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Happy Juneteenth,

Your MD’s rest today means your overtime tomorrow. As some investors hit snooze, lower volume means higher volatility.

The Fed is done moving markets, but traders are still gearing to make big market moves. You’re in for a long Friday when multiple options and futures expire at the same time.

Let’s dive in.

Economy Heat Check

As of 6/16/2023 market close, unless otherwise stated.

Friday Flashback

• The ECB delivered a hawkish 25 bps hike.

• Australia delivered another strong employment report, with over 70k jobs added, unemployment pulling back to 3.6% and the participation rate at a record high.

• New Zealand’s economy contracted for a second consecutive quarter, officially entering a technical recession earlier than the RBNZ anticipated.

• The IMF warned that the RBNZ may need to raise rates further and keep them higher for longer.

• The PBOC eased interest rates for the first time in 10 months in response to weak economic data.

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Bullish & Bearish

↑ Stock Market: 4500 now remains the main level for the S&P 500 to break above.

↑ Currencies: USD/CHF is up to a fresh 7-month high after the PBOC eased interest rates.

↓ Commodities: Trafigura Group is being sued by the billionaire Reuben brothers as global metal markets feel the fallout of a massive nickel fraud.

↑ Gold: Gold currently trades at $1962/oz, barely higher than last week's close.

↑ Oil: Gained for the week as supply cuts balanced demand concerns.

↓ Crypto: Investors continue to monitor the SEC and Binance situation, as $25k remains on watch for the markets to hold above.

Week Ahead: Signal to Noise

This week’s market outlook and whether you should actually care.

Signals

UK Inflation Report and BOE Meeting

To think that the BOE (Bank of England) was considering holding rates steady now seems as absurd as J Pow featuring on a set with DJ Sol. The BOE is still hiking rates – and has the potential to raise them at least another couple of times. Employment and wage data are showing no immediate signs of slowing, which simply feeds the BOE’s concerns over current wage-spiral inflation.

Wednesday’s inflation report is squarely back on GBP traders’ radars. Headline inflation (including food and energy) was at 8.7% year-over-year in April. In case you’re taking the bank holiday off from math, that’s more than four times the BOE’s 2% target. It marked the first month in ten that it was below 50%.

Not to mention, core inflation rose to 6.5% year-over-year (1.3% m/m). That’s the fastest monthly pace in over three decades. Even if the BOE is pleasantly surprised with soft inflation figures, it will likely need to hike at least twice more. Unless core measures quickly cool, realists will be expecting three or four more hikes.

SNB Interest Rate Decision

In signature IDGAF fashion, Switzerland currently has the lowest interest rate – barring the Bank of Japan’s negative rate (-0.1%). That could change in the SNB’s (Swiss National Bank) upcoming Thursday meeting.

The SNB currently boasts the lowest interest rate among the major central banks, coming in at a mere 1.5%. Despite inflation pulling back to 2.2% year-on-year, the SNB is expected to raise rates by at least 25 basis points on Thursday.

The Swiss anticipate inflation to exceed the SNB's own forecast for 2023. The current SNB Chairman even emphasized the ongoing need to “combat inflation” and bring it back below 2% in the long term. You know it’s serious when the Swiss threaten to combat anything.

Considering the European Central Bank's (ECB) hawkish hike and the Fed's hawkish pause, there’s the theoretical possibility of a 50 basis point hike. But that’s not even close to the consensus. At minimum, a hawkish 25 basis point hike is expected. That would then be accompanied by hawkish comments, which could further strengthen the Swiss franc.

A significant chart to monitor is the CHF/JPY pair, which has reached an 8-year high due to divergent policies between the SNB and BOJ. Notably, the rally is approaching two important levels: the all-time high from 1979 and the 2015 high, when the SNB removed the EUR/CHF peg and triggered significant volatility. Watch the reaction of prices around these levels, considering the potential impact of historical milestones on market behavior.

China Goes Local

An uphill battle is brewing for global consumer brands in China. Cool logos aren’t enough any longer for Chinese consumers, who are ditching foreign brands in favor of local labels.

The culprit is local labels wisening up to global strategies. Domestic brands are improving their reputation for quality, design, and sales techniques. Similar to international competitors, they’ve adapted to live-stream shopping, celebrity influencers and short-video apps for marketing. They’ve also tailored products specifically for the Chinese market and embraced Chinese culture.

But multinational brands have taken notice and are fighting back to regain market share. Adidas, Procter & Gamble and L'Oréal, which heavily rely on sales in China, are now adopting tactics used by domestic rivals. This includes tactics like boosting digital sales channels and designing products that cater to Chinese consumers.

China's consumer market is expected to surpass the US as the world's largest by 2026. With consumers showing a preference for online shopping and an increasing focus on Chinese heritage, it will be an interesting watch to see which global brands devote financing to regaining their Chinese market share. This could be at the expense of expanding into growing markets like India.

Noise

Monday, June 19:

Juneteenth 

• US: NAHB Housing Market Index

• Canada: Producer, Raw Materials Prices

• China: Loan Prime Rate

Tuesday, June 20:

• US: Building Permits; Housing Starts

• EU: Current Account NSA; Construction Output; Producer Prices (Germany); Trade (Switzerland)

• Japan: Industrial Output, Capacity Utilization; Reuters Tank Manufacturing Index

• New Zealand: Dairy Prices, Milk Auctions; Westpac Consumer Survey

Wednesday, June 21:

• US: Mortgage Data; Redbook

• Australia: Composite Leading Index

• UK: Consumer and Producer Prices Indices; CBI Trends

• Canada: Retail Sales; New Housing Price Index

• EU: M3 (Switzerland)

• New Zealand: Trade Balance

• Japan: Foreign Bonds, Stocks Investment

Thursday, June 22:

• US: Current Account; Jobless Claims; National Activity Index; Existing Homes Sales; KC Fed Manufacturing and Composite PMI

• Japan: Chain Store Sales; Consumer Price Indices

• EU: Flash Consumer Confidence; Business Climate (France); SNB Policy Rate (Switzerland)

• Australia: Flash Manufacturing, Services and Composite PMIs

• UK: GfK Consumer Confidence

Friday, June 23:

• US: Flash Manufacturing, Services and Composite PMIs

• EU: Flash Manufacturing, Services and Composite PMIs; State Consumer Price Indices (Germany)

• UK: Retail Sales; Flash Manufacturing, Services and Composite PMIs

• Canada: Budget Balance

• Japan: Flash Manufacturing and Composite PMIs; Service PPI

Lit’s Pick & Put

↑ Argentina will be admitted as the latest member country of the New Development Bank (NDB), a Shanghai-based international development bank created by BRICS. The move will permit Argentina to obtain direct financing as it seeks to shore up its dwindling foreign reserves (BAT)

↓ Tingo, an African agri-fintech company, filed a press release with the SEC a month ago claiming "significant progress" had happened on the construction of a facility. Turns out the rendering of the facility was a picture from a stock photo website of an oil refinery (LI)

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