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Correction: North American Morning Briefing: Stock Futures Edge Down Ahead of Fed Minutes

MARKET WRAPS

Watch For:

MBA Weekly Mortgage Applications Survey; Johnson Redbook Retail Sales Index; FRB New York President John Williams speaks at New York Fed Web Series on Culture; Services PMI for June; ISM Report On Business Services PMI for June; Job Openings & Labor Turnover Survey for May; Global Services PMI for June; Federal Open Market Committee meeting minutes and economic forecast; API Weekly Statistical Bulletin; Canada Official International Reserves

Opening Call:

Stock futures inched lower ahead of minutes from the Federal Reserve that will be scrutinized for insights into the state of the economy and the central bank's efforts to tame inflation through interest-rate increases.

Stocks have edged up in recent days, as some investors shifted their views about the aggressiveness of central bank tightening as economic growth and consumer sentiment weakened. Markets are beginning to price in a pivot on policy from the Fed, despite inflation still being at a more than a four-decade high.

"Over the last couple of days, markets priced out some of the hawkishness that they were expecting for the Fed. What's going to be interesting is to see whether the Fed in the short term will try to push back," Carmignac said. "At least for the foreseeable future, it's all about inflation."

Investors will also look to data on the services sector.

"We are awaiting some kind of short-term rebound because the movement has been extremely quick from a historical point of view," Amundi said.

"The hope is that central banks, to some extent, are stopping hiking rates and entering into a wait-and-see approach" to assess how much economic growth and corporate earnings are being affected, it said.

Overseas, European stocks bounced back after heavy losses in the previous trading session, while most major benchmarks in Asia declined.

Economic Insight:

Employers in the U.S. are expected to have added 290,000 jobs in June, down from 390,000 in May, but still a solid increase, Citi said. The bank expects a 0.4% increase in average hourly earnings and a drop in the unemployment rate to 3.5%, data that should encourage the Federal Reserve to proceed with another interest rate increase of 75 basis points in July, it said.

"June is likely too soon to see much slowing in labor demand, but markets could be particularly sensitive to a downside surprise given other recently softer activity data," Citi said. U.S. June employment report is due Friday. Economists polled by The Wall Street Journal expect payrolls to increase by 250,000.

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The U.S. economy was in a technical recession in the second quarter as GDP is expected to have contracted by 0.3% from April to June after falling 1.5% in 1Q, High Frequency Economics said.

Economic data initially showed strong positive momentum for the economy in 1H--with a surprising disconnect between consumer confidence and spending--but May's income and spending report showed not only a decline in real spending that month but also downward revisions to readings going back to January, it said.

"Based on the new information and our forecast for June, we expect an even slower 1.0% rise in consumption in 2Q," the economic-research consultancy said.

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Citi's global supply chain pressure index posted its first meaningful decline since January. The good news is that the retreat in the index suggests that pressures in the global goods sectors, which have been a central driver of inflation, might be easing, it said.

The bad news is that this looks to be occurring on the back of weaker global consumer demand for goods, especially for discretionary goods, and thus might signal rising recession risks, Citi warned. "This is hardly an all clear signal for supply chains," it said. There are many risks still in play, such as pandemic-related disruptions and economic challenges from the Russia-Ukraine war, Citi said.

Forex:

Traditional safe-haven currencies of the dollar, Swiss franc and Japanese yen should continue to outperform in the near term on fears over weaker global economic growth, MUFG Bank said.

Price action in the currency market is "being increasingly driven by safe haven demand as fears over a sharper slowdown/recession for the global economy continue to intensify," it said. "Those intensifying growth fears are clearly evident now across a wide range of financial markets."

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EUR/USD may fall further after breaking below critical support at 1.0350 on Tuesday, based on technical charts, said UOB.

This break has been accompanied by solid downward momentum, and EUR/USD is likely to weaken further within these couple of months.

While round-number levels of 1.0200 and 1.0100 could offer some support, the key level to monitor is 1.0000. Only a break above declining trendline resistance and the 55-day exponential moving average, both of which are near 1.0510, would signal EUR/USD's downtrend from earlier this year has stabilized, UOB said.

Energy:

Oil prices recovered some of the previous session's steep losses in early trading with SPI Asset Management suggesting Tuesday's price action "seemed to point to positioning and recession probabilities getting brought forward due to Europe's doomsday economic concerns."

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Energy derivatives are likely to outperform base metals in the current weak macro environment, UBS said. The Russia-Ukraine war will likely continue to have a greater impact on energy vs. metal prices, with the EU's push to decrease its dependence on energy supply from Russia keeping prices buoyant, the bank said.

As the global economy moves beyond the Covid-19 pandemic, global consumption may also shift toward travel and services, which are energy-intensive compared with consumer-discretionary goods that have been a major focus of pandemic spending, UBS said.

Metals:

Base metals were mixed in Europe and gold a touch higher, with CBA saying "industrial metal prices will likely continue to react the most negatively to global growth fears, rising interest rates and a surging dollar."

   
 
 
   
 
 

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July 06, 2022 06:49 ET (10:49 GMT)

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