Markets

Daily Markets: European Central Bank and May CPI Are in the Crosshairs Today

The European Central Bank building complex in Frankfurt, Germany
Credit: gertech / stock.adobe.com

Today’s Big Picture

The major equity indices in Asia-Pacific closed higher today, with Japan’s Nikkei rising 0.3%, China’s Shanghai Composite gained 0.5, Hong Kong’s Hang Seng adding 1.1%, and Australia’s ASX 200 expanded 0.5%. By midday trading the major European equity indices were mixed but little changed in either direction. Today brings the next monetary policy meeting for the European Central Bank, which targeted June as the time to reassess its pandemic emergency purchase program (PEPP). What, if any, tapering will be had? There won't be any, the ECB announced, and with less than a week until the Fed’s next monetary policy meeting, we’ll be breaking out our decoder ring for any clues as to what may come.

U.S. futures were little changed early this morning, before U.S. equity markets open for trading, we’ll get the highly anticipated May Consumer Price Index that is expected to clock in at 4.7% vs. 4.2% in April, which would be the biggest YoY increase since 2008. May core CPI, which strips out food and energy, is also expected to tick higher MoM to 3.5% from April’s 3.2% reading. Pretty much all figures are expected to come in hot; the two questions being ruminated by many an investor are: How much hotter than expected will the May data be, and how, if at all, does this play into the Fed’s thinking ahead of its next monetary policy meeting slated for next week?

Data Download

International Economy

Japan’s Producer Price Index rose 4.9% YoY in May after a 3.8% increase in April, ahead of expectations for a 4.5% increase.

Similarly, Consumer Inflation expectations for June in Australia rose to 4.4% from 3.5% in May.

In France, Industrial Production slipped 0.1% MoM in April after an upwardly revised 1.0% increase in March, missing the expected increase of 0.5%.

Italy’s Industrial Production jumped 1.8% MoM, marking the fifth consecutive month of gains, and far greater than the expected 0.3% increase. On a YoY basis, IP rose 79.5 YoY after a 38.4% increase in March and compared to expectations for a 72.2% increase.

GDP of the Group of Twenty (G-20) economies grew by 0.8% in 1Q 2021vs. 4Q 2020 according to data published by the Organization for Economic Co-operation and Development. On a YoY basis, GDP growth for 1Q 2021 rebounded to 3.4% following the 4Q 2020 contraction of 0.7%.

The Biden administration plans to purchase 500 million Pfizer Covid-19 vaccinations to donate to other countries with an official announcement expected from President Biden while in the UK, ahead of the G7 summit this weekend.

Domestic Economy

Mortgage applications in the U.S. declined 3.1% during the week ended June 4. This was the third consecutive weekly decline with refinancing down 5.1%, pushing the index to its lowest level since February 2020 while purchases rose 0.3%.

Wholesale inventories rose 0.8% MoM, in line with expectations. Nondurable goods stocks increased 0.9%, down from the 1.4% increase in March. Wholesale inventories rose 5.2% YoY. If we look at the average monthly level from Q4 of 2019 versus this past month and exclude energy, wholesaler sales are up 2.1%, which means we are (ex-energy) seeing expansion at the wholesale level. Inventory levels relative to sales are also low by historical standards, ex-energy they are at the lowest level since December 2013. Durable goods inventory-to-sales ratio is at the lowest level since February 2012 and in the eleventh percentile since 1992.

Later today we will get domestic inflation numbers, the usual weekly jobless claims reports, the WASDE report, and the Monthly Budget Statement for May.

Markets

After trading in positive territory for most of the day, the major equity indices fell into the red during the final hours of trading, leaving the S&P 500 down -0.2%, The Nasdaq Composite closed down -0.1%, the Dow -0.4%, and the Russell 2000 down -0.7%. The S&P 500 has experienced a spread of just 1.7% between its intraday high and low, the narrowest range in any period going back to July 2019. Perhaps more concerning is that its upside appears capped with every attempt, including today’s attempt, to take out its May 7 high failing.

While the headlines have been bemoaning inflation concerns for months, we’ve been consistently pointing out that much of the pricing pressures are, to use the quote the Federal Reserve chair Powell, transitory. There is just too much slack in the economy between the labor market and capacity utilization for us to get overly concerned. Do you know who is agreeing with us? The bond market. The yield on the 10-year Treasury declined yesterday once again to drop below 1.5%, down from the recent peak of 1.75% at the end of March. We’ll be looking at today’s CPI report for any developments, but at least for now, we remain in the transitory camp.

After taking a hit earlier this week following the FBI’s raid of a hacker’s bitcoin wallet, the price of bitcoin dropped to around half of its most recent high. Following the announcement yesterday that El Salvador had passed a law to adopt bitcoin as legal tender, bitcoin rose 13% to over $37,000.

Stocks to Watch

Last night GameStop (GME) reported a smaller than expected bottom-line loss for its April quarter but continued to suspect formal guidance despite sharing its May total sales rose 27% YoY. In its 10-Q filing, the company disclosed that on May 26 it received a request from the Staff of the SEC for the voluntary production of documents and information concerning a SEC investigation into the trading activity in its securities and the securities of other companies.

Clean Energy Fuels Corp (CLNE) shares followed the meme path yesterday, gaining over 31% yesterday on volume that was more than 7x the 10-day average trading volume.

RH's (RH) first-quarter top and bottom-line beat analysts’ estimates and hiked its full-year outlook, giving better-than-expected sales forecast for the second quarter leading shares to surge more than 7% in extended trading.

Taiwan Semiconductor (TSM) reported its May revenue rose 19.8% YoY to NT$112.36 billion. ChipMOS TECHNOLOGIES (IMOS) reported May revenue of NT$2.338.6 billion, up 30.7% YoY and 2.4% MoM. ASE Technology (ASX) shared its May revenue increased 18.1% YoY to NT$42.27 billion.

As Starbucks (SBUX) grinds its operations back to pre-pandemic activity, reports indicate it is running short on cups, coffee syrups, and other essentials in some locations.

Volkswagen (VLKAY) sees the semiconductor shortage easing in 3Q 2021 but also sees certain bottlenecks continuing in the long term.

Reports suggest United Airlines (UAL) is in advanced talks for a large narrow-body order that would include at least 100 Boeing (BA) 737 Max jets as part of a broader fleet revamp.

Amazon (AMZN) Web Services announced BMO Financial Group (BMO) selected AWS as its preferred, strategic cloud provider.

Raytheon Technologies (RTX) was awarded a $3.1 billion indefinite-delivery/indefinite-quantity contract for F-15 Radar Eagle Vision.

After today’s market close, Chewy (CHWY) and Dave & Buster’s (PLAY) will be among the companies reporting their quarterly results. Those looking to get a jump on those reports and others to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

  • June 11: Michigan Consumer Sentiment
  • June 11-13: G-7 Summit
  • June 15: Retail Sales, PPI, NY Empire State Manufacturing, Industrial Production, Business Inventories, NAHB Housing Market Index, Tic Flows, Foreign Bond Investment, Weekly API Crude Oil stock
  • June 16: Building Permits, Housing Starts, Import/Export Prices, weekly energy stocks, FOMC Economic Projections, and Interest Rate decision
  • June 17: Weekly Jobless Claims, Philadelphia Fed Manufacturing
  • June 21: Chicago Fed National Activity Index
  • June 22: Existing Home Sales, weekly API Crude Oil Stock
  • June 23: Current Account, Markit Manufacturing & Service PMI, New Home Sales, EIA Energy Stock
  • June 24: Durable Goods Orders, Wholesale Inventories, Weekly Jobless Claims, GDP Price Index Q1, Goods Trade Balance, Corporate Profits Q1
  • June 25: Personal Income & Spending, PCE Price Index, Michigan Consumer Sentiment

Thought for the Day

“Circumstances don't make the man, they only reveal him to himself.” ~Epictetus

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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