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Bond Market Insights - Tues, 27 June 2023

US stocks sold off last night following events in Russia. The Nasdaq 100 slid for a second day after suffering its worst week since March. Tesla slumped 6.1% as brokers turned less bullish on the EV maker after this year’s blistering rally..

European equities were steady, after a dismal week. In Germany, Bundesbank may require a capital injection from the German government, according to a new report because of the losses incurred from the ECB’s massive QE program. German IFO survey added to the gloomy tone set by the flash PMIs on Friday.

In Japan business sentiment remained steady as the service sector continues to recover, helped by tourism. The underlying inflation trend appears to be peaking out, but a rapid slowdown is unlikely. A bit of noise on the BOJ policy pivot, with a BOJ policymaker calling for an early revision to the YCC policy according to a summary of opinions from the June meeting (this is a minority view, but it does represent a tiny shift at the BOJ, an institution where subtle changes can be significant

On the macro front, China is increasingly becoming worried that the upcoming Taiwan election (in Jan 2024) could exacerbate tensions between Washington and Beijing. China tourism activity during the Dragon Boat Festival provided a boost, up 32.3% y/y, 12.8% higher than pre-pandemic levels in 2019.

In the US Powell largely reiterated the themes from the June FOMC meeting in remarks last week, leaning heavily on the dot plot and the fact that a "strong majority of the FOMC sees two more rate hikes". With only one CPI report and one more employment release ahead of the July 26 FOMC meeting, another 25bps hike to 5.5% appears to be the call.

The amount of decline of the money supply in the last couple of months should have pushed the US into a recession, usually anything over 2%, we are around double that. This is due to the amount of money that was printed and put into circulation since 2019. To make a dent in the 189% increase in M2 since 2009 it would take more fed hikes and huge run-off of the fed’s balance sheet. There is still too much money chasing too few goods. Where does that lead us.. inflation. The fed is correct in its statement that higher rates for longer are needed to eat into this free money, and this pause is temporary.

Asia credit opened unchanged, with buying interest in some of the TMT names. BBB corps are still under pressure.. The new NACF slightly disappointing, wrapped 2bp wider from the reoffer spread.

News that Hong Kong’s billionaire Cheng family is effectively making a cash injection into New World Development has boosted bonds. NWDEVL perpetual bonds jumped 3pts,

On the macro side today we have: US durable/capital goods for May (8:30amET), US home prices for April (9amET), US new home sales for May (10amET), Conference Board confidence for June (10amET), Richmond Fed manufacturing for June (10amET). Lagarde is also providing some ECB speak.


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