Recession fears froth causing broad equity selloff

Notes/Observations

- Risk off appetite continued from Asia trading onto Europe. FOMC minutes yesterday did little to buoy sentiment with staff forecasting a mild recession in 2023.

- Overnight, sources in China reportedly denied a rumor of China banks offering 25YR loans to LGFVs, which was expected to be brought in to avert a credit crunch.

- UK Jun construction PMI flashed warning of recession fears, amid high rate expectations and inability of economy to take stress of tightening.

- Looking ahead, US ADP jobs data later ahead of Non-Farm Payrolls tomorrow. US ADP Employment Change at 08:15 ET, Jobless Claims at 08:30 ET and JOLTS Job Openings at 10:00 ET.

- Asia closed lower with Hang Seng under-performing at -3.0%. EU indices are -1.1% to -1.8%. US futures are -0.4%. Gold +0.2%, DXY -0.1%; Commodity: Brent +0.4%, WTI +0.6%, TTF -1.7%; Crypto: BTC +2.0%, ETH +1.6%.

Asia

- Australia May Trade Balance (A$): 11.8B v 10.9Be; Exports M/M: +4% v -6%prior; Imports M/M: 2% v 2% prior.

- China PBOC said to have ample tools even in 'panic' CNY currency (Yuan) decline.

Europe

- German Rhine river's level said to be on track to fall to critically low levels again this summer and potentially lower than in 2022; Water level at key choke point Kaub at lowest seasonal level in 30 years.

- British Chambers of Commerce (BCC) Survey: Fewer than half of UK companies expect to raise prices over the next three months. Wage pressures were now the main inflationary force for businesses.

Americas

- FOMC Jun Minutes noted that some members favored at 25bps hike at the meeting; Those favoring an increase noted very tight labor market, stronger-than-anticipated economic momentum, little evidence of inflation being on a path to return to 2% target over time Staff forecasted a mild recession in 2023.

- Fed's Williams (voter) stated that was not content with where inflation was right now, still too high. Might take 1-2 years to feel peak effect of monetary policy.

Energy

- Weekly API Crude Oil Inventories: -4.4M v -2.4M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.21% at 452.80, FTSE -1.27% at 7,347.90, DAX -1.01% at 15,776.35, CAC-40 -1.81% at 7,178.61, IBEX-35 -1.20% at 9,372.37, FTSE MIB -1.23% at 27,874.00, SMI -1.21% at 11,058.80, S&P 500 Futures -0.47%].

Market focal points/Key themes: European indices opened lower across the board and slipped further into the red as the session wore on; Czechia closed for holiday; utilities and financial sectors holding on to gains; sectors leading the way lower include consumer discretionary and real estate; Norwegian Air Shuttle to acquire Wideroo; Man Group takes controlling stake in Varagon Capital; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Suedzucker [SZU.DE] +6.5% (Q1 results, raises FY23 guidance), Jet2 [JET2.UK] -10.0% (prelim earnings; founder to retire), Currys [CURY.UK] -13.5% (FY23 results, beats estimates).

- Consumer staples: CHR Hansen [CHR.DK] +1.0% (Q3 results, misses estimates, but raises outlook).

- Energy: Hunting [HTG.UK] +22.0% (trading update).

- Financials: Aegon [AGN.NL] +0.5% (€1.5B buyback).

- Industrials: Volkswagen [VOW3.DE] -1.% (assessing impact of China rare metals export curbs), Gerresheimer [GXI.DE] -4.5% (Q2 results).

- Technology: Flatexdegiro [FTK.DE] +2.5% (analyst upgrade), Nemetschek [NEM.DE] -3.0% (cut to Underweight at Barclays).

Speakers

- South Africa Q2 BER Inflation Expectations Survey raised the 2023 Avg CPI from 6.3% to 6.5 and raised both 2024 and 2025 Avg CPI from 5.8% to 5.9%.

- Russia Central Bank (CBR) Gov Nabiullina stated that a weakening RUB (ruble) and exchange rate dynamics carried pro-inflationary risks; CBR took such risks into account for monetary policy decisions.

- Malaysia Central Bank Policy Statement noted that the Current level of OPR was slightly accommodative and remained supportive of growth. To remain conducive to growth and price stability. H2 headline and core inflation projected to trend lower and broadly within expectations.

- China Commerce Ministry (MOFCOM) noted that its metal export curbs did not target any country; Would approve gallium and germanium to exporters who qualify, but had not received any applications so far.

Currencies/fixed income

- USD consolidated its gains during the EU morning after gains were exhibited following the Jun FOMC Minutes. The minutes raised expectations that the Fed would resume its rate-hike campaign this month. Market participants now await the upcoming ADP Employment and US Non-farm payroll data over the next 24 hours.

- JPY currency was again a beneficiary of risk aversion flow as higher global interest rates weighed upon sentiment. Dealers also cited that the recent verbal intervention from Japanese authorities likely preparing formal FX intervention by the MOF.

Economic data

- (DE) Germany May Factory Orders M/M: 6.4% v 1.0%e; Y/Y: -4.3% v -9.7%e.

- (FI) Finland May Preliminary Trade Balance: -€0.1B v +€0.3B prior.

- (HU) Hungary May Industrial Production M/M: +1.6% v -2.5% prior; Y/Y: -4.6% v -6.5%e.

- (HU) Hungary May Retail Sales Y/Y: -12.3% v -11.0%e.

- (MY) Malaysia Central Bank (BNM) left the Overnight Policy Rate (OPR) unchanged at 3.00% (as expected) to resume its pause phase within the current tightening cycle.

- (AT) Austria Jun Wholesale Price Index M/M: -0.3% v -1.9% prior; Y/Y: -7.3% v -4.7% prior.

- (DE) Germany Jun Construction PMI: 41.4v 43.9 prior.

- (TW) Taiwan Jun CPI Y/Y: 1.8% v 1.8%e; CPI Core Y/Y:2.6 % v 2.6% prior; PPI Y/Y: -4.8% v -3.9% prior.

- 04:00 (ZA) South Africa Q2 BER Inflation Expectations Survey.

- (UK) Jun Construction PMI: 48.9 v 51.0e (1st contraction in 4 months).

- (UK) Bank of England (BoE) Jun Decision Maker Panel Survey cut its 1-year ahead CPI from 5.9% to 5.7% while raising the 3-year ahead CPI from 3.5% to 3.7%.

- (EU) Euro Zone May Retail Sales M/M: 0.0% v 0.2%e; Y/Y: -2.9% v -2.7%e.

- (CY) Cyprus June CPI M/M: -0.3% v +0.3% prior; Y/Y: 1.9% v 3.0% prior.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €6.51B vs. €5.5-6.5B indicated range in 2029, 2033 and 2071 bonds.

- Sold €2.13B in 0.80% July 2029 SPGB bond; Avg Yield: 3.330% v 3.049% prior; bid-to-cover: 1.44x v 2.03x prior.

- Sold €2.79B in 3.15% Apr 2033 SPGB bonds; Avg Yield: 3.554% v 3.509% prior; bid-to-cover: 1.47x v 1.38x prior.

- Sold €1.59B in 1.45% Oct 2071 SPGB bonds; Avg Yield: 3.874% v 2.851% prior; bid-to-cover: 1.26x v 1.59x prior.

- (ES) Spain Debt Agency (Tesoro) sold €526M vs. €250-750M indicated range in 0.65% Nov 2027 Inflation-linked bonds (SPGBei); Real Yield: 1.111% v 0.671% prior; Bid-to-cover: 1.64x v 2.01x prior.

- (FR) France Debt Agency (AFT) sold total €11.276B vs. €10.5-12.0B indicated range in 2033, 2043 and 2053 Bonds.

- Sold €5.952B in 3.0% May 2033 Oat; Avg Yield: 3.04% v 2.85% prior; Bid-to-cover: 1.90x v 1.87x prior (Jun 1st 2023).

- Sold €2.624B in 2.50% May 2043 Oat; Avg Yield: 3.35% v 3.29% prior; Bid-to-cover: 1.98x v 1.94x prior (Jun 1st 2023).

- Sold €2.700B in 3.00% May 2054 Oat; Avg Yield: 3.37% v 3.37% prior; Bid-to-cover: 1.84x v 1.88x prior.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 6.75% (no set time).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 06:55 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e June 30th: No est v 3.0% prior.

- 07:00 (ZA) South Africa May Electricity Consumption Y/Y: No est v -8.1% prior; Electricity Production Y/Y: No est v -8.6% prior.

- 07:30 (US) June Challenger Job Cuts: No est v 80.1K prior; Y/Y: No est v +286.7% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (US) Jun ADP Employment Change: +225Ke v +278K prior.

- 08:30 (US) May Trade Balance: -$69.0Be v -$74.6B prior.

- 08:30 (US) Initial Jobless Claims: 245Ke v 239K prior; Continuing Claims: 1.75Me v 1.742M prior.

- 08:30 (CA) Canada May Int'l Merchandise Trade (CAD): 1.2Be v 1.9B prior.

- 08:30 (CL) Chile Central Bank (BCCh) Jun Minutes.

- 08:45 (US) Fed’s Logan.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 30th: No est v $587.5B prior.

- 09:00 (CL) Chile May Nominal Wage Y/Y: No est v 10.8% prior.

- 09:45 (US) Jun Final S&P Services PMI: 54.1e v 54.1 prelim; Composite PMI: No est v 53.0 prelim.

- 10:00 (US) May JOLTS Job Openings: 9.900Me v 10.103M prior.

- 10:00 (US) Jun ISM Services Index: 51.3e v 50.3 prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (MX) Mexico Central Bank Monetary Policy Minutes.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (DE) ECB’s Nagel (Germany).

- 15:00 (AR) Argentina May Industrial Production Y/Y: No est v 1.7% prior; Construction Activity Y/Y: No est v -4.0% prior.

- 18:00 (CO) Colombia Central Bank Jun Minutes.

- 19:00 (KR) South Korea May Current Account Balance: No est v -$0.8B prior; Balance of Goods (BOP): No est v +$0.6B prior.

- 19:30 (JP) Japan May Labor Cash Earnings Y/Y: 1.2%e v 0.8% prior (revised from 1.0%); Real Cash Earnings Y/Y: -2.7%e v -3.2% prior (revised from -3.0%).

- 19:30 (JP) Japan May Household Spending Y/Y: -2.5%e v -4.4% prior.

- 21:00 (PH) Philippines May Unemployment Rate: No est v 4.5% prior.

- 22:30 (KR) South Korea to sell KRW500B in 50-year Bonds.

- 23:00 (ID) Indonesia Jun Foreign Reserves: No est v $139.3B prior.

- 23:30 (JP) Japan to sell 3-Month Bills.