WTI oil WTI oil regained traction and bounced around $3 on Friday, on revived supply fears on almost total shutdown of production in OPEC member Libya, due to unrest in the country. Fresh strength correct strong fall on Wednesday, when the US announced measures to lower record fuel prices, although oil price is on track for the second consecutive weekly loss, as fears that rising interest rates would slow already fragile growth and push global economy into recession. Technical picture on daily chart is overall bearish but signals are mixed, as negative momentum remains strong, but stochastic reverse from oversold territory and RSI turned north. Fresh recovery was also attracted by next week’s daily cloud twist and pressures broken trendline support at $106.96 (bull-trendline off Apr 11 low), close above which would add to positive near-term signals, however more evidence of reversal would require lift above psychological $110 barrier and June 31 lower top at $111.13. Res: 106.96; 108.28; 109.09; 110.00. Sup: 105.40; 104.66; 103.61; 102.30. Interested in WTI technicals? Check out the key levels

Notes/Observations -European economic data continues to miss expectations as Spain GDP and mortgage lending, Hungary wages, Turkey capacity and confidence, Czech confidence, Italy confidence, Germany IFO survey and UK retail sales all came in worse than forecasted. -As Finland and Sweden markets close for Midsummer's Eve holiday, the UK and Germany take focus with light macro news. -UK PM Johnson comments that he must do more for the cost of living as he recognizes the conservative party by-election defeats in key districts, Tiverton and Honiton. -Germany IFO Survey missed consensus in business climate and expectations while Chancellor Scholz reiterated they must do more to diversify away from Russian gas as the economy ministry plans to transform suspended Nord Stream 2 pipeline into a LNG terminal. -Energy levels remain a significant focus for sentiment as Belgium PM declared that EU countries need to collectively buy energy to avert a winter crisis. They join Germany, Netherlands, UK, China and Australia with recent commentary on gas storage levels and concerns of blackouts. -In general Asia closed higher as bond yields withdrew. EU indices start 0.2-2.0% higher with bond yields lower. US Futures point higher. Elsewhere Gold -0.1%, BTC +2.2%, ETH +5.4%, DXY -0.2%, Brent +1.1%, WTI +1.2%. -Looking ahead, a quiet Friday session expected. Asia - Japan May National CPI Y/Y: 2.5% v 2.5% prior; CPI Ex-Fresh Food (Core) Y/Y: 2.1% v 2.1% prior. Europe - ECB's Kazimir (Slovakia, hawk): ECB to likely hike 25bps in July and 50bps in Sept; Rate hikes are data dependent. ECB rate may be at 1.5-2% in a year. - EU leaders granted Ukraine candidate status in its effort to gain EU membership (as expected). **Note: Path to membership could take over a decade. - UK Jun GfK Consumer Confidence: -41 v -40e (record low). - Conservative Party Chairman Dowden resigns following recent by-elections results (Liberal Democrat Spokesman stated that by-elections in Tiverton and Honiton appeared to be a 'clear win' (as expected); BBC says Labour Party won the Wakefield special election). Americas - Fed bank stress test results: All banks passed this year's stress tests. All 34 large US banks passed stress testing. - Mexico Central Bank (Banxico) raised Overnight Rate by 75bps to 7.75% (as expected). Energy - OPEC+ reportedly set to reconfirm plans for Aug oil output hike of 648K bpd at meeting next week (prior 648K in July). Speakers/Fixed income/FX/Commodities/Erratum Equities Indices [Stoxx600 +1.12% at 406.92, FTSE +1.10% at 7,097.42, DAX +0.70% at 13,003.10, CAC-40 +1.33% at 5,961.64, IBEX-35 % at #, FTSE MIB +0.59% at 21,743.00, SMI +2.06% at 10,669.17, S&P 500 Futures +0.67%]. Market Focal Points/Key Themes: European indices open generally higher and advanced into the green as the session progressed; sectors among those trending higher are utilities and health care; laggard sectors include consumer discretionary and industrials; Finland, Sweden and Baltics closed for holiday; reportedly BMP receives multiple bids for its insurance unit; Barclays acquires KMC; Essentra sells its packaging unit to Mayr-Melnhof; Lamprell receives takeover offer from Blofeld; Pfizer announces investment in Valneva; focus on release of CHMP decisions later in the day; earnings expected in the upcoming US session include CarMax and Carnival. Equities - Consumer discretionary: Deutsche Post DHL [DPW.DE] +1% (Fedex results and outlook comments), TUI [TUI1.DE] -3% (CEO resigns; new CFO). - Energy: Lamprell [LAM.UK] -79% (offer; cash update). - Healthcare: GlaxoSmithKline [GSK.UK] +2%, Sanofi [SAN.FR] +1.5% (study on vaccine), Basilea Pharmaceutical [BSLN.CH] +5% (approval), UCB [UCB.BE] -7% (cuts outlook). Speakers - German Chancellor Scholz stated that was well prepared for challenges linked to fossil fuels imports from Russia and needed to accelerate efforts to diversify from Russian gas. - UK PM Johnson noted that he would listen to what people were saying, in particular to the difficulties people facing over the cost of living. - Germany Fin Min Lindner said to provide domestic energy industry with several billion euros over the next two years. - Belgium PM De Croo commented ahead of the EU Leader Summit that EU countries needed to collectively buy energy to avert a winter crisis. - German IFO Economists noted that concerns in domestic economy were getting bigger although bottlenecks had improved slight in industry and retail. - German Economy Ministry reportedly considers plan to transform suspended Nord Stream 2 pipeline into connection for LNG terminal in Baltic Sea. - BOJ Dep Gov Amamiya reiterated that BOJ would conduct monetary easing to support economy and until price target was achieved in a sustained and stable manner, along with wage increases. Paying close attention to FX developments and watching for impact on the economy and prices. Currencies/Fixed income - USD was slightly lower in relatively quiet trade as the end of the week approached. Dealers again noted of concerns about a growth slowdown due to aggressive Federal Reserve tightening. There remained...

Summary United States: The Housing Market Begins to "Reset" Fed Chair Powell presented the Federal Reserve's semiannual Monetary Policy report to Congress this week. In his testimony, he acknowledged that tightening monetary policy in order to reduce inflation may result in a recession. Higher mortgage rates are weighing on home sales. During May, existing home sales fell 3.4%, the fourth straight decline. New home sales rose 10.7% in May, although are down 5.9% year-to-year. Next week: Durable Goods (Mon), Personal Income & Spending (Thu), ISM Manufacturing (Fri) International: Global Trends of Slowing Growth, Elevated Inflation and Rising Rates Continue The Eurozone services PMI fell noticeably in June, signaling slower growth ahead. However, as inflation pressures intensify, we still expect the European Central Bank to raise interest rates in July. The Norges Bank delivered a hawkish surprise, raising its policy rate by 50 bps to 1.25% this week. Meanwhile, in Canada, solid retail sales and rapid inflation mean we now expect the Bank of Canada to hike rates 75 bps at its July monetary policy meeting. Next week: China PMIs (Thu), Japan Tankan Survey (Fri), Eurozone CPI (Fri) Interest Rate Watch: SOMA Starts Up Quantitative Tightening This month, the Federal Reserve officially began implementing its balance sheet normalization plan as billions of principal payments on Treasury securities and agency mortgage-backed securities were not reinvested in the New York Fed's System of Open Market Accounts (SOMA). Credit Market Insights: True Impact of Rising Mortgage Rates Remains to Be Seen Mortgage rates climbed again this week as Freddie Mac reported the average 30-year fixed-rate mortgage rose to 5.81%. The upshift in mortgage rates has fueled a rapid shift in the recently red-hot housing market. Topic of the Week: Stanley Cup Finals: Colorado vs. Tampa Bay The Colorado Avalanche and Tampa Bay Lightning are facing off in the 2022 Stanley Cup Finals. The Avalanche lead the series 3-1 and have home-ice advantage in Game 5 where they will take on the Lightning at Ball Arena in downtown Denver. Download the full report

Bear market, what bear market as equities stage a strong rally to end the week. Powell still talks tough but equities brush off rate worries. Bond markets see fresh buying as yields fall on recession probabilities rising. Equity markets rallied into the end of the week as positioning finally got the boost it needed from a reduction in bond yields. This was enough to send equity markets higher and help the riskier side of the market receover more ground lost this year. Worries though can not be totally put to one side as the risk barometer for this generation, Bitcoin, failed to participate and held onto the $20,000 for dear life. The weekend has been a harsh environment for Bitcoin previously so we will have to keep an eye on screens over the weekend. Why should we bother you ask? Well correlations? Since the start of the year Bitcoin has been highly correlated to the main indices, Nasdaq and S&P 500 (SPX), see below. Bitcoin has begun to break away and move significantly lower so it remains to be seen if it is still a leading indicator for risk sentiment. Bitcoin (blue) versus S&P 500 (red) and Nasdaq (green) The situation remains pretty grim though despite market soothsayers trying to paint a positive picture on Friday. They were merely reacting to price action and crafting the narrative to fit the action. We were told that the University of Michigan Sentiment reading contained some good news. Let's go throgh it then and see where it is.  Source: Financialjuice.com Hmm it doesn't appear to be in there. Sentiment is worsening,in fact, this was the lowest reading in history. It looks more and more likely a recession is imminent and consumers are reacting accordingly. There is some element of contra indicator in sentiment readings, as in the old adage buy when everyone is panicking but no one is panicking just yet. They are merely gloomy, people are still buying. With spending about to drop and inflation still surging we have an incredibly poor environment for risk assets. But we were told the reduction in inflation expectations within the Michigan Sentiment survey was the main reason for Friday's rally. To recap 1-year expectations moved lower from 5.4% to 5.3%. Wow excuse the sarcasm but come off it, that is well within the margin of error in any survey and just to remind you the Michigan Survey has 600 respondents! The rally was clearly due to light equity positioning and the likelihood of a recession doing the Fed's job for it and bringing inflation back down. This rally has all the classic hallmarks of a bear market rally ahead of the half-year-end. Earnings season then is set up to be ugly with a surging dollar, energy, and commodity prices hitting earnings as well as those old favorites supply chain issues. Inflation and sentiment like what we have just witnessed do not make for happy corporate earnings, no way out of this one, corporate earnings are going lower, a lot lower. CEO's and CFO's are growing increasingly gloomy and they are the ones that will be giving guidance during earnings conference calls. As a reminder earnings estimates have been continually upgraded, repeat upgraded by Wall Street analysts. Reality is due to hit home.  Already energy stocks have turned with XLE being down 25% from the early June highs. Another 20% lower and XLE Energy would be flat for the year, the percentage is small compared to mega tech weighting in the S&P, but this could see panic selling as the only bellwether sector nears a nadir. With oil prices close to dipping under $100 earlier this week oil stocks could have peaked.  XLE chart, daily This week's rally was due to the bond market finally calming down. This year bond market volatility MOVE Index has moved, excuse the pun, from 60 to over 140. So it is still high but has retraced a bit this week. The bond market is uncertain because the Fed is uncertain and has changed tack several times this year, the latest being the panic 75 basis point leak to the press. MOVE index, daily S&P 500 (SPY) forecast We have now just about closed the gap on the weekly chart up to $389. But the rally can last a bit longer and can stretch up to $415. We doubt it will beak there but that is still 10% higher than current levels. We also have the bullish divergence playing out from the RSI.  SPY chart, daily Earnings week ahead Nike (NKE) will give some guidelines as to consumer demand which soared during the pandemic. Bed Bath and Beyond is a former meme stock if the retail army can rouse themselves and push it either way.  Source: Benzinga Pro Economic releases

US Core PCE (May) – 30/06 – the Federal Reserve’s unexpected pivot on rate hikes in the wake of the latest CPI data appears to suggest that the central bank is becoming less concerned about its primary targeting measure of core PCE and is more concerned about inflation expectations. While the jump in headline CPI in May to 8.6% is unwelcome, there has been evidence in other inflation indicators that we could be near a peak. The recent trend in PPI numbers has seen inflation pressures slowing down, while core Deflator peaked in February at 5.3%, falling to 4.9% in April. It’s been a similar story in core PCE which slipped back to 6.3% in April from 6.6% in March. A further softening in this week’s May numbers could signal a shift in market thinking about the timing and substance of further Fed tightening beyond the July meeting. Expectations are for PCE Core Deflator to fall to 4.8%.     EU CPI (Jun) – 01/07 – with surging inflation already front of mind in Europe and the ECB yet to get started on its own rate hiking cycle, this week’s flash CPI for June will once again focus attention on the next meeting of the ECB governing council later in July. Inflation is already at a record high of 8.1% while core prices are less than half that at 3.8%. With interest rates still at record lows of -0.5% the voices for more than a 25bps rate rise will get louder if this week’s flash CPI numbers show further gains. Food and energy prices continue to make up the bulk of the upward pressure on consumer budgets, and with producer prices in a lot of eurozone countries well above 30%, the risk to headline CPI remains clearly towards higher prices, especially with the euro so weak. Expectations are for a rise to another new record high of 8.3%, which could prompt calls for bolder action on rates than the currently priced 25bps which is expected at the next ECB meeting.    Global Manufacturing PMIs (Jun) – 01/07 – rising energy prices, supply chain disruptions, as well as lockdowns in China have served to constrain economic activity globally over the last few months. Despite these constraints manufacturing activity has managed to hold up reasonably well on the PMI measures, however they have also served to paint a false narrative when it comes to wider economic activity, particularly around certain areas of production like auto sales which have been weak.  The recent flash numbers have indicated the potential for further weakening in Germany, France, Italy and Spain, with the US economy also expected to show signs of slowing down given recent weakness in Empire and Philadelphia Fed surveys. We should also be mindful of Chinese economic activity given the recent weakness due to lockdowns and restrictions. Is industry there starting to return to a semblance of normal?   US Q1 GDP (Final) –29/06 – this week’s final iteration of Q1 GDP isn’t expected to add to the sum of our overall knowledge of the US economy. We already know that the US economy contracted sharply in Q1 by -1.5%, despite personal consumption holding up well, getting revised up to 3.1% from 2.7% a few weeks ago. The main reason for the poor performance was a big fall in net trade which contributed to a -3.2% drag while inventories saw a -0.8% decline, on the back of supply chain disruption, as well as purchases being brought forward into Q4 which resulted in a big inventory built-up into Q1. No substantive changes are expected in this week’s final numbers, with quarterly core PCE expected to come in at 5.1%. We’ll also be looking for evidence of any slowdown in consumer spending given the squeeze on the cost of living with the release of personal spending numbers for May, on 30th June which are expected to slow to 0.7% from 0.9% in April. These numbers could come in lower if the recent retail sales numbers are any guide, where we saw a decline of -0.3%, the first decline in US retail sales this year.        B&M European Retail Q1 23 – 29/06 – since B&M reported its full year numbers a few weeks ago the shares have slipped to two-year lows. Full revenues fell 2.7% to £4.67bn, down from £4.8bn, although on a two-year basis revenues are much higher, rising by 22.5%. Profits before tax were unchanged at £525m, while the dividend was lower at 16.5p, however this was on top of the special dividend paid in January of £250m. The outlook for current trading for a brand that is traditionally a discount retailer was troubling, with like for like sales for the first 8 weeks of 2023, showing a 13.2% decline. Management...

Deterioration, that is – be it in S&P 500 market breadth or the jobs data. More to come, obviously, the disappearing liquidity is making itself felt broadly, and the real economy weakness hasn‘t yet arrived in earnest. This is still the environment of relatively fine but perceptibly slowing growth where technical recession can be declared as in, literally any moment (thanks to monetary tightening). Notably, we never escaped manufacturing recession in similar circumstances, and I had been clear on the hard landing realities recognition to spread like wildfire in the mainstream over the months to come. So far, no signs of systemic risk – but real estate and commodities are feeling the pinch seriously already. VIX is also trending higher rather continuously – the 25 level was indeed vigorously defended by the bears. That has all facilitated yesterday‘s sharp turn in my calls, namely in putting the spread trades to rest. Gold is treading patiently while cryptos can‘t obviously take off. Forces of short-term gravity are taking over.... Let‘s move right into the charts. S&P 500 and Nasdaq outlook Promising upper knot, very promising. Maybe the 3,830s zone wouldn‘t be even tested – all that‘s needed, is for bonds to cooperate. And given the dollar showing today, it‘s perfectly imaginable. Credit markets The much awaited turn in long-dated Treasuries higher, is here. That‘s where the engine of further recognition of darkening skies in stocks, would come from. HYG is slowly getting the message, and it would be great if it led to the downside now. Crude oil Crude oil is pausing, making up its mind – the backdrop is richly described in the caption. Energy certainly holds better very short-term prospects than base metals or even some agrifoods. Copper Economically sensitive commodities are losing altitude, a bit too readily. That‘s a sign of more downside to come, and copper is arguably the best example thereof.