Nasdaq bounces back on confident economic data

Nasdaq led the charge this morning, motivated by strong economic data. There are few signs in this data that the consumer is adjusting to the current interest rate environment – home purchases, consumer sentiment and durable goods orders were all stronger than expected. As we end a first half which was expected to see an economy entering recession and a weak stock market, which didn’t happen, with a strong economy and the S&P 500 on track to be up 15%, it’s interesting to speculate if today’s confidence is perhaps overdone as we enter the second half.

Bottom line – risk-on.

TODAY’S MAJOR NEWS

Healthy US economic data

We continue to see healthy economic numbers, suggesting that the Federal Reserve’s actions have not yet dragged the economy into a recession. In fact, recent data showed that the number of people worried about keeping their job is in decline as this economy continues to push forward, and that is the opposite of what the Fed needs to see happen to bring wage inflation under control. Traders are most focused on the personal consumption inflation data scheduled for release on Friday, which is expected to show core inflation still at 4.7%, which is where it’s remained sticky. Expect fed rate hikes.

Chinese growth forecasts hard to square

China state media reports that China is expected to see 6.2% GDP growth in the first half of this year, as reported at the China Macroeconomy Forum. It’s difficult to see how that can happen when breaking down the numbers. Exports are expected to be down 4.9% year-on-year this year, after rising nearly 34% last year. That means that domestic growth will need to top 8%, but that demand has been losing momentum in the second quarter as consumers worry about a declining economy. Noticeably absent from recent speeches by Chinese leader has been any mention of the long-anticipated stimulus needed to give consumers confidence in their economy again. Furthermore, El Nino-related heat and drought raises concerns about this year’s corn and soybean crops, as well as its ability to meet energy demand. Slowing Chinese growth is a much anticipated theme in the second half of the year.

New home sales beat expectations

• Annualized new home sales rose to 763,00 in May, beating expectations and up from 680,000 in April
• Home prices rose 0.7% month-on-month in April, up from 0.5% in March – clocking 3.1% year-on-year

Strengthening consumer confidence

• US consumer sentiment in the US improved in June with the Conference Board's Consumer Confidence Index rising to 109.7, several points ahead of expectations, and up from 102.5 in May
• The Present Situation Index rose to 155.3 from 148.9, indicating the modest impact of interest rate increases

Strong durable goods orders point to buoyant economy

• Durable goods orders rose 1.7% month-on-month in May, beating expectations of a 1.0% decline, and up from 1.1% gains in April
• Durable goods orders excluding transportation rose by 0.6% month-on-month in May, reversing the 0.2% decline seen in April
• Core capital goods, generally an indicator of business sentiment, rose by 0.7% month-on-month, after growth in April was revised down from 1.4% to 0.6%

TODAY’S MAJOR MARKETS

Equity markets

• The Nasdaq Composite lead markets higher this morning, up 1.5%, with the S&P 500 and Russell 2000 up 1.0% and up 1.4% respectively
• Global markets were mixed, with the DAX and FTSE 100 indexes up 0.2% and 0.1%, while the Nikkei 225 fell 0.5%
• The VIX, Wall Street’s fear index, fell sharply again to 13.7

Currencies and Bonds

• The dollar index fell 0.2% against a basket of currencies to 102.5
• Euro/dollar and Sterling/dollar cross-rates were up 0.5% and 0.3%, respectively
• Yields on 2- and 10-year Treasuries both higher at 4.76% and 3.77% respectively

Commodities

• Gold prices fell 0.5% to $1,924 per ounce
• Crude oil prices fell 2.2% to $67.6 per barrel
• Grain and oilseed sectors posted 2% to 5% losses on improved Midwest weather forecasts, and improving yield forecasts

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com