26th June - The Rotation Continues
- Jun 26
- 3 min read
Yesterday's main news was the PCE report from the US, which came in largely as expected and was almost a non-event in the end. The only figure that was not as expected was the US PCE m/m figure, which came in at 0.4% instead of 0.5%, a slightly dovish figure.
Outside of the PCE release, there was news from the Middle East that Iran had attacked a Singaporean tanker in the Strait of Hormuz. There was no reported damage and no casualties. The market continued to see this sort of low-level friction as noise rather than a meaningful development. Oil rose a little yesterday but has been falling this morning, further reinforcing this.
Forex
The inline PCE print took a little steam out of the USD yesterday, stemming the optimism that was pushing the currency higher since the FOMC meeting. Treasury yields continued to fall, indicating that there is some market sentiment that inflation may be set to come down in the near future and that rate hikes may be less necessary. I would still expect to see some USD strength over the next few days and weeks, but long term there is every chance that some of the tide has begun to turn.
USD/JPY continues to hover close to previous intervention levels; the recent USD weakness has helped move it away from these levels a little but still within striking distance. The BoJ has survived the PCE release; now they will wait to see which way the market slides before they make their next call.
Outside of the USD, the AUD and NZD continue to struggle despite some support for precious metals over the last 24 hours. CAD continues to be slowly drifting lower thanks to oil prices falling, while the EUR, CHF, and GBP have not seen any recent catalysts and are holding steady.
Indices
Despite blockbuster news from Micron on Wednesday, yesterday continued to see weakness in the Nasdaq and S&P, with both continuing a fall that began at the beginning of last week. The Dow rose again to just about make an all-time closing high, which again feeds into the theory that markets are rotating out of growth and into value. Poetically, the AI/tech struggles may be caused by higher memory costs, the very thing that drove Micron to record results. Apple and Microsoft were forced to raise hardware prices, which pushed their stocks down on the day.
Even with a very positive result from Micron, money continued to move away from tech. The test now is to see whether this becomes a multi-week rotation or just a temporary blip.
Precious Metals
Yesterday and into today has seen some support for precious metals, with both halting their week-long slide for one day at least and Gold bouncing off the $4000 psychological level mentioned yesterday. This is likely due to some USD weakness and the falling treasury yields, giving metals some hope that the inflation tide may be beginning to turn. Yesterday's PCE figures were for May, so did not include the bulk of the recent falls in oil prices. The hope for metals is that the June figure will show significant falls in inflation and will remove the rate-hike channel risk somewhat. This is the shoots of a longer-term bullish bias we have towards metals; once the energy shock has made its way through the system, then metals should once again become a viable option for medium-term investors.
Today's Key Market Drivers
Iran/US developments - Any small news will be considered noise, but any larger announcements or developments could still move markets.
USD UoM Consumer Sentiment - This will not be a significant market mover, but should give us an idea as to consumer resilience and whether the PCE data reflected how consumers feel.
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