Bullish Buzz

July 03, 2024

Bullish Buzz

  • The S&P 500 and Nasdaq indexes closed at record highs yesterday just in time for Independence Day fireworks.
  • Australia May retail sales growth overshot expectations.
  • China’s private survey June Caixin services PMI points to a sluggish growth outlook.

USD is adrift a little under recent highs underpinned in part by higher US Treasury yields relative to that of other major economies. Fed Chair Jay Powell continued to urge patience before easing. Yesterday, Powell noted the latest data “do suggest that we’re getting back on a disinflationary path”, adding “the strong economy and job market give us the ability to take time” before starting to cut rates. Indeed, the US JOLTS job openings data showed labor demand unexpectedly increased in May. The June ADP private sector job estimate is up next (1:15pm London). Employment is expected to rise 165k vs. 152k in May.

The US June ISM Services index is the other main data highlight today (3:00pm London). Services activity is projected to dip to 52.6 vs. 53.8 in May. Softer US economic activity is a near-term headwind for USD. Ahead of the data, New York Fed President John Williams speaks on a panel about the drivers of equilibrium interest rates (12:00pm London).

The FOMC June meeting Minutes will offer more details behind the Fed’s hawkish hold (7:00pm London). Recall, the Dot Plots shifted to show only one 25 bp cut was expected this year versus three previously, while updated macro forecasts saw higher headline and core PCE inflation projections for 2024 and 2025. In contrast, Fed funds futures continue to price-in 45 bp of cuts by December 2024. In our view, the favourable US macro backdrop and easy financial market conditions justify a reassessment in Fed funds rate expectations in support of USD and Treasury yields.

EUR/USD is unlikely to gain material upside momentum as the ECB has room to ease policy further. Yesterday, ECB President Christine Lagarde downplayed sticky Eurozone services inflation which held at 4.1% in June. Lagarde remarked “Obviously, we don’t need to have services at 2% because manufacturing goods are below 2% and at the end of the day it’s going to be a balance between goods and services.” Overall, the Eurozone disinflationary process is well on track and supports the case for the ECB to cut rates again in September. The swaps market continues to imply roughly 70% odds of a 25 bp ECB rate cut for September 12. Today, Lagarde gives closing remarks (3:15pm London).

The Riksbank releases its June 27 meeting minutes (8:30am London). At that meeting the Riksbank delivered a dovish hold. It kept rates steady at 3.75%, as expected, but warned “the policy rate can be cut two or three times during the second half of the year.” Previously, the policy guidance was “the policy rate is expected to be cut two more times during the second half of the year.” Macro forecasts were update, with both CPI and CPIF inflation revised down significantly for 2024 and 2025. There are four more policy meetings in H2.

National Bank of Poland (NBP) is expected to keep rates at 5.75% (between 1:00 and 3:00pm London). The bank will likely reiterate that “the current level of the NBP interest rates is conducive to meeting the NBP inflation target in the medium term.” Following the June meeting, Governor Adam Glapinski said the likelihood of rate cuts by the end of this year is “nil”, adding “my comments today are hawkish. There is no reason to expect the message will change this week. The swaps market is pricing in 25 bp of easing over the next six months. Governor Glapinski holds a press conference tomorrow and the Minutes of the meeting will be released Friday.

AUD/USD is trading near the top-end of its multi-week 0.6575-0.6700 range as Australian 10-year government bond yields is closing in on 10-year US Treasury yields. Australia retail sales growth overshot expectations. In May, retail sales rose 0.6% m/m (consensus: 0.3%) following a 0.1% increase in April, boosted by early end-of-financial year promotions and sales events. The swaps market continues to price-in 25% odds of a 25 bp RBA policy rate increase at the next August 6 meeting. Bottom line: monetary policy divergence between the RBA and BOC suggests AUD/CAD can edge higher.

China’s private survey Caixin services PMI points to a sluggish growth outlook. In June, the Caixin services PMI fell to an 8-month low at 51.2 (consensus: 53.4) vs. 54.0 in May. As a result, the Caixin composite PMI fell to 52.8 vs. 54.4 in May. For comparison, the official composite PMI fell to 50.5 vs. 51.0 in May. The official PMIs tends to be more closely correlated to real economic activity than the Caixin readings. Bottom line: with the PBOC still in easing mode and the Fed staying hawkish, downside pressure on CNY and CNH are intact.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction