Headlines

* USD nudges up, GBP near 14-month highs ahead of UK inflation

* ECB officials spar as Chief Economist rebuffs September rate hike talk

* Gold price stuck in neutral, but could be a strength now

* Asian markets mixed as China cuts key lending rates

FX: USD edged higher amid thin liquidity. US stock and bond markets were closed on Monday for Juneteenth holiday. The 2-year yield is close to the 3-month highs at 4.80% from last Wednesday. The 10-year yield top from late May sits at 3.85%. We are currently trading just below at 3.80% after failing to close above on several occasions.

EUR had a quiet day closing lower at 1.0921. GBP had a similarly small range day and failed to reclaim the 1.28 handle. It closed at 1.2792. The recent multi-month top is at 1.2848. The 2-year UK Gilt yield made a new high through 5% at 5.08%. USD/JPY continued higher and is above 142 this morning. Previous intervention levels are 145 and 150. AUD is sharply lower today and near 0.68 on the RBA minutes and disappointing China stimulus. USD/CAD has picked up above 1.32 after posting a fresh low at 1.3177 last Friday.

Stocks: US equities were closed for the US holiday (Juneteenth).

Asian stocks were mostly lower. The Nikkei 225 was in the red though losses were limited, and the index held above 33,000. The Hang Seng fell despite the PBoC’s liquidity boost and 10bps cuts to its benchmark Loan Prime Rates.

US equity futures are indicating a weaker open. European equity futures are pointing to a flat open. The Euro Stoxx 50 closed down 0.7% yesterday.

Gold is stuck in the range and indecisive alongside the uneventful dollar. Strong stock markets have weighed on investment appetite. This has led to a 14-day non-stop reduction in ETF holdings. Meanwhile hedge funds in the week to June 13 cut their net-long positions to a three-month low.

Day Ahead – ECB Speakers after China rate cut

This morning has seen more monetary policy easing from China. The PBoC cut two more key lending rates for the first time in 10 months to support growth in the world’s second biggest economy. This disappointed some who wanted deeper cuts as a signal to help the mortgage and ailing housing market. Asia also saw the RBA minutes which showed the recent meeting was more dovish than originally thought. Discussions between the June hike and pause were said to be “finely balanced”.  Money markets are currently leaning towards unchanged rates for next month. AUD has slumped back into its range. In simple terms, less China stimulus also doesn’t help EUR.

We get more central bank chat today after mixed talk yesterday. Hawk Schnabel favours one too many hikes than one too few. Chief Economist Lane was more cautious saying there was no urgency in committing already now about what to do in September. The market pushed up the peak policy rate to 3.97%. The July meeting is a nailed on 25bp. There are currently 18bps priced into the September meeting.

Chart of the Day – EUR/AUD bounces off support

The aussie has been top of the majors chart this month with strong outperformance agianst its peers. The RBA has surprised with rate hikes. This has pulled the cross lower after peaking near the October 2020 top in late April at 1.6786. The August 2021 high at 1.6436 was also resistance.

Recently, the pair has found support around the December 2022 highs above 1.58. A long-term Fib level (38.2%) of the late 2022 rally is also here at 1.5829. This morning has seen prices move up towards the 100-day SMA at 1.6073. Bulls will target the Febraury 2022 top at 1.6225.