Here are five things you must know for Tuesday, June 21:
1. — Stock Futures Surge As Bond Yields Ease, Dollar Retreats
U.S. equity futures rebounded firmly Tuesday, following on from the worst week on Wall Street in more than two years, as investors eased back into risk markets despite persistent concerns over growth and inflation and fears of a near-term recession.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers and often acts as a proxy for risk appetite, fell 0.63% in overnight trading to 104.033 as markets in Asia and Europe built modest gains — the latter bouncing from the lowest levels in a year last week — even as many of the same macro concerns continue to accumulate.
The dollar was also pressured by comments from the European Central Bank’s chief economist Philip Lane, who signaled support for a 25 basis point rate hike in Frankfurt next month, but left open the possibility of a bigger move in September as policymakers grapple with the fastest inflation on record in the single-currency area.
Rate bets are also accelerating in the U.S., which inflation is running at a forty year high of 8.6%, with the CME Group’s FedWatch tool indicating a 98.1% chance of a 75 basis point hike in late July, and a 37.3% chance of a similar move in September.
The Fed’s aggressive inflation fight could tip the U.S. economy into recession — a view that is hotly denied by President Joe Biden — as demand is snuff-out by higher interest rates and borrowing costs. That likely puts corporate earnings in focus as one of the last key growth drivers to keep the U.S. from a broad-based downturn heading into the final weeks of the second quarter.
Data from Refinitiv suggests June quarter earnings growth will slow to 5.6%, taking collective S&P 500 profits to around $464.7 billion, powered almost exclusively by the energy sector.
Heading into the start of the holiday-shortened week on Wall Street, Europe’s region-wide Stoxx 600 was marked 1% higher in early Frankfurt trading, following on from a 1.43% advance for Asia’s MSCI ex-Japan index.
Benchmark 10-year Treasury bond yields dipped to 3.275% in overnight trading while 2-year notes were pegged at 3.213%.
Futures tied to the Dow Jones Industrial Average, which closed below the 30,000 point level for the only the second time since January of last year, are indicating a 485 point opening bell gain while those linked the S&P 500, which is down 22.9% for the year, are priced for a 64 point gain.
Futures linked to the tech-focused Nasdaq are looking at 207 point opening bell gain.
2. — Week Ahead: Housing Market In Focus
With economists focused on the prospects for U.S. growth, and debating the chances of a near-term recession, investors will likely focus on both the job and housing market this week as growth metrics slow and interest rates surge.
Higher U.S. mortgage rates, which surged the most in 35 years last week following the Fed’s 75 basis point rate hike, are expected to have clipped existing home sales when the Commerce Department publishes data on Tuesday, The Mortgage Bankers Association will follow with borrowing data on Wednesday after Freddie Mac, the biggest individual mortgage loan buyer in the country, said 30-year fixed mortgage rates surged to 5.78% last week, the biggest increase since 1987.
Home construction group Lennar (LEN) – Get Lennar Corporation Class A Report as well as homebuilder KB Home (KBH) – Get KB Home Report will also publish May quarter earnings this week, with investors closely watching each company’s near-term outlook for the broader housing market.
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The Federal Reserve is also set to publish the results of its so-called stress tests of the nation’s biggest banks on Thursday, a report card that, if satisfactory, will allow them to increase dividends and share buybacks in the months ahead.
3. — President Biden May Seek Federal Gas Tax Holiday
President Joe Biden indicated over the weekend that he is considering a pause in federal gas taxes in order to help bring down prices at the pump and ease headline inflation pressures.
Speaking to reporters in Delaware on Monday, the President said he hoped to have a decision on a so-called gas tax holiday by the end of the week – with the aim of bringing it into force by the July 4 weekend.
Federal gas taxes add around 18.4 cents per gallon to the cost of unleaded fuel — and 24.3 cents for a gallon of diesel — and is largely used to fund the construction of roads and other driving infrastructure around the country.
Any reduction in the levy, however, will need approval from Congress, and it is unlikely that Republican lawmakers will agree to any proposal that hands Democrats a headline-grabbing advantage heading into mid-term elections in the fall.
In the meantime, data from the AAA motor club indicated that U.S. gas prices eased from this week’s all-time high to a national average of around $4.968 per gallon for the first weekly decline in more than two months. That still leaves pump prices some 61.8% higher than this time last year.
4. — Elon Musk Repeats Concern For Twitter Takeover
Twitter (TWTR) – Get Twitter Inc. Report shares moved higher in pre-market trading, but lagged the broader advance expected for the tech-focused Nasdaq, as Tesla (TSLA) – Get Tesla Inc. Report CEO Elon Musk again cast doubt over the prospect of his $44 billion takeover.
Musk, speaking at the Bloomberg-sponsored Qatar Economic Forum on Monday, Musk said he was “still awaiting resolution” on the issue of so-called ‘fake accounts’ on the platform, which Twitter says represent less than 5% of total users. Musk, who has demanded access to Twitter’s methodology in calculating that number, has said the deal remains ‘on hold’ until it can be resolved.
Musk also hinted at whether “the debt portion of the (funding) round come together”, suggesting bankers may be having second-thoughts on lending into a $44 billion purchase price when stock markets are valuing Twitter at less than $29 billion.
Twitter shareholders are expected to vote on the deal in early August.
Twitter shares were marked 1.1% higher in pre-market trading to indicate an opening bell price of $38.19 each.
5. — Bitcoin Regains $20,000 Mark But Crypto Markets Bruised
Bitcoin prices regained the $20,000 mark in overnight Tuesday trading as digital currency investors looked to support a beaten-down market that has hived billions in value from crypto assets around the world
The broader crypto rebound was lead by Bitcoin, which tumbled to as low as $17,663.00 each during a wild Saturday sell-off that extended declines triggered earlier this month by the collapse of the Luna stablecoin and moves by various crypto lenders to freeze customer deposits.
Bitcoin prices were last week 5.6% higher on the Tuesday session as $21,188.28 each, a gain that still leaves the world’s biggest digital coin down 33.3% for the month and some 69% from its late November highs.
Crypto lenders are also under pressure, with data provider Glassnode indicating that more than $124 billion, of 60%, of the total value of tokens on global DeFi protocols has been lost over the past six weeks.