ON DECK FOR WEDNESDAY, JULY 3
KEY POINTS:
- French spreads over bunds tightest since immediate aftermath of EU elections
- European markets signal French relief; real or head fake?
- US data dump precedes early market closures…
- …including ADP, ISM-services, job cuts, claims, factory orders...
- …as FOMC minutes land at the close…
- …after Chair Powell said nothing new yesterday
- US vehicle sales look sus
There were no material overnight macro developments. The US will seek to cram in a bunch of reports before those market participants who bothered to show up today split town and liquidity suffers.
Day-to-day volatility ahead of France’s second round election on Sunday is motivating a bit more optimism as the parties circle the wagons around the Le Pen’s National Rally by rigging the candidates through strategic drop-outs. This has European stocks broadly higher and French bond spreads slightly narrower including 10s that at 67bps over 10-year bunds is the narrowest since June 12th (chart 1). I don’t buy a competing narrative that posits Powell said anything useful yesterday. The probable outcome of a hung French parliament carries its own set of risks, but markets are viewing this as more palatable than Le Pen and her 29-year-old side kick Jordan Bardella.
US bonds shut at 2pmET and stocks close at 1pmET before Wall Street hits the highway to the Hamptons. Several US macro readings are on tap including ones that can tend to spice up vol. ADP payrolls (8:15amET) are useless for forecasting nonfarm payrolls, but don’t try to convince markets that often react. US ISM-services may be more relevant (10amET). US job cuts (7:30amET), claims (8:30amET) and factory orders (10amET) are also in the mix.
FOMC minutes land just as bonds shut for the early close ahead of the July 4th holiday (2pmET) and just after US stocks have shut (1pmET). Fortunately, I don’t think that this round will offer materially different messaging to what we’ve been hearing from Powell et al. His messages at Sintra were the same as before; they are making progress but need more data and evidence to ensure that this continues.
US vehicle sales landed at 15.3 million units SAAR late yesterday for a 3.8% m/m SA decline that on its own would shave about –½% m/m off of the month’s retail sales figures. What’s unusual about this sales number is that it matched the guidance for just the first half of the month in terms of the number of selling days and hence before the CDK hack hit. Therefore, the second half of the month’s sales appear to have been unaffected by the hack relative to the first half. Maybe they would have been stronger yet, assuming no revision risk given that numerous companies were reporting handwritten sales and weaker dealer productivity. I would be careful with data quality.
It’s not just autos that are impacted either. From what I understand, CDK’s hack also affected heavy equipment sales. CDK is reporting today that operations are mostly back to normal which will mean that what was lost in June may be pushed into July with a lag as they work off the backlogs.
I think Canadian auto sales should be released today but there is no set schedule. They’re usually on a similar release schedule to the US.
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