Headlines

* IMF warns central banks of “uncomfortable truth” in inflation fight

* Nasdaq falls over 1% to start final week of first half as tech struggles

* Gold slumps as rate hikes push real yields higher

* Dollar bounce stalls ahead of US durable goods and housing data

FX: USD traded in a narrow range between 102.61 and 102.86. The 50-day SMA is very close by at 102.70. The 2-year yield printed a narrow “inside day”. It is losing some ground this morning dropping just below 4.70%. The 10-year yield dropped below the 200-day SMA at 3.69% but closed back above it.

EUR traded in a very tight range around 1.09 and printed a “doji” candle. There was some chatter about another ECB rate hike in September. GBP had similar price action around 1.27. The latest Reuters poll showed high expectations for more rate hikes at the next two meetings at least. USD/JPY closed marginally in the green at 143.50. Finance Ministry’s Kanda was on the wires in early Asian hours yesterday with verbal intervention to support the yen.  AUD finished the day little changed at 0.6675. The 200-day SMA at 0.6690 offered some support. The aussie has pushed higher today on CNH strength post-fix as China’s state banks stepped in to support the yuan. USD/CAD has dropped to a fresh cycle low at 1.3119 this morning.

Stocks: US equities extended losses from Friday. The benchmark S&P 500 lost 0.45% and the Nasdaq 100 finished lower 1.36%. But the Dow closed down 0.04%. The tech sector underperformed with big losses in Meta, Nvidia and Alphabet. Tesla fell more than 6% after cautious commentary from Goldman Sachs. Interestingly, small caps were resilient. The Russell 2000 closed in the green amid gains in the regional banking sector.

Asian stocks were mostly in positive. The Nikkei 225 was lower in a further drop from the 33k level. Yen weakness is a key concern for authorities who may be forced to intervene soon. The Hang Seng was better bid with gains in tech and property.

US equity futures are pointing to a better open. European equity futures are pointing to a modestly higher open (+0.3%). The Euro Stoxx 50 closed up 0.2% yesterday.

Gold eked out small gains after Friday’s cycle low at $1910. There were mild tailwinds across the commodity space from the softer greenback.

Day Ahead – Sintra in focus

This week brings the ECB forum which takes places at Sintra in Portugal. Several ECB speakers are slated to appear today including President Lagarde and arch hawk Schnabel. The ECB as a whole remains relatively hawkish, but markets are fearing a recession. Any sign of change from officials will hit the euro. Tomorrow sees the keynote policy panel featuring Fed Chair Powell, BoE Governor Bailey, and BoJ Governor Ueda.

The symposium has delivered some major ECB policy announcements in previous years. Former President Draghi in 2017 indicated that the era of QE might be coming to an end. “Deflationary forces have been replaced by reflationary ones”, he said. The euro shot higher and bond yields rose as the ECB was expected tp phase out crisis-era policies sooner than expected. Today, central banks are heavily data dependent. But we might still hear some pearls of wisdom from the central bank fraternity over the next few days.

Chart of the Day – Dow buckles under resistance

US stocks have turned lower after hitting multi-month highs recently. We have been highlighting the August top from last year at 34,281 as a key level of resistance in our weekly webinars. It has capped the upside on numerous occasions over the past 10 months. It looks to have done its job again after Friday’s spike up to 34,588. Prices have tumbled since then. Support is at the 50-day SMA at 33,612 and then 33,359.