Macro Morning Shots 6th June 2023

Highlights

• US bank could face 20% hike to capital requirements — WSJ
• UBS expects to seal Credit Suisse takeover as early as June 12
• Apple shares hit all-time high ahead of developers coference
• Apple to sell Vision Pro AR headset for triple Meta’s top line price

Index

S&P closed down lower in the last trading session, after the S&P 500 failed to hold a gain that would have seen it meet the threshold for exiting bear-market territory. Meanwhile, shares of Apple Inc ended the day with a loss, pulling back from a record high scored ahead of a WWDC developer event at which the company unveiled a mixed-reality headset.

Bonds

Treasury yields dropped in the last trading session, after data showed new orders slowed in May, with a measure of prices paid by businesses for inputs falling to a three-year low, suggesting Federal Reserve efforts to tame high inflation are cooling the economy.

A closely watched part of the U.S. The Treasury yield curve measuring the gap between two- and 10-year Treasury notes , seen as an indicator of economic expectations, was at -78.3 basis points.

Commodities

Gold prices rose higher in the last trading session after after weaker U.S. services sector growth reinforced bets for the Federal Reserve to stand pat on interest rates next week.

Crude prices rallied in the last trading session after Saudi Arabia said it would cut its crude production by -1.0 million bpd starting in July. However, weaker-than-expected global economic news raised concerns about energy demand, and crude prices fell back from their best levels.

Currencies

The dollar dropped in the last trading session as investors try to assess the health of the US economy and the Fed’s next steps. Factory orders rose 0.4% in April, half the market forecasts and the ISM Services PMI fell sharply to the lowest in five months in May.

Around 80% of market participants expect the Fed to leave rates steady when it meets next week, but traders now seem to be divided regarding the July move, with only around half expecting a 25bps rate increase, compared to 56% prior to the ISM Services release.

The euro posted moderate gains in the last trading session on hawkish comments from ECB Governing Council member Vujcic who said inflation risks in the Eurozone are tilted to the upside. Gains in EUR/USD today are limited after the Eurozone Jun Sentix investor confidence fell to a 5-month low and after the Eurozone May S&P composite PMI was revised downward.

Sterling fell in the last trading session, as investors perceive a narrowing interest rate gap between the US and the UK. The Bank of England is expected to raise interest rates to 4.75% on June 22 and reach a peak of 5.5% by year-end.

The yen recovered in the last trading session, and moving higher after a reversal in T-note yields to lower from higher sparked short covering in the yen. The yen today was initially under pressure after a rally in the Nikkei Stock Index to a 32-year high curbed safe-haven demand for the yen.

Economic Indicators

The Institute for Supply Management (ISM) said its non-manufacturing PMI fell to 50.3 last month from 51.9 in April. Though the PMI remains above the 49.9 level, which the ISM says over time indicates growth in the overall economy, the slowdown in May heightened the risks of a recession.

Today’s Important Events

• Euro Retail Sales