US equities were weaker Monday; the S&P closed down 0.9% despite bank earnings beating expectations after initially trading higher. Weakness later in the session followed a report that Apple plans to slow hiring. US10yr yields up 7bps to 2.99%, 2yrs up 5bps to 3.17%. Oil is up 4.5%.

With Apple putting up their hand and acknowledging they have too many staff, it is a clear sign of caution from the mega-cap heavyweight giants amid an uncertain time leaving macro investors trying to look beyond what promises to be a volatile 2H. Investors are hoping for a ‘kitchen-sink’ quarter where corporates flush out all the bad news at once – but I am not sure that will happen, and I think this makes it difficult to put an absolute bottom on the equity selloff.

Equities are still struggling to quantify the impact higher borrowing costs will have on growth. By and large, the market continues to price a softish landing with the terminal rate relatively well anchored.

The probability of recession is dominating US discussions as inflation might have peaked in June while the Fed still has a couple of massive hikes ahead before possibly pausing. We always hear that the rate hikes are in the price, but they are always a shock when the market actualizes the reality, especially when they are of the jumbo variety.


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In Europe, the energy situation dominates investor debates, while Italian political instability has once again raised fundamental questions about the monetary union.

So with inflation staying higher for longer, real yields jumping more than anticipated, and growth risks rising, investors remain highly reluctant to push stocks higher at the index level.

However, the risk-on tone at the start of the week might be a taste of what could happen if Fed hikes were becoming less of a threat. Investors have taken note of the quick and effective way Fed officials have dismissed the 100bp hike idea. But with oil prices bouncing higher again market started to price out any hope for a Fed pause.

At the same time, over in Europe, increasing chatter of a coming ceasefire in Ukraine could produce the best outcome. Both postive views – the Fed being close to the end and a truce in Ukraine – look premature at this point, even if they might materialize in October or November.

But Once investors anticipate such outcomes, the dollar might reach its peak and equities hit bottom. Investors, though, must first get through what could be a tumultuous Q3 and the start of Q4.

GAZPROM ” Forece Majeure” 

Gazprom is retroactively invoking force majeure on natural gas supplies to “at least one major customer” from June 14 – the Nord Stream 1 turbine dispute kicked off, according to Reuters. There are no specifics beyond that, but Uniper was Gazprom’s biggest customer, and it said it started withdrawing gas from storage last week.

It is interesting Gazprom continues to try to maintain some level of legal cover for its behaviour, evidence perhaps of the (misguided, in my opinion) view there is a path back to a normal relationship with European buyers in the medium term.

On Monday, the Russian newspaper Kommersant reported that Canada would fly the NS1 turbine via plane rather than send it by ship to speed up the NS1 restart process.


Crude oil is higher to start the week, with Brent rising over 4 % despite news of rising covid infections in China that raise the risk of new lockdowns or, at the very least, argue for a slower easing of restrictions already in place.

Support seems to be coming from the recognition that concerns about a supply response from Saudi and OPEC were unfounded after Biden’s visit to Saudi failed to deliver any concessions.

The OPEC+ agreement ends in September, and oil had fallen partly on concerns that Saudi and others with spare capacity might commit to a production increase once freed from the OPEC+ production quotas.

Sentiment from strategic energy investors remains the same — OPEC has limited spare capacity and is unlikely to step up to the plate, particularly after the colossal correction in oil prices. The next OPEC+ meeting is slated for Aug. 3.

China intensified policy support in Q2, but covid restrictions have limited their effectiveness. That said, energy investors are warming up to the prospect of the government to further strengthen policy support in H2, likely bringing forward future infrastructure projects and funding. The sentiment was also boosted by Hong Kong health officials weighing an easing of curbs and a building of natural immunity.


Three significant events lie ahead this week in Europe. First, Nord Stream 1’s maintenance ends on Thursday, and the market anxiously awaits to see if natural gas deliveries start again on Friday. Second, Italy may be heading for snap elections—attempts to form a new coalition are so far unsuccessful, and Prime Minister Mario Draghi addresses the Italian parliament on Wednesday. Third, the European Central Bank meets this week and will likely roll out its anti-fragmentation tool.

Risk sentiment started to find a base at the end of last week, and investors have backed away from a 100bp hike by the Federal Reserve, focusing instead on a 75bp walk for July. As a result, the greenback is giving up some recent gains against the euro.

With EURUSD trading below parity last week, some market participants are trimming positions for the moment, heading into a crucial week for the Eurozone, primarily the European Central Bank and the Nord Stream I maintenance uncertainty.

Still, to change the market sentiment over the medium-term, there is a need to improve the underlying situation in Europe, specifically energy supply, recession fear and fragmentation.

Stephen Innes

Managing Partner