1 to 61.5
      • Services to increase from 70.4 to 70
    • Crude oil inventories expected to remain in deficit at -3.6M.
    • Canadian retail sales set to contract significantly from 3.6% to -5.1%.

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Authors:
Antony Tan
Kevin Joc