Early Morning Call: mixed session in APAC; recession fears persist; cryptos rout

APAC equity markets overview

Equity markets in the APAC region started the week mainly in the red with Japan’s Nikkei and South Korea’s KOSPI leading the losses.

China indices outperformed the region, as the People’s Bank of China kept its key rates unchanged in June. The one-year loan prime rate (LPR) was left at 3.7%, and the five-year rate, which is the reference rate for mortgages, remained at 4.45%. In May, the 5-year LPR was cut by 15 basis points.

European outlook

In Europe, indices showed very small gains at the start of the session. Investors will be particularly attentive to what French President Emmanuel Macron will do next. His centrist party lost absolute majority in parliamentary elections on Sunday. This means he can’t pass laws alone and will have to create an alliance with another party. But can he?

The left-wing alliance has become the main opposition party, while Marine Le Pen's party managed to win an unprecedented number of seats (89).

Here in the UK, low-cost airline easyJet has decided to cut more flights this summer in an attempt to manage operational problems. Also watch out for Associated British Foods and SThree, both having produced quarterly trading updates.

In Germany, the producer price index rose 1.6% in May on a month-on-month basis. Economists had expected an increase of 1.5%. Year on year, factory gate prices are up 33.6%. Note that US equity and bond markets will be closed this Monday for Juneteenth, a day that commemorates the emancipation of enslaved people in the country.

FX overview

After a tumultuous week punctuated by key – scheduled or unscheduled – central bank meetings, this is a relatively quiet start to the week on the FX market.

The dollar is down against main currencies, but the dollar basket remains above 104.

Commodities

Oil prices have settled after a volatile end of week. Last Friday WTI and Brent fell in excess of 6% as the dollar rallied on global recession fears.

Also on Friday, Baker Hughes reported a lift in the total rig count for the second week in a row, up by seven to 740. Oil rigs in operations rose four to 584, while the number of active gas rigs increased by three to 156.

Recession fears also sent industrial metals lower. Copper fell below $9,000 on Friday, an 8-½-month low, also an important area of support for copper over the last few months.

Aluminium, zinc and lead are also trading at or near support levels.

And finally, bitcoin is trading back above $20,000. Over the weekend the cryptocurrency took out $20,000 then $19,000 then went below $18,000. It's the first time it's closed below that level since November 2020.