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US equities were a touch softer Friday, S&P down 0.1% to be 2% higher over the week. Bonds sold off after payrolls beat, US10yr yields up 9bps to 3.08%, 2yrs up 9bps to 3.1%, leaving the curve still inverted. Over the week, 10yr yields are up 20bps as recession concerns ease.
While the MSCI World rose 1.7% last week, in another attempt at a growth-led bear market rally, Chinese benchmarks were down slightly below 1%.
Covid numbers are ticking higher again; on Sunday, Shanghai reported the first case of the highly-contagious BA.5 sub-variant. The latter is creating some negative chop at the open, with China beta getting slightly tarnished but no worse for the wear as investors could be increasingly desensitized to Omicron risk in China.
In the wake of solid Payroll data, US recession risks are getting nudged into the corner. Still, this week's focus pivots back to inflation, particularly the US CPI and the inherent hawkish Fed policy implications. Given the recent developments in the Ukraine war, markets are struggling to have high conviction on the Nord Stream 1 gas flow resumption; risk could start teetering on the edge of a dumpster again,
And while we are putting the June inflation data to one side, it is still the marquee number in the market's eyes with the search for peak Fed hawkishness continuing.
Because the government data doesn't capture the gasoline and freight shipping price slide, markets could look through a slightly hot CPI number; hence we think the focus should be on US activity numbers. Both the big ones come on Friday: the Empire Manufacturing Survey and Retail Sales. Central banks don't care about what people say but what people do. Hence, retail sales could be a market mover.
More importantly, the Q2 earnings season will kick off next week, starting with the big banks. Do not forget that the forward guidance revision from retailers fueled recession concerns in the last quarter.
Oil
In the wake of solid economic data, US recession risks are getting nudged into the corner. So oil has rebounded as investors seemingly put more emphasis on supply issues over recession concerns in the US.
However, with Covid numbers ticking higher again in China on Sunday, Shanghai itself reported the first case of the highly-contagious BA.5 sub-variant; the news could be a bit of a downbeat Monday morning rally capper.
Although the possible demand impact of a recession continues to weigh on sentiment, with desks de-risking the inevitable recession clunker and likely limiting a full-on recovery rally, the prevailing view, at least for now, is that the longer-term structural issues facing the oil market will support prices through any near-term uncertainty.
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