Mini Program: Daily summary of investment bank/institutional views

1. UBS: Crude oil prices could rise to $90 a barrel in the third quarter as inventories fall

UBS said oil prices could rise to $90 a barrel this quarter as inventories fall. Giovanni Staunovo, a strategist at the bank, said investors have begun to build oil exposure again as oil inventories begin to fall due to solid demand and limited supply growth. The bank expects "a sharp decline in oil inventories" in the coming weeks as OPEC+ continues to cut production this quarter.

2. Morgan Stanley: Investors should buy French stocks before the second round of parliamentary elections on Sunday

Morgan Stanley strategists Marina Zavolock and Regiane Yamanari said investors should buy French stocks ahead of Sunday's second round of snap parliamentary elections as markets could rally in either of the two most likely outcomes. French bonds have already been boosted by political factors as Marine Le Pen's National Rally appears unable to win an outright majority in the National Assembly. Macron's centrists and the anti-Le Pen left-wing coalition strategically threw 223 candidates out of constituencies to avoid splitting the far-right opposition and lowering its chances of winning enough seats to form a government. That means no single party is likely to win the 289 seats needed for a majority, the Morgan Stanley team said.

3. Barclays: India's central bank may remain unchanged in the short term

Consumer inflation in India is expected to fall sharply in the coming months, but the Reserve Bank of India is likely to wait for signs of a sustained pullback before taking any action, Barclays economists said. A seasonal rise in food prices should keep the inflation pullback in June mild, but base effects are expected to push headline inflation sharply lower in the third quarter, with consumer inflation likely to be below 4%. Barclays said the Reserve Bank of India is likely to remain on hold in the near term, keeping a close eye on the impact of the monsoon and commodity prices as it appears to see the headline CPI in line with target. The agency expects a rate cut window to open in December, but if inflation does not develop as the Reserve Bank of India expects, the cut may be delayed.

4. Saxo Bank: Signs of a slowdown in the US economy push up precious metal prices

Saxo Bank's head of commodity strategy, Hansen, said precious metals rose as they broke out of their recent trading range on signs that the U.S. economy is slowing. Hansen said in a note that both metals were trading higher ahead of the July 4 holiday in the U.S. after data showed the U.S. services sector contracted at its fastest pace in four years in June amid a sharp contraction in business activity and a drop in orders. This gave up some of the dollar's recent gains, softened U.S. Treasury yields and further fueled expectations of rate cuts, which was a positive for precious metals, Hansen said.

5. MUFG: Weak US economic data may boost expectations of rate cuts, and the dollar may fall next year

Mitsubishi UFJ Financial Group said in a report that the dollar looks set to fall next year as recent weaker U.S. economic data could strengthen market expectations for Federal Reserve rate cuts. Noting Wednesday's weaker-than-expected ISM services report and ADP private payrolls data that showed slowing job growth, the bank's analyst Lee Hardman said: "Overall, these developments give us more confidence that U.S. inflation and growth will continue to slow, which will encourage U.S. interest rate markets to price in more Fed rate cuts over the coming year." He said this is a key assumption in the bank's expectation of a weaker dollar.

6. UOB: The Fed's concerns about slowing inflation are growing

Alvin Liew, senior economist at UOB, noted that the minutes of the Fed's June meeting showed that Fed policymakers were concerned about slower inflation progress than they had expected in December. Although the minutes showed that Fed policymakers "stressed the importance of adjusting future policy decisions based on incoming data, the changing economic outlook and the balance of risks," they were less consistent on how long/how much to keep policy unchanged. Notably, some participants stressed the need to remain patient, while several warned that rate hikes may be needed if inflation remains persistently high or rises further. Some participants pointed to concerns about the labor market, warning that further weakness in demand could now trigger larger unemployment. In fact, although the number of rate cuts expected by FOMC members has been reduced from three to one, the minutes showed that policymakers are increasingly concerned about economic growth and a potentially weakening job market.

7. RBC: Labour's promises will boost UK housing market

British housebuilders Taylor Wimpey, Persimmon and Vistry Group are expected to be the biggest winners from a Labour victory in the UK general election, RBC Capital Markets analyst Anthony Codling wrote in a research note. Labour's promise to restore housing supply targets, improve greenfield sites and reform planning will boost the real estate sector, making it more likely to be re-rated. If the new government walks the talk, we expect this rhetoric alone to be enough to boost real estate shares in the short term. Taylor Wimpey shares are up 1.2% this year, Persimmon up 3.1% and Vistry up 37%.

8. Mizuho Bank: Before the release of non-farm payrolls, the yen rose after the Goldilocks scenario was resolved

Hideaki Minami, vice president of Mizuho Bank's global foreign exchange trading team, said that not only was USD/JPY sold off, but other currencies and crosses with the yen and cryptocurrencies were also sold off, indicating that positions accumulated under the Goldilocks scenario are being unwound. The focus of USD/JPY is whether the yen can maintain 160 in the near term. The weak US non-farm payrolls data was expected, and the dollar has been sold off since yesterday. Earlier, Federal Reserve Chairman Powell said that he would take action if there was unexpected weakness in the labor market. Therefore, if today's employment report is weak, the market may regard a September rate cut as a certainty.

9. BNP Paribas: The market's reaction to non-farm payrolls may not be symmetrical

Friday’s nonfarm payrolls could be interesting. Analysts at BNP Paribas said the market’s reaction to the payrolls could be asymmetric. After core PCE inflation edged up 0.1% last month, the smallest gain since November, the market could react more to a payrolls miss than to a better-than-expected reading. If both inflation and employment soften, it would spark a larger debate about whether the data is rebalancing or starting to deteriorate. A weaker-than-expected payrolls reading – especially if accompanied by a rise in unemployment – ​​could cement market pricing for two Fed rate cuts in 2024 and force a reassessment of already elevated terminal rates. Meanwhile, while an upside surprise in the data would lead to a sell-off in rate expectations, the accompanying steepening of rates would be limited as the Fed maintains its accommodative bias given the good recent progress on inflation.

10. Commerzbank: Expect the pound to react coldly to the UK election

As voting begins in the UK general election, the pound rose against the dollar but was flat against the euro. Michael Pfister, a currency analyst at Commerzbank, said that unless something completely unforeseen happens, the Labour Party is likely to win the election easily. Therefore, the pound's reaction to the election result may be relatively mild. There are only two possible problems. One is that the Labour Party wins by an overwhelming margin, causing market tensions, and the other is that the right-wing British Reform Party wins significantly more votes than expected.

11. MUFG: Labour Party's victory is expected to stabilize market confidence, and the pound is beginning to see hope

MUFG Bank said the pound could benefit from the widely expected Labour Party's likely majority in Thursday's general election, even if the pound's immediate reaction is weak. Lee Hardman, an analyst at the bank, said in a note that market participants seemed satisfied with a possible Labour victory, which should limit any adverse impact on the pound. He said Labour's commitment to prioritize economic stability and respect for fiscal rules is easing nervousness about the risks of loose fiscal policy and loss of confidence in the pound. On the other hand, investors will welcome greater political stability in the UK and the possibility of an improved Brexit trade deal, which could support the pound.

Article forwarded from: Jinshi Data