US STOCKS: Rotation Out Of Tech Sees S&P Momentum Stall
The ESU5 overnight range was 6227.25 - 6261.50, Asia is currently trading around 6253. A subdued session for the S&P and NASDAQ, price action was very interesting though as the market seemed to take profit in Tech and these profits are then being rotated to indices that have been lagging, Russell 2000 +1.03%, Dow Transport +2.85%, Regional Banks +3.46%. These laggers are just starting to gain some momentum and this rotation could play out more in the short-term which would certainly help with the market breadth. This morning has seen US futures open slightly higher in our session ESU5 +0.08%, NQU5 +0.10%.
- (Bloomberg) -- “Bullish signals are materializing across equity markets and trend following strategy funds, or CTAs, are expected to buy large sums, according to UBS strategists. The team led by Nicolas Le Roux expects CTAs to double their equity exposure over the next two weeks, adding $40 billion to $50 billion to their current positions. They say technicals have turned very bullish equities, citing resistance levels out of the picture, most indexes printing new all-time highs, retail investors starting to buy again, and institutionals still underweight. “CTAs have no other option than to buy, and in size,” the strategists say. “We see them buying in almost all scenarios, unless the S&P 500 reverts to 5,900.”
- Lance Roberts on X: ”With consolidated equity positioning still underweight it looks like this rally may have some more legs to it.”
- The market has been caught underweight and with momentum type funds(CTA’s) adding through all-time highs these reluctant PM’s are being forced to return to the market.
- Short-term this does look a little overdone but dips should find demand, first support is back towards the 6100 area.
Fig 1: Russell 200 Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
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JGBS: Little Changed, Capex Beats, US Tsys Bear-Steepen
In Tokyo morning trade, JGB futures are flat, +1 compared to settlement levels, after giving up overnight gains on Friday.
- Capital spending excluding software rose 6.9% from a year earlier, compared to the median estimate of +5.3%.
- Jibun Bank/S&P Global May Manufacturing PMI rises to 49.4 from 48.7 in April.
- 1Q Company Profits +3.8% y/y and Sales +4.3% y/y.
- Cash US tsys have bear-steepened, with yields flat to 3bps higher, in today’s Asia-Pac session.
- (MNI) The Federal Reserve should aim for a much smaller balance sheet in order to have a smaller footprint in financial markets and reduce the risk of inflationary bursts like the one experienced after Covid, former Fed Board Governor Kevin Warsh said Friday. The Fed's balance sheet "is trillions larger than it needs to be. We can't make this change overnight," said Warsh, who is seen as a leading candidate to replace Jerome Powell as Fed chair next year.
- Cash JGBs are flat to 1bp cheaper across benchmarks. The benchmark 10-year yield is 0.6bp higher at 1.507% versus the cycle high of 1.596%.
- Swap rates are flat to 1bp higher. Swap spreads are little changed.
ASIA: Vietnam's May PMI Rises, but Still in Contraction
- Vietnam's May PMI increased to +49.8 in May, from +45.6 in April.
- In signs that the pause in the trade way is having an impact, output was up to +51.5 from +45 in April and New Orders were higher than last month also.
- This was the second successive month of contraction and the and the fifth month out of sixth.
FOREX: USD Comes Under Pressure As US Equity Futures Start The Week Lower
US stocks have opened lower in Asia, ESM5 -0.30% and NQM5 -0.41%. This has seen the USD open the week under pressure and currencies like the NZD +0.40% and the AUD +0.35% are leading the charge. The BBDXY is trading around 1215 down 0.01%.
- Comments from China related to fresh trade frictions looks to have been the catalyst.
- CHINA ISSUES COMMENTS ON US" - BBG
"*CHINA SAYS US CONTINUES TO PROVOKE NEW TRADE FRICTIONS"
"*CHINA URGES US TO SAFEGUARD CONSENSUS REACHED IN GENEVA TALKS"
"*CHINA CONTINUES TO TAKE MEASURES TO SAFEGUARD INTERESTS"
