Peter Boockvar

I finally found something that Jay Powell and I have in common and agree upon, //twitter.com/deadandcompany/status/1665414009686835214. 

With respect to next week, the soon to be Vice Chair Jefferson told us all we needed to know about what they are going to do and that is nothing. That said, the market thinks they go in July, pricing in an 84% chance right now. “If you get confused, just listen to the music play.”

Outside of today’s ISM services report and Thursday’s claims data, there isn’t much economic news ahead of next week’s CPI and Fed meeting. The earnings flow slows to a trickle (thankfully a break from earnings calls). We’ll of course watch to see if there is oil price follow thru as the Saudi’s themselves try to hold up prices (we remain bullish and long energy stocks). So we watch instead flows, debate what happens post debt deal with issuance and who is going to buy it all and at what yield, discuss how the Fed will balance a pause and maybe another hike while continuing on with QT and hear more chatter about AI. 

When China reported its state sector weighted May manufacturing and service PMI’s a few weeks ago, the dour mood on China continued on but the Caixin private sector manufacturing index reflected a better tone and today’s service index from them did too. Also, the China Beige Book expressed a better picture than feared. The Caixin service sector index rose to 57.1 from 56.4. Also, “Service providers remained optimistic partly because the market environment improved in the post Covid era. However, the measure of their expectations for future activity declined for the 4th straight month, and slipped below the historical average.”

The China bashing is seemingly a non stop thing thing to do that everyone tries to top the other on the rhetoric but it serves no one, except maybe the military and other hawks, to not have us get along. The world badly needs both countries to stabilize this hugely tension filled situation. As a reminder, we buy about $500b of stuff from China each year and we sell about $150b worth of things to them. The Shanghai comp was flat but stocks in Hong Kong rallied. 

Japan stocks by the way made fresh 33 yr highs. 

India remains a very exciting story and its May service PMI remained above 60 at 61.2 but down slightly from the 62 seen in April. 

Hong Kong’s PMI fell to 50.6 from 52.4 and Indonesia’s was right above 50 at 50.3 vs 52.7 in the month before. 

The May Eurozone services PMI was revised down to 55.1 from its initial print of 55.9 and down from 56.2 in April. S&P Global said “The services sector is being supported by the strong labor market, rising wages and a tourism sector that is flourishing throughout Europe.”

The UK services PMI was left little changed at 55.2 vs the initial read of 55.1. That compares with 55.9 in April but up from 52.9 in March. S&P Global said it was “fueled by resilient demand for consumer and technology services, combined with a post pandemic tailwind as households switched from spending on goods to services. Rising export sales were also reported in May, reflecting increased international visitor numbers and improving demand for business services from clients based in the US and Europe.” Wage growth remained strong.  

European bonds are selling off again with yields jumping, following weakness in Asia and here in the US. The ECB has more rate hikes as they have their deposit rate at a still low 3.25% but likely not many left. I think big question is how they manage the balance sheet decline from here. 

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