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Major US stock indexes have declined markedly, the reason for which was disappointing data on consumer confidence and sales of new homes, as well as the collapse of technological sector stocks. In addition, the focus of investor attention were statements by Fed Chairman Jerome Powell.

The Conference Board report showed that the US consumer confidence index deteriorated significantly in June and now stands at 121.5, the lowest since September 2017. Experts expected that the index will decrease only to 131.2. In the Conference Board pointed to the growth of trade tensions as the culprit for the loss of confidence. The current situation index, based on consumers ’current business and labor market conditions, fell from 170.7 to 162.2, while the expectations index, based on short-term consumer forecasts for income, business and labor market conditions, declined from 105.0 to 94.1.

Meanwhile, the Commerce Department reported that sales of new homes fell in May by 7.8 percent to an annual level of 626,000, after falling 3.7 percent to a revised level of 679,000 in April. It was expected that sales of new homes to 680,000 from 673,000, which were originally reported in the previous month.

As for Powell's speech, he noted that the Fed is studying whether uncertainty requires lowering interest rates. “Counter-currents, such as trade, concerns about global economic growth have come to the fore, heightening uncertainty. We will track economic data, act expediently to support economic growth, ”Powell said, adding that the outlook had changed since the beginning of May, when the Fed did not see any serious reasons for changing interest rates.

Most of the components of DOW finished trading in the red (23 of 30). The outsider was Microsoft Corp. (MSFT; -3.46%). The growth leader was Walgreens Boots Alliance (WBA; + 2.13%).

All sectors of the S & P recorded a decline. The largest drop was shown by the technology sector (-1.9%).

At the time of closing:

Dow 26,548.64 -178.90 -0.67%

S & P 500 2,917.45 -27.90 -0.95%

Nasdaq 100 7,884.72 -120.98 -1.51%

Analysts at TD Securities say that given the dovish tone from ECB members lately, and their view that the Fed is about to begin an easing cycle, they are now looking for the ECB to ease further through more forceful forward guidance in July, and 10bps deposit rate cuts in September and December.

• “Our more dovish outlook for the ECB may not be positive driver for the currency, we think the USD will suffer more from the aggressive Fed policy path we expect.
• With EURUSD holding above its 200-dma, we have grown more confident that our year-end target of 1.18 will be achieved - possibly sooner than we expect.”

The U.S. Commerce Department announced on Tuesday that the sales of new single-family homes decreased 7.8 percent m-o-m to a seasonally adjusted annual rate of 626, 000 units in May. That was the lowest level since December 2018.

Economists had forecast the sales pace of 680,000 last month.

April’s sales pace was revised up to 679,000 units from the originally reported 673,000 units.

According to the report, new home sales in the South, the largest area, fell 4.9 percent m-o-m in May to the highest level since July 2007, while sales in the Midwest rose 6.3 percent m-o-m. But sales tumbled 35.9 percent m-o-m in the West and plunged 17.6 percent m-o-m in the Northeast.

In y-o-y terms, new home sales recorded a 3.7 percent drop in May.

The Conference Board announced on Tuesday its U.S. consumer confidence gauge fell 9.8 points to 121.5 in June from 131.3 in May.

Economists had expected consumer confidence to come in at 131.2.

May’s consumer confidence reading was revised down from originally estimated 134.1.

The survey showed that the expectations index decreased from 105.0 last month to 94.1 this month, while the present situation index fell from 170.7 to 162.6.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, noted, “After three consecutive months of improvement, Consumer Confidence declined in June to its lowest level since September 2017 (Index, 120.6). The decrease in the Present Situation Index was driven by a less favorable assessment of business and labor market conditions. Consumers’ expectations regarding the short-term outlook also retreated. The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence. Although the Index remains at a high level, continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion.”

S&P reported on Tuesday its Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan areas, rose 2.5 percent y-o-y in April, following a revised 2.6 percent y-o-y increase in March (originally a climb of 2.7 percent m-o-). That was the smallest annual advance in house prices since August 2012.

Economists had expected an advance of 2.6 percent y-o-y.

Las Vegas (+7.1 percent y-o-y), Phoenix (+6.0 percent y-o-y) and Tampa (+5.6 percent y-o-y) recorded the highest y-o-y gains in April.

Meanwhile, the S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, was up 3.5 percent y-o-y in April, down from 3.7 percent y-o-y in the previous month.

“Home price gains continued in a trend of broad-based moderation,” says Philip Murphy, Managing Director and Global Head of Index Governance at S&P Dow Jones Indices. “Year-over-year price gains remain positive in most cities, though at diminishing rates of change.”

“The national average 30-year fixed mortgage rate rose from below 4% in late 2017 to briefly reaching almost 5% by the latter part of 2018. Peak YOY changes in the 20-City Composite coincided with the upward turn in mortgage rates during the first quarter of 2018. In 2019, mortgage rates reversed course again and the 30-year fixed mortgage rate is again under 4%, yet the YOY house price moderation that coincided with the 2018 uptick in rates has not changed course.”

U.S. stock-index futures were little changed on Tuesday as investors awaited commentary from the Fed Chair Jerome Powell (17.00 GMT), which could provide more clarity on interest rates.

Global Stocks:

Wall Street. Stocks before the bell

(company / ticker / price / change ($/%) / volume)

McDonald's (MCD) initiated with an Outperform at Credit Suisse; target $230

Starbucks (SBUX) initiated with an Outperform at Credit Suisse; target $92

DuPont (DD) resumed with a Neutral at Monness Crespi & Hardt

Statistics Canada reported on Tuesday the wholesale sales rose 1.7 percent m-o-m in April, following an unrevised 1.4 percent m-o-m increase in March.

Economists had forecast an advance of 0.2 percent m-o-m for April.

According to the report, higher sales were recorded in five of seven subsectors, accounting for 86 percent of total wholesale sales. The motor vehicle and motor vehicle parts and accessories subsector (+3.2 percent m-o-m) was the leading contributor to April's gain, followed by the machinery, equipment and supplies subsector (+2.2 percent m-o-m). Excluding motor vehicle and parts, wholesale sales surged 1.4 percent m-o-m in April.

At the same time, wholesale inventories increased 0.4 percent m-o-m in April. Inventories were up in five of seven subsectors, representing about 78 percent of total wholesale inventories.

Jane Foley, a senior FX strategist at Rabobank, thinks that the relatively low levels of liquidity in the NZD can on occasion make movements in the currency difficult to interpret and the overnight gains have been attributed to news of a robust export performance for New Zealand. 

• “Exports to China have been strong in recent months led by sales of milk powder, beef food preparations and logs.  This is a significant relief given widespread concerns amongst China’s trading partners about the ripple effect caused by slowing growth in the world’s second-largest economy.  That said, not all recent New Zealand economic data have been as encouraging.  On the back of that the market is mostly priced for another RBNZ rate cut in August and is placing around a 20% chance of a move tomorrow.
• Q1 GDP registered growth of 0.6% q/q.  While this was in line with market forecasts, it was moderately better than the 0.4% q/q outcome predicted by the Bank.
• All of the respondents in the Bloomberg survey expect the RBNZ to leave rates unchanged at tomorrow’s meeting. This would allow policymakers the opportunity of examining another 6 weeks of fresh economic data in addition to a revised set of internal forecasts ahead of the next policy meeting in August.  Even so, a rate cut tomorrow would unlikely be a complete surprise and it would offer the RBNZ an opportunity to leverage on the element of surprise.
• The movement in the NZD since May has most likely disappointed policymakers.  A softer NZD would clearly help support exports in addition to helping the RBNZ support price pressures.
• Since the RBNZ kicked off its easing cycle, other central banks have indicated they will be following suit.
• The easing bias of most G10 central banks will have introduced a currency wars theme into central bank thinking and some commentators see this as a reason for the RBNZ to announce a ‘surprise’ rate cut at tomorrow’s policy meeting.  While the NZD could find support on the announcement of steady policy tomorrow, we expect such a move to be limited by dovish rhetoric from the central bank. We remain bearish on the outlook for NZD/USD and look for a move towards 0.63 on a 12-month view.”

Analysts at TD Securities note that, while the market has been calling the Fed's bluff of late, its Chairman Powell has now folded his cards, placing the July meeting very much in play.

• “Market expectations are already discounting an aggressive profile for rates, but pricing will likely be contingent on this week's meeting between President Trump and Xi at the G20 summit. While the highly anticipated meeting is likely to attract vase amounts of attention, traders should also keep an eye out for China's official PMI data scheduled for release over the weekend.”

Danske Bank's analysts note that the Central Bank of Norway (Norges Bank) remains the sole G10 central bank hiking policy rates after it increased policy rates by 25bp at the June meeting.

• “More importantly the central bank maintained its clear tightening bias by signalling roughly two hikes over the coming year with the next one due already in September. This leaves Norges Bank as the sole G10 central bank hiking rates. So far, the relative rates’ impact on the NOK has been muted but we expect this to change as the carry in the NOK catches up alternatives in AUD, NZD and CAD.
• The important Regional Network Survey indicated growth in coming quarters of around 0.8% q/q, which is above trend potential and suggests that domestic wage pressures will continue to rise. This, in turn, has implications for inflation, as it means there now is less room for higher imported inflation – and hence a weaker NOK – if Norges Bank is to fulfil its 2% inflation target.
• The NOK has suffered from foreign selling amid the escalating US/China trade war, lower oil prices and falling global inflation expectations. The decoupling from relative rates has been very pronounced over the past year and while a slowing China and the existence of more attractive commodity carry alternatives can partly explain NOK weakness, we still think the fundamental NOK backdrop is key to remember. As long as the global economy does not fall into a recession, global petroleum industries do not collapse and Norwegian competitiveness does not erode, the NOK would have to strengthen for Norges Bank to fulfil its inflation target.”

The Confederation of British Industry (CBI) reported on Tuesday its latest survey of 88 firms, of which 45 were retailers, showed retail sales volume balance fell sharply to -42 in June from -27 in May, marking the fastest contraction since March 2009.

Economist had forecast the reading to come in at -10.

The report also notes the indicator is expected to improve in July to -11.

According to the report, grocers were the largest contributors to the fall in sales volumes, with the hardware & DIY and footwear & leather sub-sectors also reporting declines. At the same time, internet sales across the retail sector stalled in the year to June, marking the weakest growth since the question was first introduced to the survey (in 2009).

Alpesh Paleja, CBI Principal Economist noted that underlying conditions on the High Street remain challenging. “Retailers are having to continually compete for the attention of value-conscious shoppers, in the age of digital disruption”, she said. “The new Prime Minister must help support retailers by reducing the high cumulative burden of costs they face. This should start by urgently reviewing the dire business rates system, which is unfairly impacting UK high streets and deterring much needed investment.”

TD Securities analysts note that coming off the heels of June's FOMC meeting, Chair Powell and Vice Chair Williams will both speak today and will be a key event for today.

• “We don't anticipate the Fed Chair to deviate significantly from Wednesday's dovish script, however he could provide additional color on the Fed's shift. Williams may reveal where he lies on the dot plot and could give indication of where his reaction function stands.
• New home sales are expected to advance 1.8% m/m in May to 685k, up from 673k in the month prior. The improvement would suggest the housing sector continues to gradually mend in line with improving mortgage applications.
• Moreover, the Conference Board's consumer confidence index is expected to have eased marginally in June to 131.0 following a notable jump to a strong 134.1 level in May; while the Richmond Fed manufacturing survey should show a decline in June, matching the downbeat readings from other regional surveys.”

It would be bizarre for the European Union to impose tariffs on British goods flowing into the bloc after Brexit rather than agree a standstill agreement on trade, Boris Johnson, the leading candidate to be Britain's next prime minister said.

"I think it would be very bizarre if the EU should decide on their own ... if they decided to impose tariffs on goods coming from the UK it would be ... a return to Napoleon's continental system," Johnson told LBC radio on Tuesday.

Japan and the United States increased their understanding of each other's viewpoints on trade during talks held over the past week, Japan's senior government official Kazuhisa Shibuya said on Tuesday.

Officials from the two sides held discussions about industrial products on June 20, and about agricultural goods on Tuesday, he told reporters.

Washington and Tokyo are in negotiations for a trade deal as U.S. President Donald Trump's administration seeks to lower his country's trade deficit and boost exports to its major trading partners.

Danske Bank analysts note that the oil price collapsed towards the end of May before finding support at USD60/bbl as the risk-off in the oil market came on the back of new threats from Trump towards Mexico and fears over further escalations in the US-China trade war.

“The balance in the market still looks tight. On the supply-side OPEC+ is implementing the output cuts agreed upon in December 2018 and is discussing a possible extension from June. Venezuelan production is in freefall, Libyan output is at risk following an insurgence and the waivers on Iranian sanctions have expired. On the demand side, the macro backdrop remains relatively weak as the macroeconomic data and global trade growth prospects have been weak. We see Brent on average at USD75/bbl in Q3 and USD80/bbl in Q4.”

Italy's economy minister said on Tuesday he was confident about the chances of reaching an agreement with the European Union over Rome's budget, and the new deficit targets will show a "more than prudent" fiscal policy.

Brussels is threatening to open a disciplinary action against Italy for its growing debt.

"I do not see obstacles for an agreement with the EU," Giovanni Tria said. "I am optimistic."

The minister confirmed that the new deficit target for this year will be lowered to 2.1% from 2.4%.

According to analysts at Royal Bank of Canada, industrial sector softness is suggesting that the US economy also has much to lose from trade war.

“US industrial output has softened this year, and the escalating trade war with China is partly to blame. Threatened additional US tariffs on Chinese products and on auto imports from Europe and Japan risk pushing the sector into full-blown slowdown mode. What’s happening in the industrial sector challenges the notion that the US has less to lose in a trade war with China, but that is also why we continue to assume that tensions will ultimately ease.”

The Federal Statistical Office (Destatis) reports that price-adjusted new orders in the main construction industry in April 2019 decreased a seasonally and working-day adjusted 1.7% on March 2019.

In building construction and civil and underground engineering, in establishments of enterprises with 20 or more persons, new orders increased by 12.7% in nominal terms compared with the corresponding month of the previous year.

This decline was due to the high order intake last month on the back of particularly good development, the agency reported.

Compared to the previous year, price-adjusted order intake in the main construction industry increased 6.4% in April.

From the January to April period, construction orders advanced 7.5% from the same period last year.

Britain's car industry called for the country's next prime minister to secure a Brexit deal which keeps frictionless EU trade, warning that a no-deal exit risks billions of pounds of tariffs and border disruption which could cripple the sector.

"We are already seeing the consequences of uncertainty, the fear of no deal. The next PM’s first job in office must be to secure a deal that maintains frictionless trade because, for our industry, ‘no deal’ is not an option, we don’t have the luxury of time," said Mike Hawes, the Chief Executive of the Society of Motor Manufacturers and Traders.

Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, expects the RBNZ to keep the cash rate on hold at 1.50% at tomorrow's meeting with the Bank shifting to an easing bias, paving the way for a cut at the August meeting.

“Although GDP and CPI are close to the Bank's targets, we cannot rule out the possibility of the Bank delivering a surprise cut at this meeting to show it is ahead of the curve. OIS is placing less than a 20% chance to this outcome. If the RBNZ cuts, the NZD should should drop 1% or more. From current levels this implies a 0.6550 target. If there is no easing bias, then the NZD should rise 0.5%. From current levels this implies 0.6670.”

According to the report from statistic agency Insee, French manufacturing sector sentiment soured this month as business leaders became less optimistic about activity in the sector.

Figures showed that manufacturing sentiment declined to 102 in June from May's six-month high of 104. Economists had projected a flat reading. June's figure was the lowest since November 2016.

The shift in the mood of the manufacturing sector of the eurozone's second-largest economy comes a day after figures showed deteriorating business sentiment in its largest. 

Investors will now look ahead to Wednesday's releases to gauge the temperature of consumer sentiment in both France and Germany. Economists expect both measures to have turned more negative.

In view of Jens Nærvig Pedersen, senior analyst at Danske Bank, USD weakness has grabbed hold in the majors.

“Today, the market will scrutinise Fed Chairman Powell’s speech. The market is assigning a two-thirds chance of a 25bp cut and a one-third chance of a 50bp cut when the Fed meets in July. That is a bit on the dovish side in our view, which opens up for a temporary setback in EUR/USD on the way towards our 3M forecast of 1.15. Further, USD/CHF continues to decline, highlighting the relative starting point of the Fed vs the SNB in terms of scope for policy easing (clearly greater for the former). Relatedly, we stress that a further drop in EUR/CHF towards 1.10 is where the SNB might try to step in but whether it will be effective in stemming further franc strength near term is questionable in our view.”

The European Union will allow Italy to increase its deficit if it helped the country's economy, Deputy Prime Minister Luigi Di Maio was quoted as saying on Tuesday as Rome is facing a budget tussle with Brussels.

Di Maio, who leads the ruling 5 Star Movement, added that he was confident his government partner, the League party, had a clear idea on how to cover its tax cut plan.

Japanese Economy Minister Toshimitsu Motegi said on Tuesday he would meet U.S. Trade Representative Robert Lighthizer timed with the U.S. official’s visit to Japan for the Group of 20 leaders’ summit later this week.

Motegi added he would announce details including the date and location of the talks once they were set.

Washington and Tokyo are in negotiations for a trade deal as U.S. President Donald Trump’s administration seeks to lower his country’s trade deficit and boost exports to its major trading partners.

In view of Karen Jones, analyst at Commerzbank, EUR/USD’s outlook is positive as it has overcome on a closing basis both the 200 week ma and the 200 day ma at 1.1348 which should trigger an attempt on the 1.1416 55 week moving average and the 1.1570 2019 high.

“Beyond this we target 1.1815/54 (highs from June and September 2018). We note the 13 count on the 60 minute chart and we would allow for a small near term retracement into the 1.1360/25 band ahead of further gains. Initial support at 1.1175. We regard recent lows at 1.1110/06 as an interim turning point and continue to view the market as based longer term and we target 1.1990 (measurement higher from the wedge). Support at 1.1110/06 is regarded as the break down point to the 2018-2019 support line at 1.1027 and the 1.0814 78.6% Fibonacci retracement.”

Danske Bank analysts note that the US has put sanctions on Iran's supreme leader Khamenei and eight other senior officials as tensions between the US and Iran continue to grow.

“In return, Iran reported that the diplomatic path with Washington is closed forever. Meanwhile, oil prices are trading lower, with Brent crude falling below USD64/bbl. In our view, the latest escalation of the conflict and the new round of sanctions are less important to the oil market since Iran's oil production is already very low. US Trade Representative Lighthizer and Treasury Secretary Mnuchin spoke on Monday with China's Vice Premier Minister Liu He on the phone as the two countries are preparing for the G20 meeting, where US President Trump and China's President Xi Jinping are set to meet - likely on 29 June - in hopes that trade talks will be resumed.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1514 (3622)

$1.1496 (3893)

$1.1481 (4422)

Price at time of writing this review: $1.1407

Support levels (open interest**, contracts):

$1.1340 (1823)

$1.1295 (2584)

$1.1247 (2745)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date July, 5 is 70259 contracts (according to data from June, 24) with the maximum number of contracts with strike price $1,1300 (4422);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2855 (1184)

$1.2832 (710)

$1.2816 (373)

Price at time of writing this review: $1.2752

Support levels (open interest**, contracts):

$1.2707 (1173)

$1.2673 (849)

$1.2634 (1728)

Comments:

- Overall open interest on the CALL options with the expiration date July, 5 is 17375 contracts, with the maximum number of contracts with strike price $1,3000 (2829);

- Overall open interest on the PUT options with the expiration date July, 5 is 16001 contracts, with the maximum number of contracts with strike price $1,2500 (2199);

- The ratio of PUT/CALL was 0.92 versus 0.90 from the previous trading day according to data from June, 24

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.