Headlines

* USD nosedives as US producer prices inflation eases in June

* GBP breaks 1.31 barrier, EUR through 1.12 on US disinflation theme

* China central bank pledges to use policy tools to spur recovery

* Asia stocks set for best week 0f 2023 as rate peak bets firm

FX: USD is falling to fresh 15-month lows this morning and its biggest weekly drop this year. The dollar is down nearly 13% from last year’s two-decade high.  The DXY’s slide since last Friday is over 2.5%. The break of the prior year-to-date low at 100.82 now makes that strong resistance. A long-term Fib level (61.8%) of the 2021 rally sits at 98.97. A lot of this dollar move in the majors is now oversold on several measures so some pullback may be expected.

The 2-year yield dropped another 11 pips to 4.64%. Data showing the producer price index rose less than expected in June. The annual increase was the smallest in nearly three years. This was the second encouraging US inflation report in as many days.  The benchmark 10-year yield fell through support around 3.82%. It is trading around long-term resistance/support at 3.78%.

EUR extended its win streak to six sessions in a row. It closed at 1.1224, its highest level since February last year. It is on course for its biggest weekly gains in eight months. The 200-week SMA could now be support at 1.1181. A long-term Fib level (61.8%) of the 2021/22 decline sits at 1.1275.

GBP closed at 1.3135. The 1.13% advance was its biggest one-day gain in four months. There is little resistance until 1.3328 (76.4% retracement of the 2021/22 decline). The 200-weak SMA sits at 1.2887, just above the previous 2023 top at 1.2848.

USD/JPY is falling again today on narrowing yield differentials. Speculation also continues about potential hawkish forecasts or policy changes by the BoJ at its meeting at the end of July. This is its seventh straight day of losses which has not been seen since April 2021. We last got a bigger weekly decline of over 3% in January. The 200-day SMA is at 137.06 so may act as support.

Risk-sensitive, cyclical currencies are performing well in this environment. AUD has risen 3% in two days. The June highs around 0.69 may offer some resistance. This tallies with a retracement level of the February fall.  NZD is may also find resistance at the April and May highs above 0.63. Prices then fell sharply.

Stocks: US equities rose again on Thursday of the fourth straight day. The benchmark S&P 500 climbed 0.85% above 4,500. The tech-dominated Nasdaq outperformed surging 1.73%. Both these indices hit their highest levels this year. The Dow lagged and added 0.14%. Tech led the gains again with the NYFang up 2.7% and posting a record high close. Nvidia jumped to fresh all-time highs up 4.7%, while Alphabet rose by the same amount.

Asian stocks traded trade mostly higher after the positive Wall Street handover. The Nikkei 225 swung between gains and losses amid JPY strength and BoJ policy tweak speculation. The Hang Seng was in the green.

US equity futures are lacking firm direction. European equity futures are pointing to a slightly lower open (-0.1%). The Euro Stoxx 50 closed up 0.7% yesterday.

Gold hit a four-week top and is consolidating its recent gains today as it heads for its best week since April. The 50-day SMA at $1954 may offer near-term resistance/support.  Markets are scaling back expectations of further US rate hikes. Futures markets are now pricing in roughly a 1 in 3 chance of an additional rate rise in the autumn. This compares with near a 1 in 2 bet before Wednesday’s US inflation release.

Day ahead – Earnings season upon us

Q2 earnings season has commenced this week. FactSet suggest S&P 500 companies might see an overall 6.5% earnings dip compared to last year which would be the biggest slump since mid-2020. Falling commodity prices and a struggling economy have got the energy and materials sectors bracing for a serious fall. But seven out of the eleven sectors are still predicted to climb. Consumer discretionary and communication industries tipped to lead the pack.

The big US banks report later today with Wells Fargo, JP Morgan Chase and Citibank. There are low expectations for the sector as a whole. This is because earnings estimates have not meaningfully recovered since the US regional banking crisis in March. Investors will focus on net interest income and high deposit costs. They could exert pressure on margins and profits.

Chart of the Day – S&P 500 pushes above 4,500

Stocks are enjoying the peak interest rate outlook. The megacap tech companies are again leading the way with one tech index registering a record high close. Offsetting some of the upbeat tone was the weekly jobless claims data. That unexpectedly fell last week indicating labour market tightness remains. Focus turn to company results with hopes that expectations and guidance are at least in line.

The blue-chip index is on for another strong week of gains. The next resistance level comes at 4534. This is a minor retracement level of the 2022 decline. The March 2022 peak sits above at 4637. The 21-day SMA is below at 4406.