Market Wraps
Watch For:
CPI for June; EIA Weekly Petroleum Status Report; Bank of Canada Rate Decision; speeches by Lael Brainard, Raphael Bostic
Today’s Headlines/Must Reads
– Inflation Is Likely Lowest Since Early 2021-but Still Too Hot for Fed
– Measure It Differently, and Inflation Is Behind Us
– Negotiators See Global Deal on Taxing Tech Firms Within Reach-Negotiators See Global Deal on Taxing Tech Firms Within Reach
– U.S. Government Emails Hacked in Suspected Chinese Espionage Campaign
Opening Call:
Stock index futures were higher on Tuesday ahead of data expected to show inflation at its lowest level in more than two years.
Confirmation will encourage investors to believe the end of the Federal Reserve’s rate hiking campaign in sight, potentially providing an additional boost for stocks.
“CPI comes out at an important crossroads for the Fed. A hike in July is pretty much nailed on but after that it’s all to play for,” Deutsche Bank said.
“Investors appear to be positioning for another decline in both core and headline–reflecting continued moderation in shelter inflation, lower used car prices, and slower non-housing services inflation. The key question is whether the data will beat consensus expectations and cause the Fed to take notice,” SPI Asset Management said.
The S&P 500 sits just shy of 15-month highs having risen 15.6% so far in 2023, but Fundstrat reckons it could swiftly rally 100 points, or possibly significantly more, if the month-on-month core inflation data is notably softer than expected.
Overseas markets were mixed. The Stoxx Europe 600 added 0.5%, led by tech, while U.K. bank stocks gained after the Bank of England said the country’s biggest lenders would survive a major economic downturn.
In Asia, Japan’s Nikkei 225 and China’s Shanghai Composite Index ended lower, but Hong Kong’s Hang Seng rose 1%.
Stocks in the News
U.K.-based Arm is hoping to bring on Nvidia as a cornerstone investor as the chip designer moves toward an initial public offering this year, the Financial Times reported on Wednesday, citing sources. Nvidia is already an existing partner in the group, along with Intel, but Arm wants it to take a major stake at the IPO, the sources said.
Premarket Movers
Coinbase rose 0.6% after closing with a gain of nearly 10% on Tuesday on news that a proposed Bitcoin ETF to be launched by Cboe BZX Exchange would include surveillance-sharing agreements with Coinbase. Separately, Cathie Wood’s ARK Innovation ETF (ARKK) sold 132,152 shares of Coinbase on Tuesday.
Terex said its board approved a 13% increase to its quarterly dividend to 17 cents a share. It’s the second time this year Terex has raised its dividend. The stock was up 1.8%.
Post-Close Movers
Acadia Healthcare shares fell 4% after the company said it would challenge a $485 million award in an abuse lawsuit against it.
Shares of Coty rose 4% in the extended session after The Wall Street Journal reported that Kim Kardashian is in talks to buy back the minority stake in SKKN By Kim, the beauty company she sold to Coty three years ago
Forex:
The dollar hit a two-month low against a basket of currencies and the euro ahead of key inflation data which are expected to show a fall.
“Waiting for the data has already sparked some volatility among majors, with the dollar already losing ground across the board,” UniCredit said.
Both headline and core inflation prints are expected to slow further, but much lower-than-expected figures might be needed to suggest that interest rates could stop rising after this month, UniCredit said.
It added that the data could push the DXY dollar index below 101 or lift it back above 102.
DZ Bank said the euro fell after Tuesday’s weak German ZEW business sentiment index but the losses proved temporary as broad dollar weakness overrode any concerns about the eurozone economy.
Bonds:
10-year Treasurys and German Bunds are a buy at yields above 4% and above 2.65%, respectively, Jefferies said.
“We would look for 10Y US Treasury yields to drop below the 3.75% level and 10Y Bunds below 2.50% over the coming weeks, with the year-end targets of 3.25% and 2.10% respectively,” it said.
Jefferies expects risky assets to perform over the coming months, but in the medium term, it has a more cautious outlook, expecting an economic slowdown in the fourth quarter of 2023 and in the first quarter of 2024.
Energy:
Oil prices edged up to their highest levels since late April on signs of emerging tightness, with seaborne crude shipments from Russia declining, suggesting it is finally making good on its promise to cut output.
“The market appears to be finally starting to reflect the tighter fundamentals that we see over the second half of 2023,” ING said.
Metals:
Metal prices inched higher with the CPI data key for direction in the immediate term, ING said.
Separately, ING said hot weather in China’s Sichuan province could also risk output curtailments for aluminum.
“Power consumption in Sichuan, a region already struggling with low hydro levels, reached a record high on Monday,” ING said, adding that reports of smelters being forced to cut output have already emerged.
Today’s Top Headlines
CVS Caremark Delays Block Customers From Their Prescriptions
Patients whose drug benefits are covered by CVS’s Caremark business couldn’t get their prescriptions processed for many hours starting Monday morning, leaving some stranded without medications.
The CVS Health unit, which is the biggest U.S. drug-benefit manager and handles the prescriptions of millions of Americans, said in a letter sent to pharmacists Monday that it was experiencing an “unexpected system slowdown.”
RBNZ Confirms Pause in Rate Increases for Now
SYDNEY-The Reserve Bank of New Zealand left interest rates unchanged at its policy meeting on Wednesday but warned that policy settings will need to remain tight for some time yet.
The official cash rate was left on hold at 5.5%, its highest level in 14 years, as widely expected. The RBNZ had hiked at each of the 12 prior policy meetings since October 2021.
Ukraine Gets Defense Pledge From West After NATO Disappointment
VILNIUS, Lithuania-Leaders from the world’s seven largest economies will announce Wednesday new long-term security commitments to Ukraine, seeking to deter future Russian attacks and advance Kyiv’s aspirations to join NATO, the European Union and other Western alliances.
The largely symbolic declaration from the Group of Seven nations comes as leaders of the North Atlantic Treaty Organization wrap up two days of meetings in which they reaffirmed security pledges to Ukraine but disappointed its leaders by not putting a timeline on its eventual membership.
North Korea Launches Suspected Long-Range Missile
SEOUL-North Korea tested what appeared to be a long-range missile on Wednesday, after the Kim Jong Un regime spent days expressing discontent toward the U.S. on a variety of issues.
South Korea called it a suspected long-range missile, while Japan’s assessment described it as being of a similar class to an intercontinental ballistic missile. North Korea’s prior ICBM launches have demonstrated a potential range long enough to reach the U.S. mainland.
Trump Loses Justice Department Backing in Defamation Case
The Justice Department said Tuesday that it would no longer represent former President Donald Trump in a continuing defamation lawsuit filed by writer E. Jean Carroll, reversing its previous position.
The department said in a letter filed in court that Trump wasn’t acting within the scope of his employment as president when he denied sexually assaulting Carroll in the 1990s and made other statements that formed the basis of Carroll’s defamation claims in the long-running case.
Source: Dow Jones Newswires