Rise and shine everyone.

Yesterday, was quite the day! Seems like the FOMC minutes proved to be a bigger surprise for the markets than Nvidia did. The markets are certainly reacting to the Fed’s discussion keeping policy restrictive for longer and the fact that they discussed a possible hike.

NVidia's earnings, however, did help markets quite a bit. Most of Asia closed higher - Japan, Taiwan, and Korea saw increases in their chip and tech stocks. Korea’s equity performance was balanced out though, with the Bank of Korea holding its key rate steady at 3.5% for the 11th straight pause in this tightening cycle.

China & Hong Kong pulled back over 1%. Last week, we talked about China’s ultra-long bond issuance. Well, the bond trading was halted today after prices fell over 10%, after a surge yesterday of +20%. The market remains illiquid and there seems to be extreme volatility there.

No surprise, US equity futures are trading higher this morning led by the Nasdaq. Yields and the US Dollar are marginally lower. Oil is a standout gaining over 1%, alongside Bitcoin. Other commodities are pulling back. Oh, and Nvidia is up +7% in the pre-market.

Fed Minutes

I know the news has sliced and diced the Fed minutes, talking about how the Committee considered a hike, and that rates will likely remain higher-for-longer.

All well and good, but there were some other things that I found quite interesting in the same paragraph.

• The FOMC is looking at the economy as being strong. While this is true since the US still has a relatively healthy GDP growth rate, it tells me that signs of weakness or slowdown will not be taken well. This could scare them into doing cuts.

• The US is definitely going to see higher terminal rates, which means that the economy needs to adjust to this. So far, most sectors have been likely operating with the notion that ultimately, the Fed will start cutting and we will go back down to a low-rate environment. Capex, investment, and debt decisions have been put off. Debt for one, I know for a fact, has been restructured and extended in anticipation of the Fed eventually cutting. But, I think this is something we need to start considering - what happens to equities and any investments, for that matter, if the Fed doesn’t cut fast and doesn’t cut enough?

• Finally, please note the second last line where they talk about the labor market. This is a concern. We’re seeing the labor market start to weaken and if we cross the projected unemployment rate threshold of 4%, we’re likely to see the Fed start panicking a little. And if that comes early enough, it could mean the Fed starts cutting even before inflation is tamed.

Just a few things to think about as we move forward.

PMIs

Flash PMIs are rolling in. The latest flash PMI data reveals several key insights:

1. France: Weakness in the services sector.

2. Germany and Euro Zone: Both saw stronger-than-expected results, offsetting the weakness in France and pushing the Euro higher. Manufacturing PMIs for both, however, still remain in contractionary territory.

3. UK: Manufacturing PMI exceeded expectations, but the services sector remained weak, leading to pressure on the sterling. Despite this, UK assets remained relatively stable.

4. India: Strong services; but Manufacturing dipped a little. Nevertheless, India has one of the strongest PMI readings across the world.

Additionally, UK Prime Minister Rishi Sunak has called for a general election on July 4th, which is likely to influence market sentiments and trading activities in the coming weeks.

US PMIs are out later today.

Chart of the Day

We’ve talked quite a bit about the K-shaped economy and then yesterday, we saw Target’s earnings - it was a double miss and they discussed concerns about discretionary spending. The consumer is trading down and the low-income consumer is struggling, with levels of debt and interest on that debt.

In case you missed it… I was on Bloomberg this morning. Here’s the clip:

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)