Headlines

* US stocks reverse opening strength finishing in the red, Disney mixed

* Yen weakens after dovish comments from BoJ’s Uchida

* US 10-year Treasury yield rises to 3.94%, back to Friday’s levels

* Bank of Canada worried jobs outlook may delay consumer rebound

FX: USD was in the green for a second straight day. But that was largely due to yen weakness after dovish BoJ comments overnight. Weekly initial jobless and continuing claims data out of the US will be a focus today. US CPI also looms large next week. The next upside level is 103.56, the 50% retracement level of this year’s move higher.

EUR traded relatively flat as prices consolidated above 1.09 but off Monday’s spike high at 1.1008. Broader technicals remain relatively bullish. There’s around 68bps of easing priced in for 2024 with three ECB meetings until year end. Is this pricing too much considering recent hotter than expected inflation figures?

GBP found buyers at the 100-day SMA at 1.2682 though prices closed near the lows of the day which is typically a bearish sign. There is very little news flow out of the UK.

USD/JPY moved higher by over 2% as the yen struggled for a second day. This was after BoJ Deputy Governor Uchida suggested the bank would maintain policy settings “for the time being” given volatile market conditions. This reined in expectations for more BoJ hikes this year. Calmer equity markets also allowed US yields to push higher.

AUD gained encore as it tried to get above a major Fib level at 0.6566. The 200-day SMA sits at 0.6593. USD/CAD fell for a third day and neared the 50-day SMA at 1.3717. Improving risk sentiment is helping the pro-cyclical currencies. NZD outperformed on better jobs data as the unemployment rate rose less than forecast. Next week’s rate cut odds have been virtually halved from being almost fully priced in before the data.

US Stocks: US markets initially looked to moving higher but optimism faded through the session. The benchmark S&P 500 closed 0.77% lower at 5,200. The tech-dominated Nasdaq 100 finished down by 1.16% at 17,867. The Dow Jones settled 0.6% lower at 38,763. The VIX, Wall Street’s fear gauge, closed very marginally higher at 27. Only four sectors were positive with utilities and energy leading the gains. Weight-loss drugmaker, Eli Lilly fell after Europe’s most valuable company, Novo Nordisk, missed estimates. The company’s fortunes – and shareholder returns – have soared with the huge success of its weight-loss drug Wegovy. Its market value has risen by $380 billion since it launched the anti-obesity injection three years ago, to $572 billion. Walt Disney fell over 4.4% to lows seen late last year despite a blowout report, as it may have to pay $5bn more for its Hulu stake,

Asian stock futures are mixed. Asian stocks carried on bouncing though mixed China trade data capped more upside. The ASX 200 was in the green, but the China data held back buyers. The Nikkei 225 initially dipped but got a boost from less hawkish comments from BoJ Deputy governor Uchida. The Hang Seng and Shanghai Composite saw gains, but mainland advances were limited.

Gold dipped as the dollar and yields picked up again from Monday’s spike lows.

Chart of the Day – S&P 500 hits key resistance levels

The S&P 500 is still below over 8% from its recent peak, equating to a decent correction. Whether the carry trade shake out may have further to run is a key question. Some are citing the still significant short JPY positioning in the market and perhaps still elevated earnings expectations in parts of the stock market.  

For the benchmark index, prices have bounced back from just above a minor Fib level at 5106.81 on Monday. But the blue-chip market is trading pulled back after hitting the 100-day SMA at 5308 and the halfway point of the April to july top at 5311. Support at 5227 was also broken late on with bears eyeing up Monday’s lows again.