Headlines

* RBA unexpectedly raises key rate by 25bps to 4.1%

* Apple debuts $3,499 vision pro headset in test of marketing

* Dollar on the back foot after weak ISM data, AUD jumps towards 0.67

* Asian equities mixed following subdued Wall Street handover

FX: USD stayed soft as the DXY continued to struggle above 104. Disappointing ISM Services and US Factory Order data didn’t help buyers.  The 2-year yield lost ground modestly but remain near the post-NFP highs around 4.5%. The 10-year yield spiked up to 3.76% before closing at 3.68% The 200-day SMA may offer some support at 3.65%

EUR fell to 1.0674 before closing near its highs above 1.07. Commentary from ECB President Lagarde and official Nagel highlighted ongoing concern about inflation. GBP dipped to 1.2368 but recovered on the soft US data. Cable is trading around the January top at 1.2447 this morning. USD/JPY popped up to 14045 before pulling back below 140. AUD jumped higher this morning on the RBA’s surprise hike. The aussie hit its highest level since mid-May. The 200-day SMA sits at 0.6691. NZD is trying to build a base above 0.6050. The 200-day SMA is resistance above at 0.6147. USD/CAD is falling towards trendline support just above 1.34. The BoC meeting is a tight call similar to the RBA. But consensus expects no change to rates.

Stocks: US equities closed lower after an initial move higher led by the announcement of Apple’s VR headset. The benchmark S&P 500 lost 0.2% but remains above 4200. That early small advance had lifted the index more than 20% above a recent low in October 2022. That meant the SPX was briefly into a technical bull market. The Nasdaq 100 lost 0.09%. The Dow lagged, settling 0.59% lower.

Asian stocks traded mixed after a muted performance in the US. The Nikkei 225 found dip buying after dropping below the psychological 32,000 level. Selling took place after disappointing labour earnings and household spending data. The Hang Seng was varied with property names boosting the index.

US equity futures are very mildly in the red.  European equity futures are pointing to a flat open. The Euro Stoxx 50 closed down 0.7% yesterday.

Gold is rangebound currently after finding support at the 100-day SMA at $1939. Prices are trading around the early February high at $1959.

Event Takeaway – RBA hikes, Apple backs off all-time highs

The RBA surprised most of us by hiking by another 25bps. This took the cash rate to 4.1% and an 11-year high. Inflation is still much too high at 7%. Recent data also indicated that upside risks to inflation have increased. The hike gives the bank greater confidence that price pressures will return to target within a reasonable timeframe. But they added that some further tightening may be required. The surprise decision is a reminder to central banks and markets that the inflation battle isn’t easily won.

Apple shares slid 0.8% yesterday after the tech giant unveiled a new “mixed reality” headset. That followed gains of as much as 2.2% in the run-up to the product launch which took AAPL shares to new all-time highs. The headset partners with Disney on content and will be priced at $3,499. But it will not be available until 2024 and only in the US at first. This launch is being dubbed as the company’s biggest new product since the iPad in 2010. But it doesn’t look like a mass market product yet. Its market cap still remains below the $3 trillion mark it touched in early January 2022.

Chart of the Day – VIX hits the lows

We talked about the VIX briefly in this week’s webinar. Wall Street’s “fear gauge” as it is commonly known, hit its lowest level in more than three years on Friday. The real-time index represents market expectations for volatility over the coming 30 days. This is derived from the prices of S&P 500 index options with near-term expiration dates.

Volatility, or how fast prices change, is often seen as a way to gauge market sentiment. The VIX collapsed by 19% last week, the biggest drop of the year. This came after the debt ceiling deal and the mixed payrolls data diluted the odds of a Fed rate hike next week. The index is now over 34% below the widely watched 200-day SMA. This kind of divergence typically marks a trough and a burst of volatility. Seasonality also favours a push higher as the VIX has moved north 80% of the time in June over the past 10 years.