Headlines

* Nasdaq drops most since March as Tesla and Netflix drag

* Dollar set to end the week higher, yen steady after Japan CPI

* Oil heads for fourth weekly advance as liquidity declines

* Asia stocks mixed as tech drops on TSMC, Hong Kong gains

FX: USD enjoyed it best one-day gain in two months. The DXY jumped 0.6% and rallied against all the majors except AUD. Job market resilience showed up in the weekly jobless claims. They fell last week and touched the lowest level in two months. The February low at 100.82 is support turned resistance.

The 2-year yield pushed higher. It is trading just above the 50-day SMA at 4.82%. 10-year yield bounced off long-term trendline support around 3.77%. It is currently touching its 50-day SMA at 3.85%

EUR closed lower at 1.1129. It was its worst day since mid-May.  Tuesday’s high at 1.1275 is a long-term fib level of the 2021/22 drop. The April highs just below 1.12 may offer initial support. A July ECB hike is baked in. There is heated debate about another 25bp rate hike move in September.

GBP fell again for a fifth straight day. That’s not been seen since October last year. Yesterday’s 10-day low touched the 50-day SMA at 1.2838. Support is also the June top at 1.2848. Eyes are on today’s retail sales data. This will provide a picture of the health of the UK consumer. High interest rates and inflation may hurt, though the good weather could help.

USD/JPY closed at a fresh one-week high of 140.07. The major has closed higher every day this week. Japan CPI rose 3.3% in June. That matched estimates but is still some way above the BoJ’s 2% target.

AUD eventually closed very marginally in the green at 0.6778. The aussie had spiked up to 0.6846 earlier in the day. The repeated failure around 0.69 could see prices fall back to the long-held range.  USD/CAD printed a doji candle after threatening to move down towards 1.31. Initial resistance above is 1.3216.

Stocks: US equities ended a very mixed bag. The benchmark S&P 500 slipped 0.68% to 4534. The tech-laden Nasdaq tanked 2.28%. That was its biggest one-day drop since March 9. But the Dow added 0.47% and nabbed its ninth straight gain. That was last seen nearly six years ago in September 2019. Tesla plunged 9.74%, its largest one-day drop since early January. Investors took a big dislike to the lack of guidance and falling margins. Netflix lost 8.4% which was its biggest daily decline since December 2022. Semis got hit after TSMC revised down its 2023 sales outlook. Nvidia shed 3.3%.

 Asian stocks were mixed, after the generally dismal performance Stateside. The Nikkei 225 slid for a second day as the chip rout accelerated. The Hang Seng rose snapping a three-day loss streak. But the index has fallen on the week on increasing concerns about the Chinese economy.

US equity futures are marginally higher. European equity futures are pointing to a lower open. The Euro Stoxx 50 closed up 0.26% yesterday.

Gold struggled yesterday as the dollar and yields rose. But it is heading for its third straight weekly gain. This is supported by hopes that the Fed is done raising rates after its meeting next week. Lower interest rates reduce the opportunity cost of holding zero-yielding bullion. Initial resistance is $1987/4, support around $1960.

Day Ahead – Market ebbs and flows

The disinflation theme has been prominent over the last week since US CPI dropped more than expected. Other countries have joined in the narrative with this week’s UK data to the fore. But this is never a straight-line story so we should expect bumps in the road.

US jobs data yesterday hit its lowest level since mid-May. This signals continued labour market tightness. “Peak inflation” might well be behind us. But the key question is around the speed of disinflation. Changing policy responses by the Fed and other central banks may be slower than expected.

Chart of the Day – Nasdaq offs its highs

The Nasdaq Composite tumbled yesterday as earnings disappointed from Tesla and Netflix. We also had better economic data, which indicated a still-strong labour market. In addition, TSMC, the world’s biggest semiconductor maker, lowered its outlook for this year. It shook sentiment by saying that enthusiasm about AI might not compensate for the overall slowdown in global demand.

Big tech companies have underpinned much of this year’s rally on Wall Street. AI mania has driven stocks while hopes are high that global interest rates will not increase much further. The wider market ex-tech would be closer to flat on the year. Technically, we have been overbought for a period of time, so a pullback was to be expected. Resistance is this week’s top at 15,932 and then 16,000. Initial support is 15,411 and below around 15,000.