U.S. Indexes closed the first session of the week firmly in the green, albeit slightly off intraday highs, as risk sentiment took its cue from the US and Iran reaching a peace agreement that is expected to be formally signed in Switzerland on Friday. While full details of the agreement have yet to be released, reports suggest the US will lift its naval blockade while Iran will reopen the Strait of Hormuz. The positive developments surrounding the US-Iran agreement drove a broad risk-on move across asset classes. Crude prices suffered hefty losses as traders removed much of the geopolitical risk premium embedded during the conflict, while the Dollar weakened against most major peers. Currency-specific newsflow was relatively sparse, although the Swiss Franc also found support after voters rejected a proposal to cap the country’s population at 10 million, avoiding a potential source of tension with the EU. Precious metals were firmer, while Treasuries also gained, with the front end outperforming as lower oil prices helped ease inflation concerns. However, Treasury gains were pared throughout the session, with Nvidia’s (NVDA) USD 25 billion bond offering weighing on the market after the deal was upsized from an initially proposed USD 20 billion following roughly USD 85 billion of investor demand. Sector performance reflected the improved risk backdrop. Technology, Communication Services, and Consumer Discretionary led the gains, while Energy was the clear laggard amid the sharp decline in oil prices. On the data front, the New York Fed Empire Manufacturing survey, Industrial Production, and the NAHB Housing Market Index all came in softer than expected, although the releases generated little market reaction. Attention now turns to Wednesday’s FOMC decision. Rates are widely expected to remain unchanged, but focus will centre on Chair Warsh’s first press conference as Fed Chair. Markets will also closely watch whether the Committee removes its easing bias from the statement, revises inflation forecasts higher, lowers unemployment projections, and delivers a more hawkish set of dot plots. Business activity in New York State increased modestly in June, with the headline general business conditions index falling to 5.7 from 19.6, below the 13.20 forecast, which Pantheon Macroeconomics says “bolsters the case for thinking the manufacturing cycle is beginning to turn down”. New orders eased to 3.5 from 22.7, and shipments slowed to 8.6 from 18.9, while unfilled orders edged up to 5.0 from 4.9. Delivery times continued to lengthen, albeit at a slower pace, with the index falling to 11.9 from 20.4, while supply availability worsened further to -13.9 from -10.7. Employment metrics were mixed, with the number of employees index rising to 9.6 from 8.3, although the average workweek index eased to 5.1 from 11.5. Price pressures remained elevated, with prices paid little changed at 61.0 (prev. 62.6) and prices received at 31.4 (prev. 31.8). Pantheon Macroeconomics writes that “The prices received index was essentially unchanged in June, consistent with prices for CPI core goods, excluding used autos, rising at a near-4% annualised pace over coming months. But with energy prices down decisively over the last month, the pace of price rises looks set to moderate soon, enabling the FOMC to look through the current momentum.” Looking ahead, firms remained fairly optimistic, although the future business conditions index slipped to 30.1 from 33.5. Expectations for new orders and shipments improved to 32.5 (prev. 30.1) and 32.2 (prev. 26.6), respectively, while firms also anticipated stronger inventories, longer delivery times, and continued employment growth. Future prices paid eased to 59.4 from 62.1, but future prices received rose sharply to 51.6 from 43.6, the highest since 2022. US industrial production rose 0.1% M/M in May (exp. 0.2%, prev. 0.7%), while manufacturing output was unchanged (prev. 0.6%), indicating activity grew at a slower pace than expected. However, both series saw sizeable upward revisions to prior months, with industrial production revised up by a net 0.4ppts and manufacturing by 0.5ppts. Mining output rose 1.3%, offsetting a 0.4% decline in utilities production, while capacity utilisation edged up to 76.2% from 76.1%, in line with expectations. On an annual basis, industrial production accelerated to 1.7% Y/Y from 1.4%, while manufacturing production rose 1.4% Y/Y from 1.3%. Within manufacturing, durable goods output increased 0.8%, led by gains in wood products, nonmetallic minerals, primary metals and motor vehicles, although this was offset by a 0.9% decline in nondurable goods production. High-tech manufacturing remained a key source of strength, with computer and electronic products output rising 0.9% M/M and 10.3% Y/Y. The Fed release noted business equipment output rose 0.6%, construction supplies increased 1.1%, and materials production gained 0.3%. Pantheon Macroeconomics notes that strength in computers and electronics is continuing to support overall manufacturing output, likely reflecting the benefits of earlier CHIPS Act-related investment, but argues that recent production gains have also been supported by precautionary inventory-building amid supply chain concerns. Pantheon expects production growth to soften in the months ahead as inventory accumulation fades and higher manufactured goods prices weigh on demand. The NAHB Housing Market Index moved lower in June to 35 despite expectations to remain at 37. The drop came from current sales conditions falling two points to 38. Meanwhile, sales expectations in the next six months and the traffic of prospective buyers both held steady at 45 and 25, respectively. 35% of builders cut prices in June (prev. 32.0%) at an average price reduction of 6% in June (prev. 6.0%). The use of sales incentives was 62% (prev. 61%), marking the 15th consecutive month of being over 60%. Oxford Economics writes that “soft homebuilder sentiment is consistent with our view that housing starts will mostly move sideways for the next couple of quarters before starting to edge up slightly around year-end.” The firm needs to see builders work off more of their unsold inventory before we see a notable pickup in single-family housing starts. Elsewhere, Oil closed lower by 5% while Gold continued last week’s rebound, ending Monday’s session with a gain 0f 2.5%.
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