Listless markets ignore Russian coup

Equity markets lacked direction this morning, with Nasdaq falling hardest. Reaction to the failed Russian coup (if that’s what it was) was expressed in a modestly rising oil price. To the contrary, bullish call options bets on the S&P 500 index and AI stocks have boomed, hinting at trader’s bullish sentiment. Key inflation data will set the market tone later this week.

Bottom line – risk-off.

TODAY’S MAJOR NEWS

Russian attempted coup puts commodity traders on warning

It was a wild weekend in Russia, with long-term implications for geopolitical risks. A 24-hour mutiny ended relatively peacefully with charges dropped against the leader – unheard of in Russia. The commodity markets took the weekend events in stride, but traders were on alert as a successful coup could have resulted in major disruptions to crude oil, what and other food product flows to the export market. While this didn’t happen – this coup attempt ended almost as quickly as it started – it did remined traders that geopolitical risks have significant implications for the commodities, and it doesn’t take much of a spark to ignite a much greater threat for trade out of this commodity-rich part of the world.

Traders FOMO in call option volume

Data from CBOE Global Markets reports a record level of trading in call options in June. Call options can, but do not definitely, express a positive view on future price movements. As cash equity markets rallied, lead by the tech-heavy Nasdaq in general and AI-exposed stocks specifically, traders appear to have placed bullish bets on the trend continuing. Interpreting what happens next depends on market direction: if the rally resumes, traders are well positioned; but if stocks falter, reducing long positions could exacerbate any downturn.

All eyes on the PCE Deflator, Consumer Sentiment

This week’s key economic data point is May’s US Personal Consumer Expenditure (PCE) deflator, a broadly-based inflation gauge favored by the Fed due Friday. The previous five months saw average Core PCE, ex food and energy, stuck at 4.7%, also the reading for April. Forecasts for May are a decline to 4.5%, resuming the downward path seen in the latter half of 2022. To the contrary, the final reading of the University of Michigan Consumer Sentiment index is forecasts to stick at 63.9 after 59.2 in April. No signs of the Fed’s desired slowing economy in this data.

TODAY’S MAJOR MARKETS

Equity markets

• The Nasdaq Composite index fell 0.8% in morning trade, with the S&P 500 and Russell 2000 down 0.3% and up 0.6% respectively
• Global markets were also in a bearish mood, with the DAX, Nikkei 225, and FTSE 100 indexes all essentially unchanged
• The VIX, Wall Street’s fear index, rose to 14.2

Currencies and Bonds

• The dollar index fell 0.2% against a basket of currencies to 102.7
• Euro/dollar Sterling/dollar were up 0.2% and 0.1%, respectively
• The inverted yield curve stayed above one percent, with yields on 2- and 10-year Treasuries both higher at 4.75% and 3.72% respectively

Commodities

• Gold prices were 0.2% higher at $1,933per ounce
• Crude oil prices were 1.1% to $69.9 per barrel
• Grain and oilseed markets were mixed

Analysis by Arlan Suderman, Chief Commodities Economist: [email protected]

Market outlook by Paul Walton, Financial Writer: [email protected]