It’s been a long time coming but markets finally delivered a decent bear market rally last night as DXY slumped:
AUD to the moon:
Oil spoiled the party:
But metals, pointedly, did not:
Nor miners:
EM stocks took off:
Even junk got a little bid:
Yields firmed:
And stocks roared:
Westpac has the wrap:
Event Wrap
US housing starts fell 2.0% (est. +2.0%, prior -11.9%). Building permits fell 0.6% (est. -2.7%, prior -7.0%). Soaring mortgage rates are clearly affecting starts and permits, with completions still tracking below the path implied by permits and starts likely due to material shortages.
Eurozone CPI inflation in June was finalised at 0.8%m/m and 8.6%y/y, unchanged from the initial readings. The acceleration from 8.1% y/y in May was largely due to sharp price increases for food and energy. Core inflation did decelerate to 3.7% y/y from 3.8% y/y, but inflation excluding energy and unprocessed food came in at 4.6% y/y, up from 4.4% y/y, highlighting that price increases are increasingly wide spread.
Event Outlook
Aust: The Westpac-MI Leading Index will likely see a further moderation in June although the measure is still tracking above trend. Meanwhile, RBA Governor Lowe will speak on inflation, productivity and the future of money at the Australian Strategic Business Forum, 9:10am AEST.
Eur/UK: European consumer confidence will continue to be hampered by inflation and energy concerns in July (market f/c: -24.9). Meanwhile, the UK?s July CPI report should see energy inflation continue to make a strong contribution (market f/c: 0.7%).
US: Existing home sales are expected to fall again in June as affordability issues continue to lock many out of the market (market f/c: -0.9%).
Two news items did the work. Gazprom announced it would resume gas flows to Europe after maintenance and the ECB mulled a 50bps hike. These two lifted EUR and that sank DXY.
How far we get is up to the madness of markets now but, in my view, this is still a bear market rally. I can’t see how adding interest rate hikes to Europe’s recession will add to earnings. China’s recovery is all but over as its property market crash turns Lehman moment and COVID spreads. And the US Fed still has work to do and, although fading oil will aid the consumer, she is still likely to slow materially from here adding trade pain to the world.
Global recession dead ahead.
