Headlines

* Top central bankers see further tightening to counter sticky inflation

* Fed’s Powell does not rule out rate rises as coming meetings

* Chipmaker Micron beat son booming AI demand, easing glut  

* Asia shares subdued as yuan pessimism lingers

FX: USD is trading higher for a second consecutive day this morning. It pushed above the 50-day SMA yesterday and 100-day SMA today at 102.71. The 2-year yield traded in a relatively tight range just above 4.75%. The 10-year yield remains in the recent range between roughly 3.70% and 3.82%. The 200-day SMA sits at 3.69%.

EUR fell and has dropped below 1.09 today. The 50-day SMA at 1.0875 is initial support. The selling comes despite continued ECB chatter about a September rate hike, on top of the baked in July rise. GBP fell 0.88%, its worst day in six-weeks. Cable dropped below 1.27 and the mid-May swing high at 1.2680.  USD/JPY is making fresh year-to-date highs today. Japanese authorities intervened at 145 last September. AUD tumbled, losing 1.3% which was its worst day since early March. We are nearing the bottom of the recent range which is around 0.6570. USD/CAD is moving higher for a third straight day this morning. It is now aback above the early February bottom at 1.3262.

Stocks: US equities closed mixed. The benchmark S&P 500 lost 0.04% and the Nasdaq 100 added 0.12%. The Dow finished lower by 0.22%. Markets digested the comments from the heads of the major central banks at Sintra. Negative Nvidia sentiment was shaken off as the giant chipmaker pared losses. But the CFO warned of potential long-term damage in US trade from a potential export ban of AI chips to China. Tesla gained 2.4% ahead of its upcoming weekend announcement of Q2 delivery numbers. Bank shares have been supported overnight after the Fed’s stress tests saw all 23 of the largest banks pass.

Asian stocks traded mixed after a choppy day on Wall Street. The Nikkei 225 extended gains and briefly climbed back above 33,500. Japanese retail rales beat forecasts.  The Hang Seng remained stagnant near recent lows amid ongoing worries about US tech export restrictions on China.

US equity futures are quiet and rangebound. European equity futures are pointing to a flat open. The Euro Stoxx 50 closed up 0.9% yesterday.

Gold is suffering for a third day today on dollar strength. Next short-term support sits around $1900 and then $1893.

Day Ahead – Eurozone Inflation in focus

We get the first inflation releases for June from Europe. These prints from individual countries are likely to confirm what central bankers have been stressing – their work is not yet done. German and Spanish releases come today ahead of the region’s estimate and also US PCE data tomorrow. Italian inflation plunged yesterday. Headline prints should ease but core still remains stubborn and far above target level.

This is the reason we heard continued hawkish talk from the big four Governors yesterday at Sintra. More rate hikes are coming. Fed Chair Powell was a touch more hawkish than his recent public appearances. He said he would not rule out consecutive rate rises in July and September. This has pushed bets on a July FOMC hike up to 82% from 74% before yesterday’s panel discussion. The key question is that markets are evidently still quite sceptical about how much more tightening economies can stomach.

Chart of the Day – USD/JPY testing testing…

BoJ Governor Ueda offered no surprises yesterday in Portugal as part of the central bankers panel, aside from the odd joke. He was relatively steadfast in holding onto the current uber-dovish policy stance. Indeed, he reiterated that “there’s still some distance to go” in sustainably achieving 2% inflation accompanied by sufficient wage growth. The Fed’ Powell was more hawkish in his tone, reconfirming most FOMC members wanted at least two more rate hikes.

The dollar has surged over 11% since late March to hit fresh year-to-date highs this morning. This has prompted increased verbal warnings from Japanese government officials. Last autumn, they intervened when the pair strengthened above 145. There is currently less public criticism of yen weakness. But really monetary policy needs to turn, and the monetary policy divergences narrow for the pair to fall long-term. Support sits at 142.49.