Hawkish Fed commentary weighs on stocks and shares in China slip c. 3%

TL;DR: the Dollar moves higher and stocks fall after the Fed reinforced expectations of more rate hikes to come. Weak data from China’s service sector weighs heavily on Asia shares with the Hang Seng down over 3% and Nikkei 225 losing nearly 2% in today’s trading.

📰 What’s moving markets?

• At the Federal Open Committee Meeting yesterday some Fed officials signaled that they would be inclined to vote for a 0.25% base hike in July, and most also added that they anticipate further hikes to come later in the year.

• The US dollar rallied on the hawkish Fed commentary and against a basket of currencies the Dollar index sits at 103.3; however, the dollar has weakened 0.50% against the Yen as Japanese officials have raised concerns about the Yen’s weakness, which investors think may lead to monetary intervention.

• China’s service sector as measured by the purchasing managers' index (PMI) fell to 53.9 in June from 57.1 in May showing that activity has softened and raising concerns that China’s post-Covid recovery may not be as strong as expected. The Hang Seng is down 3% today.

• Euro Zone PPI, which measures inflation in the prices of goods bought and sold by manufacturers, fell by 1.5% YoY in June, greater than market expectations of -1.4%. PPI often leads CPI so this is a promising sign for inflation easing in Europe, but it did little to help stocks with the EuroStoxx 50 and FTSE 100 both losing c. 1%.

• Facebook parent company, Meta, was up 3.5% yesterday on the announcement of a new product ‘Threads, an Instagram app’ which is being marketed as a Twitter rival.

📊 Chart of the day

Most developed nations are following the US lead with decelerating inflation. Notable exceptions: UK, Netherlands, Norway.

Accelerating inflation (red) and decelerating inflation (blue) for developed markets

📅 Coming up this week

Monday 3rd July

• China Manufacturing PMI expected: 50.2, last: 50.9, actual: 50.5

• Germany Manufacturing PMI expected: 41.0, last: 41.0, actual: 40.6

• UK Manufacturing PMI expected: 46.2, last: 46.2, actual: 46.5

• US Manufacturing PMI expected: 47.2, last: 46.9, actual: 46.0

Tuesday 4th July

• Reserve Bank of Australia Base Rate Decision expected: 4.35%, last: 4.10%, actual: 4.10%

Wednesday 5th July

• Euro Zone PPI (YoY) expected: -1.4%, last: 1.0%, actual: -1.5%

Thursday 6th July

• Euro Zone Retail Sales (MoM) expected: 0.2%, last: 0.0%

• US ADP Employment Change expected: 240k, last: 278k

• US JOLTS Job Openings expected: 9968k, last 10103k

Friday 7th July

• US Change in Nonfarm Payrolls expected: 225k, last: 339k

• US Unemployment Rate expected: 3.6%, last: 3.7%

• US Average Hourly Earnings (MoM) expected: 0.3%, last: 0.3%

• US Labor Force Participation Rate expected: 62.6%, last: 62.6%

📈 The markets at a glance