MARKET WRAPS
Watch For:
Personal Income and Outlays for May; Chicago Business Barometer-ISM-Chicago Business Survey-Chicago PMI for June; University of Michigan Final Consumer Survey for June; Canada GDP for April
Today's Top Headlines/Must Reads:
- Consumer Spending Streak Seen Extending Into May
- Banks Brace for More Turmoil Heading Into the Third Quarter
- New Chinese Law Raises Risks for American Firms in China, U.S. Officials Say
- Eurozone Inflation Fell More Than Expected in June Despite Rising Core Rate
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Opening Call:
Stock futures were higher on Friday as traders awaited PCE inflation data that may color the Federal Reserve's thinking on interest rates.
The PCE is among the Federal Reserve's favored inflation gauges and so investors will want to see confirmation that price pressures continue to ease, allowing the central bank to soon stop its monetary tightening campaign.
However, recent data suggests the economy is humming along quite nicely and the Fed may need to persevere in its hawkish stance, analysts noted.
"[W]ith 10 year U.S. yields shooting higher on the back of a sharp drop in weekly jobless claims and an upward revision to 1Q23 GDP growth - stock pickers may still be concerned that the data points to a stronger economy than the Fed wants and likely puts more at stake on [the] PCE inflation report," SPI Asset Management said.
Still, for now investors seemed confident that the market can absorb the prospects of bond yields staying higher for longer.
The bond selloff spread overseas. Yields on 10-year German, French and U.K. government bonds rose, even after data showed core inflation in the eurozone quickened to 5.4% in June from 5.3% in May.
International stock indexes headed higher, too. Europe's Stoxx 600 index rose 0.7%, led by oil-and-gas shares. China's Shanghai Composite added 0.6%, though Japan's Nikkei 225 edged down 0.1%.
Pre-Market Movers
Apple was rising 0.6% after shares were initiated with a Buy rating at Citi.
Carnival stock added another 2.3%, on pace to extend its gains after already doubling in 2023.
Constellation Brands will report earnings before the market opens. Shares were up 1%.
Nike reported fiscal fourth-quarter earnings that missed analysts' expectations and issued first-quarter guidance that also came up short. Shares fell 3.6%.
Nvidia was up 0.7%. The stock was upgraded to Outperform from Neutral and the price target was raised to $475 from $408 by analysts at Daiwa, the Fly reported.
Tesla was rising 0.6% in premarket trading with the company expected to release second-quarter deliveries on Sunday. Analysts expect deliveries of about 445,000 cars, which would be a quarterly record.
Post-Close Mover
Nikola gained 1.6% after it said in a tweet that it had regained compliance with exchange operator Nasdaq's requirement to maintain a minimum stock price of $1.
Forex:
The dollar traded flat following gains in the previous session after first-quarter gross domestic product data was revised higher.
The data firmed up calls for a 25 basis-point interest-rate hike from the Federal Reserve in July, ING said.
The core personal consumption expenditure price index could also support further rate rises, ING added.
"Barring a data surprise, the only threat to the strong dollar story comes from quarter-end rebalancing flows-which could generate some dollar selling at key fixings."
The DXY dollar index could rise to 103.65 unless fixing flows take their toll, ING said.
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The euro failed to benefit from higher-than-expected German inflation data and this doesn't bode well for the common currency ahead of eurozone inflation figures later, UniCredit Research said ahead of the data release.
"EUR/USD is also unlikely to receive much support from personal income and [personal consumption expenditure] data in the U.S. this afternoon, especially if the PCE and the core PCE deflators do not ease significantly," UniCredit said.
Bonds:
LBBW raised its three-month forecasts for 10-year Treasury and German Bund yields to reflect uncertainty about central bank's policy rates.
"The main reason for this is continued heightened uncertainty about the actual level of key interest rate peaks," it said.
"At the same time, we do not expect a sustained breakout of yields to the upside given further increasing recession risks."
LBBW's new forecast for the 10-year Treasury yield is 3.70% versus 3.50% previously, and for the 10-year Bund yield is 2.50% versus 2.40% before.
Energy:
Oil prices moved higher in Europe, amid more positive economic data coming from the U.S. However, prices still remain fairly range bound.
Stronger-than-expected GDP data is adding impetus to prices, but this could also mean more rate hikes from the Fed, ING said.
"Growing expectations of further hikes is one of the factors which is capping the upside in the market, while on the downside, the belief that OPEC+ will take further action if there is significant further weakness provides a floor to the market."
Metals:
Base metals prices were mixed while gold was lower in early London trading, as worries over Chinese demand continued to dominate the market.
"Industrial metals continue to face headwinds from weak activity in Mainland China," BMI said. "Weaker than anticipated metal demand and regulatory intervention will continue pressuring prices."
BMI added that the market is expecting state support to be introduced in the near term, which should boost prices.
TODAY'S TOP HEADLINES
SVB Depositors Who Lost Their Money Win Court Victory
Silicon Valley Bank customers who saw their Cayman Islands deposits wiped down to zero have won a court ruling that could help them get their money back.
A Cayman Islands court on Thursday approved a petition to wind up the local branch of SVB, according to Paul Kennedy, a partner at law firm Campbells, who filed the petition and attended the hearing.
Companies Expect New Challenges to Diversity Policies After Court Ruling
Companies expect Thursday's Supreme Court ruling on affirmative action to reduce racial diversity in the pool of highly educated candidates for future jobs, including leadership roles.
They also say the ruling, which prohibits race-conscious college admissions, will lead to challenges to internal diversity, equity and inclusion initiatives, many of which were put in place or augmented over the past few years.
Microsoft-Activision Hearing Wraps Up as FTC Tries to Stop $75 Billion Deal
Microsoft and the Federal Trade Commission presented their final arguments Thursday in a closely watched hearing that could decide the fate of one of tech's largest-ever acquisitions.
The FTC is trying to stop Microsoft from closing its proposed $75 billion deal to acquire Activision Blizzard, saying it could give Microsoft an unfair advantage that it could abuse to douse competition in the videogaming market. Microsoft defended the deal, saying it would create more competition as it pledged to share Activision's games with competitors.
To Fight Stickier Inflation, Governments Take Aim at Corporate Profits
The next phase in the war against inflation is taking shape in Europe, where governments are actively cajoling businesses to cut prices on everything from pasta to chicken. Their argument: Profits are too high.
The European Union's statistics agency Friday said consumer prices in the 20 countries that share the euro were 5.5% higher than a year earlier, a decline from the 6.1% inflation rate recorded in May, and the slowest increase since the start of 2022.
China's Economy Shows New Signs of Weakness
HONG KONG-Evidence of China's flagging growth continues to roll in, raising questions about whether the government is doing enough to turn things around.
China's manufacturing sector contracted for a third straight month in June and the nonmanufacturing sector weakened, with new orders falling for both, the country's official statistics agency said Friday. Employment declined across both broad sectors, an indication that a nagging jobs shortage-particularly for young people-is worsening.
UK Economy Expanded Slightly in First Quarter, Matching First Estimates
The U.K. economy grew marginally in the first quarter of 2023, matching previous estimates, as a cost-of-living crisis impacted by high inflation and rising interest rates weighed on economic activity.
Gross domestic product grew 0.1% from January to March compared with the previous three-month period, the same as the fourth quarter of 2022 and in preliminary estimates, according to data from the Office for National Statistics released Friday.
How Scared Should You Be About Commercial Real Estate?
Nothing gets the blood running in the veins of U.S. property investors like interest from Japanese buyers. The legendary prices paid by Japanese buyers of American trophy assets culminated in Mitsubishi Estate taking control of New York's Rockefeller Center in 1989-just before Japan slumped. It defaulted on its mortgage just six years later.
The blood ran hot again this week after a different Japanese buyer, Mori Trust, bought half an office block next to Grand Central Terminal from real-estate investment trust SL Green. The deal put a value of $2 billion on 245 Park Avenue, with plans to invest more to spruce it up. SL Green's stock jumped 30% in two days, before falling back a bit, helping to lift the entire REIT sector almost 4% and make it by far the best performing part of the market.
Ukraine Hits Russian Defenses From a Distance Before Risking Troops
A VILLAGE NEAR THE SOUTHERN FRONT, Ukraine-The Russian soldiers scurried into a building carrying a rocket-propelled grenade launcher. From his command post a few miles away, Ukrainian Sgt. Heorhiy Volkov was watching a live feed from an aerial drone.
Volkov, the drone team's commander, called an artillery unit.
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06-30-23 0624ET
