All eyes on inflation…

Thoughts of the Day

The PCE Price Index, the US Federal Reserve’s preferred measure of inflation, that will be released later today will be closely watched. It is expected to show that prices in May rose by +2.6%, a touch lower than the +2.7% in April. If prices rose less than expected, risk sentiment would be boosted as that would give the Fed more confidence that inflation is continuing to drop towards their 2% target. 

That would make them more likely to cut interest rates before the end of the year to help support a slowing economy. They have been very clear that they are highly dependent on the state of inflation and the job market when it comes to their policy decisions. As such, the PCE Price Index will be key to how the market trades in the days ahead.

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Tradertainment

Why Dietary Cholesterol Does Not Matter (For Most People)

“For decades, people have been told that the dietary cholesterol in foods raises blood cholesterol levels and causes heart disease. This idea may have been a rational conclusion based on the available science 50 years ago, but more recent evidence calls this into question.

Most people can adapt to a higher intake of cholesterol. Thus, dietary cholesterol has little effect on blood cholesterol levels. In fact, dietary cholesterol is not linked to the risk of heart disease. High-cholesterol foods like eggs have been shown to be safe and healthy and may even help improve your cholesterol profiles (good vs bad cholesterol), which could lower your risk.

In many cases, high cholesterol can be lowered by making simple lifestyle changes. Losing extra weight, increasing physical activity, and eating a healthy diet can all help lower cholesterol and improve heart health.”

Even now, some doctors wrongly believe that eating high cholesterol food leads to higher blood cholesterol and higher risk of heart disease. However, it is safe to eat those yummy foods that are high in cholesterol because new studies have proven that this misconception is untrue. So, go on and enjoy those eggs at brunch this weekend!

Day Ahead

US PCE Price Index (Headline: +2.6% YoY expected vs +2.7% prev, Core: +2.6% YoY expected vs +2.7% prev)

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What Happened Yesterday

Market Movements as of New York Close 27 Jun 24
  • [Fedspeak]
    Bowman (current voter, known hawk): “I am still willing to raise rates again if inflation doesn’t ease. The Fed is not at a point yet where it can consider a rate cut. If inflation moves toward 2%, an eventual rate cut is on the table.”
    Bostic (current voter, known hawk): “Want to be absolutely certain inflation will return to 2% before an initial cut that should be seen as the first in a series; that is a reason for patience. Interest rate cut likely in Q4.”
    [Bowman is reiterating her hawkish stance from earlier this week. Bostic is reiterating his previous stance.]
  • The US economy grew at an annualised rate of +1.4% in Q1 2024, slightly higher than the previously estimated +1.3%. However, this still represents the slowest growth rate since the contractions experienced in the first half of 2022. Durable goods in the US increased by +0.1% month-over-month (vs -0.1% expected) in May 2024. This follows a downwardly revised +0.2% rise (from +0.7%) in April. This marks the fourth consecutive month of growth in durable goods orders. The US dollar index fell -0.11% from 105.87 to 105.75 in reaction while the US 2 year bond yields fell -0.04% from 4.76% to 4.72%.
  • US Initial Jobless Claims fell by -6,000 from the prior week to 233,000 (vs 236,000 expected) for the week ending 22 Jun. The claim count fell for a second consecutive week since hitting the 10-month high of 243,000 2 weeks ago. Continuing claim count rose by 18,000 to 1,839,000 on the week ending June 15th, the highest since November 2021.
  • The US stock market opened a little lower from Wednesday. It range traded through the bulk of the US session. The S&P 500 ended up +0.09% on the day (high: +0.24%, low: -0.19%), the Dow Jones inched higher by +0.09% (high: +0.31%, low: -0.26%) while the Nasdaq rose +0.19% (high: +0.51%, low: -0.25%).
  • The crypto market traded higher with Bitcoin up +1.38% and Ether up +2.34% after asset manager VanEck filed to sell shares in a Solana ETF. Solana is up +9.39% on the day.

This is a partial analysis of what happened yesterday, for a more detailed analysis, subscribe to a membership plan.

Headlines & Market Impact

Inflation in Japan’s capital accelerates, keeps BOJ rate hike prospects

Notable Snippet:  Separate data showed factory output rebounded nationally in May as automakers recovered from shipment disruptions, offering policymakers hope the economy was on track for a moderate recovery.

The data may help the Bank of Japan (BOJ) make the case to raise interest rates as early as this month, as cost pressures from the weak yen heighten the chance of inflation staying well above its 2% target in coming months, analysts say.

The core consumer price index (CPI) in Tokyo, considered a leading indicator of nationwide figures, rose 2.1% in June from a year earlier, accelerating from the previous month’s 1.9% gain and exceeding market forecasts for a 2.0% gain.

A separate index that excludes the effects of fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, also rose 1.8% in June after a 1.7% gain in May.

Factory output rose 2.8% in May from the previous month, exceeding market forecasts for a 2.0% gain, due largely to a sharp rebound in auto production, data showed on Friday.

Japan’s economy shrank an annualised 1.8% in the first quarter as companies and households reduced spending, casting doubt on the central bank’s view of a moderate recovery.

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China’s factories seen extending activity declines in June: Reuters Poll

Notable Snippet:  China’s manufacturing activity likely contracted for a second month in June, a Reuters poll showed on Thursday, keeping alive calls for fresh stimulus after a string of recent indicators showed the economy struggling to get back on its feet.

The official purchasing managers’ index (PMI) was forecast at 49.5, unchanged from April, according to the median forecast of 19 economists in the poll. The 50-point mark separates growth from contraction in activity.

The highest forecast in the poll was 50.0 from DZ Bank, while China’s Industrial Bank returned the lowest reading of 49.1.

The PMI, a sentiment-based survey, has at times presented a gloomier picture of the economy than some of the harder data, but disappointing May industrial output and profits numbers suggest factory owners have every reason to be worried.

Retail sales last month beat forecasts, but were aided by a five-day public holiday boost, while public sector investment grew just 0.1% in the January-May period, reflecting weak consumer and investor confidence.

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VanEck Files for Solana ETF, SOL Rises 8%

Notable Snippet: Asset manager VanEck filed to sell shares in a Solana (SOL) exchange-traded fund (ETF), the first such registration in the U.S., just six days after 3iQ filed for a similar product in Canada.

The S-1 registration form lodged with the Securities and Exchange Commission (SEC), helped lift the SOL token’s 24-hour gain to almost 8%. The CoinDesk 20 Index (CD20), a measure of the broader crypto market, has added 1.8%.

VanEck has been known to be a first mover in this space. The asset manager was the first to file for a spot ether (ETH) ETF back in 2021, almost three years before the SEC began to engage with issuers that now include BlackRock, Fidelity, Ark Invest and others. An additional filing was lodged in September last year.

“We believe the native token, SOL, functions similarly to other digital commodities such as bitcoin and ETH,” VanEck’s head of digital assets research, Matthew Sigel, wrote in a post on X arguing that SOL is a commodity, not a security. “It is used to pay for transaction fees and computational services on the blockchain,” he wrote.

Sigel added that VanEck filed for a solana ETF because the blockchain acts as a competitor to Ethereum with a “unique combination of scalability, speed, and low costs.”

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Phan Vee Leung
CIO & Founder, TrackRecord