MARKET WRAPS
Watch For:
Housing Starts for May; FedEx earnings; General Motors annual meeting
Today's Headlines/Must Reads
- Stock-Market Rally Costs Bears $120 Billion
- Wall Street Sours on America's Downtowns
- Why Inflation Around the World Just Won't Go Away
- Silicon Valley's Newest Unicorn Is a Mining Company
Follow WSJ markets coverage here .
Opening Call:
Stock futures edged lower on Tuesday with Chinese equities wilting on disappointment over the stimulus efforts in the world's number-two economy.
China cut its 1- and 5-year lending rates by 10 basis points, which investors viewed to be modest, particularly after a Friday state council meeting didn't come out with concrete measures.
According to Societe Generale, there were expectations the 5-year rate, the benchmark for mortgages, would be cut by 15 basis points.
Read China Cuts Borrowing Rates Again in Bid to Juice Recovery
Morgan Stanley said both retail and institutional investor sentiment are at their highest levels in over two years.
"We note that the consensus is right about 80% of the time, which means such shifts in sentiment and positioning can often be right as the collective intelligence of the market knows best," Morgan Stanley said.
"However, given our fundamental view on growth, we find it hard to get on board with the current excitement and narrative supporting it. In other words, if second half growth re-accelerates as expected, then the bullish narrative being used to support equity prices will be proven correct."
Stocks on the Move
ADRs of Alibaba fell 2.2% in premarket trading after the Chinese e-commerce giant said Daniel Zhang will be stepping down as chairman and chief executive. He will remain as leader of the company's cloud intelligence group, which the company announced last month would be spun off.
Intel gained 0.5% after the Israeli government said the chip maker said was investing $25 billion to manufacture semiconductors in the country, just days after Intel announced a new facility in Poland.
UPS edged lower in premarket trading after the International Brotherhood of Teamsters union said Friday that members had overwhelmingly voted to go on strike if a collective bargaining agreement with the shipping giant isn't reached by the expiration of their current deal
Economic Insight
Exports of Swiss watches to the U.S. suggest wealthier consumers have begun spending big as summer approaches, Bernstein said.
After a slump in April, when U.S. exports shrunk on-year, export growth returned in May, although at a lower rate than in mainland China, according to new data.
"This suggests that high-end American consumers, still seemingly in the YOLO mindset, have resumed travelling and spending as summer approaches, " Bernstein said.
Forex:
The dollar was flat in Europe and MUFG Bank said the currency has lost upward momentum after the Fed skipped raising interest rates last week for the first time in more than a year.
"The slower pace of hikes highlights that the Fed is becoming more cautious over the need for further hikes and wants more time to assess incoming data," MUFG said.
The Fed signaled it could lift rates two more times this year but there is market scepticism over the need for this given building evidence of disinflation, MUFG said, adding that while there is a high chance of a July rate rise, the Fed could pause hikes by September.
---
Sterling should rise if U.K. inflation data on Wednesday exceed expectations, but the gains may not last, Commerzbank said.
If the data surpass forecasts, speculation about the Bank of England delivering a larger 50 basis points interest-rate rise might intensify ahead of Thursday's meeting, which would likely benefit sterling, Commerzbank said.
"However, we principally remain cautious as the rate expectations for the rest of the year seem excessive and we see the risk of the market having to correct its expectations. Short-term rate speculation might support sterling, but medium-term we expect sterling to be weaker."
Read Euro Could Fall Vs Dollar as Markets Seen Too Pessimistic About USD
Read Euro Seen With Limited Upside Potential for Now
Bonds:
Yield curves are already consistent with the new hawkish message from central banks, so any rise in yields is more likely to come from economic data, ING said.
"Yields may well continue rising, to 4% for 10-year Treasuries, but this is set to come with a more inverted curve," ING said.
Rate cut expectations have all but disappeared from the dollar curve for 2023 and, similarly, the euro curve doesn't price a first rate cut by the European Central Bank before the first or even second quarter of 2024, it said.
"In our view, this counts as a communication success for central banks, and it reduces the mispricing that they can push back against," ING said.
Energy:
Oil prices were largely unchanged, showing little reaction to China's rate cut.
Read New Land Grab by Oil Giants Is Deep Underground
Metals:
Base metals were mixed with gold a touch lower as the macroeconomic outlook remained uncertain.
"The bullish macro mood has lost some momentum," Peak Trading Research said, noting China's rate cut--a bearish signal for the yuan, which is the number one importer currency.
Peak said investors would be looking to Jerome Powell's speech later on Wednesday, with the focus on any signals as to how many more rate hikes are likely this year.
Steel
The international steel trade as a proportion of global demand is at its lowest level since the 1970s, Citi said.
The global steel trade has been in decline since 2017, as trade barriers have increased, and in 2022 internationally traded steel accounted for less than 23% of apparent consumption. That compares to about 31% in 2016 and a peak above 39% in 2000, Citi added.
It expects the global steel trade to increase in 2023, but only marginally, encouraged by disconnected prices in big steel markets.
TODAY'S TOP HEADLINES
Silicon Valley's Newest Unicorn Is a Mining Company
Some of the tech industry's most prominent investors are doubling down on one of Silicon Valley's latest unicorns: a mining startup.
Berkeley, Calif.-based KoBold Metals, which explores for metals such as copper, lithium and cobalt using artificial intelligence, is raising around $200 million in a fundraising round, said co-founder and Chief Executive Kurt House.
Alibaba Is Replacing Chairman and CEO Daniel Zhang
Alibaba Group Holding is replacing top executive Daniel Zhang by naming company veteran and Brooklyn Nets owner Joe Tsai as the new chairman, as the Chinese e-commerce giant grapples with slow growth and poor stock performance.
The reshuffling at the top, effective on Sept. 10, also comes as Alibaba, which has emerged in recent months from Beijing's clampdown on internet companies, undergoes a major reorganization. Alibaba is in the process of splitting itself into six independently run companies that could seek separate initial public offerings, a move that would break up the business empire that co-founder Jack Ma had built over two decades.
Stellantis, Foxconn Team Up to Sell Chips for Auto Industry
Auto maker Stellantis and tech giant Foxconn are joining forces with the creation of a new business that will sell semiconductors to the automotive industry, where demand remains high amid automation and the switch to electric vehicles.
The business will be called SiliconAuto and will be owned equally between Stellantis, which makes Jeeps and Chryslers, and Foxconn, the Taiwan-based tech group best known for assembling Apple Inc.'s iPhones in mainland China.
Stock-Market Rally Costs Bears $120 Billion
Investors have been ramping up bets against stocks-and they are getting burned.
Total short interest in the U.S. market topped $1 trillion this month, hitting the highest level since April 2022, according to data from S3 Partners. That is up from $863 billion at the start of the year and represents about 5% of all shares that are available to trade.
Pro Take: A Big Source of Inflation Is Parked in the Garage
The U.S. central bank called a timeout on raising interest rates last week, but indicated its fight against inflation is far from over. One area of resistance in that inflation-taming fight lurks in home garages.
Auto insurance-which costs Americans about $1,600 per vehicle a year-seems immune to the 10 rate hikes made by the Federal Reserve since March 2022. What consumers paid to insure vehicles rose more than 17% in May on a 12-month basis, according to last week's consumer-price index report-well over the Fed's 2% inflation target for the broad economy.
Today's Rate Hikes Threaten to Push Up Tomorrow's Housing Costs
Central banks in the West are fighting inflation today at the risk of boosting inflation in the future.
The Federal Reserve, European Central Bank and policy makers in other developed countries are trying to stop surging price growth by raising short-term interest rates, something that pushes mortgage rates higher. But these efforts threaten to choke off construction and worsen housing shortages. That could push up inflation in the years ahead through higher rents and home prices.
Wall Street Sours on America's Downtowns
Wall Street is betting against America's downtowns.
Investors are paying less for bonds linked to New York subways and buses. Downtown-focused real-estate investment trusts trade at less than half their prepandemic levels. Bondholders are demanding extra interest to hold office-building debt.
Xi Jinping Meets Antony Blinken as U.S., China Resume High-Level Engagement
China and the U.S. took steps to halt the downward spiral in relations, with Secretary of State Antony Blinken meeting Chinese leader Xi Jinping, though the two powers might have trouble keeping their global rivalry from swamping the tentative rapprochement.
(MORE TO FOLLOW) Dow Jones Newswires
06-20-23 0603ET
