Regional Banks Fuel Market Crawl

Regional banks have regained strength, leading to a crawl in the financial markets, as investors set aside concerns over rising yields on US debt. Meanwhile, the small-cap index, Russell 2000, outperforms the S&P 500, boosting overall market confidence. In this update, we will explore the key factors driving today's market, the noteworthy price movements, and the significant news impacting the financial landscape.

Key Factors for Today

• A trifecta of risk events, including the resolution of the debt ceiling, a likely June pause by the Federal Reserve, and improved conditions following a previously forgotten banking crisis, have fostered investor relaxation.
• Russell 2000 small-cap index has surged ahead, delivering a remarkable performance in June, outpacing the S&P 500 by a factor of two.
• The EUR/USD pair faces downward pressure due to a slowdown in German factory activity, with an expected rate hike from the European Central Bank (ECB) still on the horizon.
• Oil prices experienced a decline but ended only 0.85% lower, despite the release of additional reserves, as growth in product inventories raises concerns about weakening demand.
• Australian GDP growth fell below expectations, prompting Reserve Bank of Australia Governor Philip Lowe to express determination in tackling inflation through interest rate adjustments.
• The Turkish Lira weakens further, reaching record lows for the ninth consecutive session.

Market Movers

The Russell 2000 small-cap index has become a beacon of confidence for investors. With a remarkable 5% surge in June, it has outperformed the S&P 500, reaching a three-month high of 1865 on Tuesday. The index remains biased upwards, with the next resistance level at 1905.

The EUR/USD pair faces pressure due to a slowdown in German factory orders. Falling by 0.4% compared to the expected gain of 2.8%, April's figures revealed a negative trend, with annual factory orders down 9.9%. Despite slower inflation, the ECB is likely to proceed with a rate hike, as core price growth remains stable. The EUR/USD pair slid by 0.20% to $1.0692, trading relatively flat below $1.0734. A break outside this range could lead to further declines towards $1.0635 or gains towards $1.0767.

Oil prices experienced a decline throughout the session, influenced by the growth in gasoline and distillate inventories. Although API weekly crude inventories fell by 1.7 million barrels, the increase in product inventories suggested weakening demand. Furthermore, the US released an additional 1.8 million barrels from the Strategic Petroleum Reserve (SPR). Despite the decline, crude oil closed only 0.85% lower at $71.35 per barrel, showcasing resilience above the $70 handle and indicating the potential for an upside move towards $73.50 per barrel.

Economic Calendar

• ECB de Guindos Speech
• ECB Panetta Speech
• ECB Fernandez-Bollo Speech
• US Balance of Trade
• BOC Interest Rate Decision
• EIA Crude Oil Stock Change
• Consumer Credit Change
• Japan GDP Growth

The Big News

Australian GDP growth for Q1 came in slightly below expectations at 0.2%. The annual rate of 2.3% also fell short of the projected 2.4%. Amidst this, RBA Governor Philip Lowe's speech drew attention as he emphasized the determination to lower inflation. Lowe reiterated that interest rates would be the preferred measure for achieving this goal, as opposed to quantitative tightening. As a result, the AUD/USD pair closed Tuesday 0.80% higher at $0.6670, distancing itself from regional lows and targeting the 67-cent barrier.

The Turkish Lira continues to face downward pressure, weakening for the ninth consecutive session. It has now broken into the 22 zones against the US dollar, reaching unofficial record lows. The absence of pre-election intervention by the central bank contributes to the currency's decline.

Regional banks have revitalized the markets, pushing aside concerns over rising yields on US debt. The Russell 2000 small-cap index's remarkable performance and the downward pressure faced by the EUR/USD pair due to German factory slowdown are among the significant market movers. Moreover, the Australian GDP's slightly lower-than-expected growth and the continuous weakening of the Turkish Lira contribute to the evolving financial landscape. With key economic events on the horizon, including ECB speeches and the BOC interest rate decision, investors remain attentive to potential market shifts.