ReutersReuters

Summer will be a waiting game for investors

Perkara utama:
  • U.S. equity indexes down sharply, Nasdaq falls ~2%
  • Cons disc down most among S&P sectors; utilities sole gainer
  • Euro STOXX 600 index down ~1.9%
  • Dollar ~flat; gold, crude, bitcoin down
  • U.S. 10-Year Treasury yield falls to ~3.01%

SUMMER WILL BE A WAITING GAME FOR INVESTORS (1200 EDT/1600 GMT)

Investors looking for clarity on the path of global central banks, inflation, and whether the worst of the risk aversion that has sent stocks tumbling are behind us, may be disappointed as the next few months are unlikely to provide much insight, according to TD Securities.

"The summer remains a waiting game," Rich Kelly, head of global strategy said in a report.

"Waiting to see if m/m inflation prints show signs of decelerating. Waiting to see if global growth data firms or falls. Waiting to see how those impact the calculus for central banks. And waiting to see if the ECB or BoJ shocks the market. We don't expect the market to have much conviction on most of this until the autumn, given what we're looking for from the data," Kelly said.

Kelly added that investors should be reluctant to pile into risky assets as Treasury yields are likely to continue to rise. "While risk has generally spent the back half of June rallying, we are hesitant to buy into that trend," he said.

Short-dated U.S. Treasury yields are likely to continue higher as the Fed hikes rates, while the curve is likely to flatten on concerns that the aggressive tightening will spark a recession, Kelly said. "This should keep 10y rates capped near 3.5%, but should keep real rates rising.

(Karen Brettell)

*****

QUARTER-END DATA CLEARANCE : EVERYTHING MUST GO! (1114 EDT/1514 GMT)

A barrage of data rained down on investors as they skulked across the second-quarter finish line, all of which suggested the economy is running low on gas as it coasts down the gradual slope from peak inflation.

Consumer spending growth (USGPCS=ECI) slowed down in May, rising a nominal 0.2%, undershooting expectations by half and marking a sharp deceleration from April's downwardly revised 0.6% increase.

The Commerce Department's closely-watched personal consumption expenditures (PCE) report also showed personal income growth (USGPY=ECI) of 0.5%, inching 0.1 percentage point higher from the previous month and hitting the consensus bulls eye.

Even so, rising inflation is clearly having a chilling effect on non-essential items, as disposable income slid 0.1%

Taken together, it all translates to a savings rate increasing to 5.4% of disposable income, still well below pre-pandemic level of around 7.5% as Americans continue to dipped into their piggy banks in order to put gas in their tanks and food on their tables.

"Real disposable personal income is essentially flat since January, as the rising cost of living absorbed all the increased spending power from added jobs and higher wages," writes Bill Adams, chief economist at Comerica Bank. "Americans are running faster just to stay even. No wonder consumer confidence is in the pits!"

Speaking of which, perhaps the most highly anticipated element of the PCE report was the price index (USPCEM=ECI), which aggregates the cost of a basket of goods and services and is the Federal Reserve's preferred inflation yardstick.

The index registered a 0.6% monthly jump, tripling April's gain, but held steady at 6.3% year-on-year.

Stripping out volatile food and energy items, so-called "core" inflation echoed the April print at 0.3%, but showed a welcome cool-down to 4.7% on an annual basis.

An increase in prices for services offset an easing cost of goods.

"Price conditions in the U.S. are best understood by breaking out goods inflation from services inflation as goods inflation is slowing," says Jeffrey Roach, chief economist at LPL Financial. "However, this is a net positive for investors as the core year over year growth rate has consistently fallen since February."

PCE provides the final piece of the inflation picture for May. Shown in the graphic below, all major indicators show a gradual but unmistakable deceleration in core price growth since the March peak, but they've only just begun their long descent toward Powell & Co's average annual 2% inflation target:

The number of U.S. workers filing first time applications for unemployment benefits (USJOB=ECI) came in at 231,000 last week, a nominal drop of 2,000 and slightly more than the average forecast.

The number remains within the range associated with healthy labor market churn, with near record job openings and low unemployment, the labor market remains tight. That puts upward pressure on wages, a less-than-transitory element of overall inflation.

"The bar for layoffs remains high for most businesses because people who are let go probably won't be available for re-hiring if business conditions improve," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.

But with the participation rate beginning to creep higher, and interest rate hikes from the Fed expected to result in more joblessness as the economy cools, that tightness could be in the process of loosening its grip.

In fact, the four-week moving average, which irons out weekly volatility, remains on the upswing since initial claims sank to a decades-low nadir in mid-March.

Additionally, ongoing claims (USJOBN=ECI), reported on a one-week lag, unexpectedly rose to 1.328 million, although that number remains well below the pre-Covid 1.7 million level.

Finally, factory activity in the midwest eased its foot from the accelerator.

The Chicago purchasing managers' index (PMI) (USCPMI=ECI), brought to you courtesy of MNI indicators, shed 4.3 points to deliver a lower than expected print of 56.

A PMI reading over 50 signifies monthly expansion.

The pull-back falls in line with what analysts expect the Institute for Supply Management's more broad, national PMI data to show on Friday, seen pulling back modestly to 54.9, still safely within expansion territory.

Wall Street is shuffling across 2022's halfway point in a selling mood.

All three major stock indexes are down sharply, with utilities (.SPLRCU) offering a rare glimpse of green.

(Stephen Culp)

*****

U.S. STOCKS IN THE RED AS BLEAK HALF-YEAR WINDS DOWN (1050 EDT/1450 GMT)

Shares on Wall Street are trading sharply lower in early trading on Thursday as investors perpetually worry that the Federal Reserve will drive the U.S. economy into recession with aggressive interest rate hikes.

On this last day of June, the S&P 500 index (SPX) is on track to end the first half with the biggest percentage drop since 1962, while the Nasdaq Composite (IXIC) is set for its largest decline ever.

The Dow Jones Industrial Average (US30) is also on pace for its biggest percentage decline in the first six months of the year in sixty years. The Dow and S&P 500 are likely to post their second straight quarterly decline for the first time since 2015 while the Nasdaq is looking at back-to-back quarterly declines for the first time in six years.

Large-cap growth stocks including Microsoft Corp MSFT.O, Apple Inc AAPL.O, Amazon.com Inc AMZN.O and Tesla Inc TSLA.O fell, leading declines for the day.

Stocks showed little reaction to earlier data showing core personal consumption expenditure price index in May was slightly below expectations, while higher prices forced cutbacks on purchases of other goods, another sign that the rebound in economic growth early in the second quarter was losing steam. .

"Even though we're in a bear market, investors need to be careful with playing defense in the stock market," said Kevin Gordon, senior investment research manager at Schwab.

"Traditional defensives such as utilities and consumer staples are getting expensive and in fact have forward P/Es (price earnings) that are greater than that of the S&P 500."

Here is a market snapshot:

(Gertrude Chavez-Dreyfuss)

*****

CHECKING THE ECONOMIC PULSE USING RH's WRIST (0910 EDT/1310 GMT)

Despite Thursday marking quarter end, with the S&P 500 (SPX) on tap for its worst first-half of a year since 1970, Michael O'Rourke, chief market strategist at JonesTrading, said in a note out late Wednesday, that financial markets appear to be entering into holiday mode ahead of the long weekend.

O'Rourke noted that this week's volume through Wednesday was running approximately 9% slower than the first three trading days of last week. This leads him to believe that a good portion of last week's 6.5% S&P 500 gain was quarter-end portfolio rebalancing.

In any event, O'Rourke is taking notice of action in shares of RH, formerly Restoration Hardware. The stock is sliding about 10% in premarket trade on Thursday. After the closing bell on Wednesday, the company slashed its 2022 revenue forecast on slowing demand.

O'Rourke says that RH was one of the first companies to turn cautious on the economy in 2022, when in its March conference call, management provided "conservative" FY 2022 guidance for net revenue, while citing softening demand highlighting inflation uncertainty, two years of interest rate hikes ahead and the invasion of Ukraine.

In the wake of the new updated guidance, O'Rourke says that CEO Gary Friedman said he expects demand to "continue to slow throughout the year."

RH shares are down 55% year-to-date through Wednesday, and as O'Rourke sees it, the company is "not ready to buy the dip," which he says is important since Friedman is "very savvy" when it comes to share repurchases.

"In 2017, he levered up the company for an aggressive share buyback in which the company repurchased 49.6% of the shares outstanding in two quarters. RH shares appreciated 180% in 2017. We will all be watching to see when the company turns buyer again."

(Terence Gabriel)

*****

NASDAQ TROOPS: NO STOMACH FOR THE FIGHT? (0900 EDT/1300 GMT)

It's been another rough week for the Nasdaq Composite (IXIC). Through Wednesday, the tech-laden index is off nearly 4%, which puts it down 28.6% year-to-date.

Meanwhile, one measure of internal strength, the Nasdaq daily advance/decline (A/D) line, is on the back foot again:

The A/D line put in a low on June 16, leading to a near 10% pop in the Nasdaq over just the next five trading days.

However, after once again nearing channel resistance and the descending 50-day moving average last Friday, the breadth measure has been forced to retreat. The A/D line turned down, and if its prevailing trend is resuming, fresh lows could be in the offing.

Until the A/D line can break out of its downtrend by overwhelming the resistance hurdles, action in the great mass of Nasdaq stocks can remain a major drag on the Composite.

The IXIC has support in the 10,565/10,519 area which includes its June intraday low and its September 2020 trough. The 61.8% Fibonacci retracement of the entire March 2020-November 2022 advance is at 10,291.29, and the February 2020 high was at 9,820.86.

(Terence Gabriel)

*****

NasdaqAD06302022https://tmsnrt.rs/3nxYQNe

US opening snapshothttps://tmsnrt.rs/3nM7F6B

Personal consumptionhttps://tmsnrt.rs/3btqjwS

Inflationhttps://tmsnrt.rs/3bFNWmb

Jobless claimshttps://tmsnrt.rs/3ORxAVJ

Chicago PMIhttps://tmsnrt.rs/3OOL7NS

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