Wednesday's Markets Update (June 28, 2023)

29 Jun 2023 by rate3

On Wednesday, Powell issued distressing comments, projecting more rate hikes, and the Fed tested bank's resilience to the crisis. However, the NASDAQ (o: 13,506, c: 13,591) ticked up, driven by megacap momentum tech stocks, while BTC (o: 30,102, c: 30,100) continued to hover above 30K.

Details:

Powell said at the ECB Forum that more rate hikes are coming, with at least two more hikes this year. He also said that a recession is possible, but not the most likely case. The Fed left the target for the funds rate unchanged in June, but signaled that rates may go to 5.6% by year-end. The funds rate is now seen higher this year, compared to March projections (5.1%). Upward revisions for 2024: 4.6% vs 4.3%; and 2025: 3.4% vs 3.1%.

The Fed has released the results of its annual bank stress test, which demonstrates that large banks are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession. Vice Chair for Supervision Michael S. Barr said that the banking system remains strong and resilient. The stress test assumes a severe global recession with a 40% decline in commercial real estate prices, a 38% decline in house prices, and a 6.4 percentage point increase in the unemployment rate. The banks in the test would experience heavy losses, but they would still be able to continue lending. The total projected losses are $541 billion, including over $100 billion in losses from commercial real estate and residential mortgages, plus $120 billion in credit card. The aggregate is 2.3 percentage point decline in capital.

Other Markets Updates:

Japan: Consumer confidence rose to 36.2 in June, the highest level in 17 months. Households' sentiment strengthened for both employment and income growth, but deteriorated for the willingness to buy durable goods.

Vietnam: International arrivals rose 312% year-on-year to 975K in June, mainly led by China (1,475.2%), South Korea (453.6%), Japan (217.7%), and Taiwan (946.6%). Arrivals from the US (146.5%), Europe (138.3%, of which Russia added 343.7%), and Australia also increased significantly. From January to June, international arrivals surged 826% to 5.57 million.

Commodities:

Gold: Prices fell to the lowest level in three months - below $1,910 - as Fed Chair Powell said two more rate hikes are likely this year. ECB President Lagarde also signaled further tightening, while BOJ Governor Ueda reiterated ultra-easy policy.

Steel: Futures rebounded on hopes of stimulus from China. Premier Li Qiang pledged to activate market vitality and expand demand (5% GDP growth is promised by Li). At the same time, new yuan loans fell short of expectations, while industrial production and imports slowed. That might result in Beijing reducing steel output by 2.5%.

Sugar: Futures fell to the lowest level in nearly three months as concerns of tight supply eased. Favorable weather in Brazil and increased subsidized farm loans in the country underpinned expectations of strong production. In India, cheap oil and higher domestic prices drove producers to allocate sugarcane for sweetener crushing instead of biofuel blending, raising supply.

Wheat: Futures retreated back to the $7 per bushel mark after soaring to a four-month high of $7.56 on June 26th after a mutiny in Russia eased supply concerns. Wheat prices remain high due to Russia's threat to halt grain exports past July 17th and dry conditions in the US Midwest.