Last Time S&P 500 Had Such A Bad Half Back In 1970. Gold (XAUUSD) Has Gone Below $1800. US PCE Made Yields Decrease. Nitori Earnings Are Released Today

Steady BoE Rate Expectations Amid Empty Event Calendar in the UK

Summary:  Equity markets tried to post a comeback after pushing to new local lows yesterday, but the rally attempt faltered again overnight. Recession fears seem to be in the driver’s seat, as crude oil and industrial metals prices tumbled yesterday and overnight. A slightly lower than expected US May PCE inflation data prompted US treasury yields to fall to new local lows, and that development in addition to hotter than expected Tokyo inflation data have driven a sudden revival in the Japanese yen.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

The worst first-half of the year in US equities since 1970 is over with the S&P 500 down 21% as equities have had to adjust equity valuations to reflect a war in Europe, higher inflation, much tighter financial conditions, and central banks keen on lowering demand to get back to price stability. Today’s start to the second half of the year is no better with S&P 500 futures down 1% trading around the 3,755 level with yesterday’s low at 3,741 being the key level to watch on the downside as US equities slide into the weekend.

AUDUSD and other USD/commodity currency and USD/EM pairs

The US dollar is testing new highs for the cycle in places within the G10 currencies and against EM currencies (USDBRL pushing on highs and 200-day moving average, USDZAR pushing to new highs). Within the G10, NZDUSD has tumbled to new lows for the cycle and since the pandemic outbreak months of early 2020, as did AUDUSD overnight, as it cleared the prior 0.6829 lows, likely in part on fresh, broad pain for commodity prices overnight as copper sold off to new cycle lows overnight. Considerable empty space on the charts for these pairs and we watch whether USDCAD joins in on the theme with a breakout above the recent 1.3079 highs as oil has come under massive pressure in recent sessions.

USDJPY and JPY crosses

We have seen a sudden injection of JPY strength into the market – particularly versus the smaller G10 currencies – in what is arguably a rather tardy reaction to the significant drop in global bond yields, especially as the US 10-year Treasury yield benchmark tumbled through 3.00% yesterday. June Tokyo inflation data was released overnight and showed the “ex Fresh Food” CPI running at +2.1% year-on-year, its highest level since the 1990’s (if we ignore the sales-tax driven spike in 2014-15). Yesterday, the chairman of the Japanese Bankers Association, Junichi Hanzawa, made a rare, pointed remark on the BoJ policy: “I think it’s important to take a balanced policy approach by considering merits and side effects....I am hoping the Bank of Japan will make an appropriate judgement.”  If global yields continue lower, the JPY may be able to strengthen even without the Bank of Japan capitulating on its yield-curve control policy, although the inflationary pressures in Japan continue to pressure the BoJ to change course. Technically, the first small trigger area to the downside for USDJPY is near 134.25, and 131.35 is the major prior cycle top from May.

US Natural gas (NGQ2) slumps on prolonged shutdown of export terminal

US gas prices tumbled 19% yesterday, before rising 5% overnight, as the prolonged shutdown of the Freeport LNG export terminal keeps more gas at home. The latest twist came after a federal agency said the terminal, accounting for around 20% of US exports, can't restart without written permission from the Biden administration. Following the June 8 explosion, US gas prices have slumped by more than 40% as domestic stock levels build by more than expected. Last week some 82 bcf were added against expectations of 75 bcf. The export outage could not happen at a worse time for Europe where sharply reduced flows on the NordStream1 pipeline to Germany from Russia has seen Dutch TTF benchmark jump to €145/MWh (TTFMQ2), a ten-fold increase compared with the long-term average.

Crude oil (OILUKSEP22 & OILUSAUG22)

Commodities in general took a hit on Thursday with traders and investors worried about a global slowdown hurting demand. The oil market, which remains supported by the tightest conditions in decades slumped as well to record a 9% loss for the month of June. Following a dismal end to the first half, many investors will in the short-term focus mostly on reducing exposure before heading on a much-needed summer vacation. With this in the mind, traders with a macroeconomic focus selling “paper” oil through futures as a hedge against recession may have the upper hand against the physical market where price supportive tightness remains. A battle that for now and during the upcoming peak summer holiday period when liquidity dries out, may see Brent crude oil trade within the established range between $100 and $125.

Gold (XAUUSD) drops below $1800

Gold trades below $1800 for the first time in six weeks with focus now on key support around $1780. The weakness being driven by a combination of a stronger dollar, the market pricing in lower forward inflation driven by rate hikes and recession worries. In addition, silver has slumped below $20, dragged lower by continued weakness across industrial metals, especially copper which trades at $3.6/lb, a 16-month low. Faced with these multiple headwinds, investors are reducing their exposure in ETFs while speculators are adding short positions through futures. Reasons for holding gold, such as the hedge against stagflation, geopolitical and financial market risks, have not gone away, but for now with the summer holiday and low liquidity season upon us, investors are scaling back more than gearing up.

US Treasuries (TLT, IEF)

US Treasury yields fell further in the wake of the May PCE inflation release, which showed inflation running slightly cooler than expected (more below), which helped take the 10-year US treasury benchmark down below the recent pivot low of 3.00% to as low as 2.94% overnight. The treasury market is serving as a safe haven now on rising recession fears. The key US data through next Friday’s June jobs (and average hourly earnings) report, including today’s June ISM Manufacturing, next Tuesday’s June ISM Services as well as whether equity markets tumble to new lows are the next tests for this market and whether yields can retreat to the prior pivot lows near 2.70% or even 2.50% eventually.

What is going on?

U.S. growth concerns take a leg up

U.S. personal spending for May fell to 0.2% m/m from 0.6% m/m in April, below consensus of 0.4%. This has resulted in the Atlanta Fed GDPnow model tracking an economic contraction of 1.0% in Q2, which would imply a US “technical” recession of two consecutive quarters of negative real GDP growth. Still, we do not think that the US is heading into a broad-based recession, even as the Fed will likely continue to chase inflation. The US PCE Price Index, the preferred inflation gauge monitored by the Fed was unchanged at 6.3% y/y (vs. 6.4% expected and the core was 4.7% y/y vs. 4.9% expected, with month-on-month core rising only +0.3% vs. +0.4% expected), below its all-time high of 6.6% y/y recorded in March but still stuck near the highs supporting our view of higher-for-longer inflation.

Japan’s inflation stays above 2%

Japan’s Tokyo CPI came in at 2.3% y/y for June, coming in below expectations but core was as expected at 2.1% y/y. Gasoline subsidies have helped to keep the acceleration in check, but consumers are getting hurt with rising food prices and chip supply shortages which are raising the prices of household appliances. Energy prices also remained elevated at 21.7%. Meanwhile, Tankan survey showed a deterioration among Japan's large manufacturers in Q2, while small manufacturers remained in negative. The outlook is also fragile, with price pressures seen rising further from here. Japan’s inflationary pressures, but more so inflation expectations, will remain a key input if the Bank of Japan has to capitulate at some point.

President Xi visits Hong Kong

China President Xi made his first international visit since the pandemic began as he to Hong Kong for the 25th anniversary. He laid out a future for Hong Kong, embedded firmly within the goals of the central government on the mainland. He also swore in Hong Kong’s new leader, John Lee Ka-chiu. The July 1 celebrations mark the halfway point of China’s 50-year promise to maintain Hong Kong’s liberal institutions and capitalist markets until at least 2047 under a framework called “one country, two systems.”

US crop futures trade lower following two major US reports

Worries about a global food crisis extending into the autumn and winter months eased further on Thursday after US farmers planted more corn than previously expected, and after quarterly stocks for all three major crops came in higher than expected. Surging prices around the time of planting motivated US farmers to ignore weather worries and high fertilizer costs to plant more fertilizer intensive corn at the expense of soybeans. The Bloomberg Grains Index dropped 12% in June with losses led by wheat and edible oils, the two sectors that surged the most after supply chains from Ukraine got cut following Russia’s attack.

Micron sends chilling outlook on technology spending

Micron’s Q3 result (ending 3 March) was in line with estimates with adj EPS of $2.59 vs est. $2.45 and revenue for $8.6bn vs est. $8.6bn. However, it was the Q4 outlook that spooked investors with revenue guidance of $6.8-7.6bn vs est. $9.1bn as the company is seeing the 2022 phone market down 130mn units from their estimates and expectations that the PC market will shrink 10% this year. Technology companies are generally cutting costs and the turn has now come to capital expenditures hitting Micron. Shares were down only 2% reflecting that the market had priced most of the expected decline into the share price showing that it is only sell-side analysts that need to wake up to the new reality.

What are we watching next?

US ISM Manufacturing survey today and ISM Services next Wednesday

The June. Chicago PMI survey, the last of the regional surveys ahead of today’s ISM Manufacturing survey, was out at 56.0 vs. 58.0 expected and 60.3, still one of the strongest regional surveys despite the miss relative to expectations. The preliminary June S&P Global Manufacturing PMI was at 52.4 vs. 57.0 in May. A bad miss to the 54.5 reading expected today from the ISM Manufacturing release could strengthen the impression that US economic growth is decelerating, although this has been an unusual cycle due to the massive switch from goods-heavy consumption during the pandemic to a more balanced economy recently, so we would need a downside surprise from next Wednesday’s ISM Services survey for more evidence of a broader economic slowdown. The preliminary June S&P Global Services PMI was out at 51.6 vs. 53.4 in May, with surveys expecting 54.3 for the June ISM Services release vs. 55.9 in May.

Earnings Watch

The earnings calendar is light today and the focus is now shifting to the Q2 earnings season which starts in two weeks. We will be writing about our expectations for Q2 earnings in an earnings preview note today on

Today: Nitori

Economic calendar highlights for today (times GMT)

  • 0715-0800 – Eurozone Final Jun. Manufacturing PMI
  • 0800 – Poland Jun. CPI
  • 0830 – UK Final Jun. Manufacturing PMI
  • 0900 – Eurozone Flash Jun. CPI
  • 1400 – US Jun. ISM Manufacturing

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Source: Financial Markets Today: Quick Take – July 1, 2022 | Saxo Group (

Steady BoE Rate Expectations Amid Empty Event Calendar in the UK

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