Bond yields rise spurring stronger Dollar

A sharp jump in short- and long-dated bond yields was this morning’s highlight, reflecting growing acceptance that more rate hikes are coming. The US dollar was a beneficiary of higher rate expectations, resuming a rally which appeared to have petered out. Nasdaq was weak, reflecting fears of a chips war with China.

Bottom-line: Risk-off.

TODAY'S MAJOR NEWS

Powell reminder on rate rises

Fed Chair Jerome Powell, in remarks prepared for a Banco de Espana conference on financial stability in Madrid, reiterated that most policymakers expect they’ll need to push rates higher at least two more times this year. A hawkish Fed stance continues to be supported by economic data, with today’s releases showing a tight labor market and an upwards revision to Q1 GDP.

No sign of cooling in weekly labor market data

• First-time claims for unemployment benefits fell to 239,00 in the week ending June 24, below the expected 270,000, and down from 265,00 the previous week
• Continuing claims for the week ending June 17 fell another 19,000 to 1.742 million.
• Claims data remains at historically low levels, reflecting a tightening jobs market and a warning on wage inflation
• Remember that 314,000 jobs were added last month and the unemployment rate is an historically low 3.7%

GDP growth cools, but is still strong thanks to consumer spending

• First quarter GDP was revised up to 2.0% growth, surprising forecasters, and up from a first estimate of 1.3% growth
• While growth is cooling compared to 3.2% and 2.6% in Q3 and Q4 of 2023, it’s still robust
• Consumer spending, 70% of economic activity, rose at a 4.2% annual rate in Q1, the fastest rate since Q2 2021

Pending home sales cool

• The pending home sales index dropped 2.7% to 76.5 in May, more than expected, and down from 78.6 last month
• The pending home sales index is a leading indicator of housing activity, measuring contract activity for existing single-family homes, condos, and co-ops
• Today's lower number goes counter to recent data showing a bump in housing activity

China chips’ ban could spur ‘tech protectionism’

• China is bracing for imminent US moves to tighten the flow of artificial intelligence chips to China, taking steps of its own to protect Chinese citizens and businesses operating overseas
• China implemented the Foreign Relations Law on Wednesday, covering a wide range of issues, such as global governance, security, judicial cooperation, and the protection of Chinese citizens overseas
• The law also raises fears that Chinese authorities could take legal actions against foreign investors in China based on political considerations, adding more uncertainty to the willingness of corporations to invest in China’s economy
• China cannot afford to scare away foreign investment, notably in the tech sector, essential for its growth

TODAY’S MAJOR MARKETS

Equity markets

• The Nasdaq Composite and S&P 500 were weaker in morning trade, off 0.1% and 0.3% respectively, with the more broadly-based Russell 2000 up 1.0%
• Global markets continue to be un-inspired, with the DAX and Nikkei 225 flat, and the FTSE 100 index down 0.4%
• The VIX, Wall Street’s fear index, fell again to 13.5

Currencies and Bonds

• The dollar index rose 0.3% against a basket of currencies to 103.3, continuing a recent strong trend
• Euro/dollar and Sterling/dollar cross-rates fell by 0.3% and 0.2%, respectively
• Rising bond yields were the big story today, with yields on 2- and 10-year Treasuries up markedly at 4.89% and 3.85% respectively

Commodities

• Gold prices were 0.3% lower at $1,917 per ounce
• Crude oil prices fell 0.2% to $69.4 per barrel, after a major uptick in recent days
• Grain and oilseed sector traded mostly lower overnight in follow-through trade on wet Midwest weather forecasts

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

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