Headlines

*Stocks mixed as Asia rises, disappointing tech earnings hit US futures

*Bank of Canada expected to hike rates for sixth straight time

*Australia inflation rises to 32-year high, sounds rate alarms

*Dollar wallows as speculation builds for less hawkish Fed

FX: USD traded poorly, dropping 0.9% to 110.95. US data pulled rates lower boosting equities and overall risk sentiment. The 50-day SMA on the DXY is initial support at 110.79. Big moves were seen in bond markets with yields falling sharply.

GBP/USD gained the most as Rishi Sunak was formally announced as the UK’s next PM. The intraday high was 114.99 with support is 1.1409 and then the 50-day SMA at 1.1386. EUR/USD traded to an intraday high of 0.9977 and closed up 0.9%. It is potentially breaking out of the long-term bear channel. USD/JPY ended lower at 147.93. The major remains above previous long-term highs at 147.67.

AUD/USD ended higher and looks to be pushing to new cycle highs above 0.64. Gold traded through $1650 but faces short-term resistance at $1668.

Stocks: US equities closed higher for a third consecutive session. Positive earnings reports from large financial companies and slowing home price growth all helped the dovish pivot theme. The S&P 500 gained 1.63%, the Nasdaq 100 finished 2.1% higher and the Dow rose 1.07%. The close in the latter was the highest in six weeks. These indices are up over 10% from their lows two weeks ago.

Asian stocks traded higher across the board following decent performance in the US indices.The Hang Seng index is higher following global peers. The Nikkei topped 27,500 with gains led by pharma and manufacturing. The ASX 200 saw gains capped by hotter-than-expected CPI data. This saw a modest uptick in RBA pricing for a 50bp hike at its next meeting. S&P 500 futures are trading heavily in the red following disappointing after-market earnings reports by Microsoft and Alphabet. European equities are mixed after the cash markets closed higher by 1.6%.

Event Takeaway – Poor post-market earnings and US data

It seems bad news is good news. Softer US data in the form of worse-than-expected consumer confidence and US house price data kickstarted strong buying in stocks as bond yields fell sharply. The housing data is getting more attention as the surge in mortgage rates drags the housing market lower. This may in time contribute to higher unemployment rates and further adds to the idea that the Fed will slow its tightening pace.

That said, numerous US companies, from tech giants Alphabet and Microsoft to GE and toymaker Mattel reported slowdowns in growth fanning recession fears. Alphabet guidance missed expectations and Microsoft slumped after advertising revenue printed below forecasts. The strong dollar is hurting overseas profits of big companies while rampant inflation has forced higher product prices as consumers tighten their belts.

Chart of the Day – USD/CAD trying to go lower

The Bank of Canada is widely expected to deliver a sixth straight rate rise. Markets price in a 75bp hike while analysts are torn between a 50bp and 75bp move. Inflation is still elevated, and employment has picked up again. But house prices are turning lower and the BoC business survey was downbeat. Guidance will be key and whether the bank is preparing to lower the pace of hikes. This should weigh on CAD, especially against currencies with central banks still in more aggressive tightening mode like GBP and EUR.

Last Friday saw a big bearish engulfing candle with a new high and lower close in USD/CAD. This suggests some downside risk in the short run. Support is 1.36 and then 1.35. Resistance is the 21-day SMA at 1.3708. Of course, much will depend on the BoC and if they guide lower.