Consumer sentiment picks up in the US

Consumer confidence in the US improved in June according to the University of Michigan consumer sentiment index. The June print of 63.9 was an improvement on the 59.2 recorded for May. Both the current conditions component and the expectations segment of the index improved, likely abetted by the resolution of the US debt ceiling negotiations while the persistent strength of US equity markets is likely also helping to shore up sentiment. Inflation expectations have dropped, falling to 3.3% for one-year ahead inflation expectations from more than 4% in May.

Federal Reserve chair Jerome Powell will speak to both the House of Representatives and Senate this week following the Fed choosing to hold policy unchanged at the FOMC meeting on June 14. The pause came despite Fed officials raising their expectation of where they see rates going by the end of the year with the median now projecting another two 25bps hikes.

Christopher Waller, a governor of the Federal Reserve, said that the stress in the US banking system earlier this year may not have contributed to a meaningful tightening of lending standards and that he did not “support altering the stance of monetary policy over worries of ineffectual management at a few banks.” Fed officials have categorized the collapse of several banks as equivalent to a tightening in monetary policy although did not try to quantify explicitly the impact in basis point terms.

Today’s Economic Data and Events

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Fixed Income

• US Treasuries closed the week on a softer footing, anticipating at least one more hike from the Fed at its July meeting. Yields on the 2yr UST rose about 12bps over the week as a whole, ending on Friday at 4.7141%, a single day rise of 7bps. The 10yr yield rose 4bps on Friday to 3.7613%, adding only about 2bps for the week as a whole.
• European bonds generally closed stronger at the end of the week with the 10yr bund yield down 3bps at 2.47% while 10yr French yields dropped almost 5bps at 2.97%.
• It will be a heavy week of central bank action with the Bank of England expected to hike another 25bps on June 22 while Bank Indonesia, the Swiss National Bank and the Mexican central bank also hold policy decisions. The Turkish central bank also meets on June 22 with market expectations for a massive hike to 20% on the one-week repo rate from its current level of 8.5% as the bank is under new leadership.

FX

• The dollar sank against most peers last week as markets responded to consistently hawkish messages from the ECB and anticipate at least one more pull higher from the Bank of England this week. EURUSD closed near unchanged on Friday at 1.0937 taking its gains for the week to 1.7% while GBPUSD added 0.3% on Friday to close at 1.2817, up 1.9%. USDJPY was the standout among the majors with JPY weakening last week: the pair closed higher by 1.1% on Friday at 141.82, taking its weekly move the 1.7%.
• Commodity currencies were resolutely stronger with USDCAD down 1% over the week to close at 1.32 while AUDUSD added 2% to 0.6875 and NZDUSD rose 1.7% to 0.6236.

Equities

• Global equity markets had a good week last week, with gains across all major indices. In the US, the S&P 500 closed up for the fifth week in a row to close up 2.6% w/w. The NASDAQ was even stronger, gaining 3.3% on the week.
• In Asia, the Nikkei ended the week up 4.5% to close at levels last seen decades ago. The Shanghai Composite gained 1.3% and the Hang Seng 3.4%.
• Locally, the DFM closed up 2.5% w/w and the ADX 0.8%.

Commodities

• Oil prices snapped their recent losing streak with Brent futures adding 2.4% to USD 76.61/b and WTI gaining 2.3% to USD 71.78/b. Both contracts were higher at the end of the week with Brent up 1.2% and WTI adding 1.6% on Friday.
• Investors cut net long positions in both Brent and WTI futures and options last week, missing out on some gains toward the end of the week. In the US, the drilling rig count dropped by net 4 rigs last week with a large drop in the horizontal (shale) rig count.