Headlines

* GBP slumps after June core inflation cools, terminal rate now below 6%

* Netflix plummets after hours on dismal revenues and guidance

* Tesla falls after earnings call as margins and free cash flow disappoint

* BoJ watchers see Ueda standing pat now, tweaking YCC by October

FX: USD edged off its lows with last week’s sell-off due some sort of rebound. But the DXY is still not able to bounce much above 100 so far. The February low at 100.82 should be strong resistance above here. Support sits at recent lows around 99.57/8. The yuan is pressuring USD this morning after a much firmer-than-expected reference rate by the PBoC.

The 2-year yield looks like it could break to the upside if it can advance beyond 4.80%. It has dipped during the day but closed near the highs all this week. The benchmark 10-year yield continues to battle with long-term trendline resistance/support.

EUR closed lower at 1.1198.  Tuesday’s cycle top was at 1.1275. Final Eurozone CPI data for June showed a small upward revision to the core inflation in the year (to 5.5%, from the preliminary 5.4%). Further improvement in core measures may be limited in the coming months. A July ECB hike is nailed on, with all the debate about a further tightening move after the summer.

GBP plummeted after the softer than expected CPI data. It posted a low at 1.2868, just above major support from the June high at 1.2848. But sterling bounced to close at 1.2938.

USD/JPY closed at a one-week high of 139.67. Ueda’s dovish comments have seen consensus push back tweaks to the BoJ’s policy to later in the year. Japan posted its first trade surplus in 23 months.

AUD has jumped this morning and reclaimed yesterday’s losses. Aussie employment rose further as the labour market stayed strong. USD/CAD edged lower as it looks to make its way to 1.31. On reflection, the CPI data was mixed as core trends are still only receding slowly.

Stocks: US equities extended gains yesterday ahead of Tesla and Netflix results after the close. The benchmark S&P 500 pared an early advance to finish with a 0.2% gain. The tech-heavy Nasdaq settled very modestly in the green. The Dow climbed 0.3% closing above 35,000 for the first time since last April. It was its eight straight day of gains and longest winning streak since September 2019. Apple surged to all-time highs after a report that it was racing to develop its own generative AI tools to catch OpenAI, but the details were thin. Tesla posted record quarterly revenues but Q2 margin fell. The stock is down 4% after hours as Elon Musk failed to deliver Cybertruck delivery dates. Vehicle production would slow during Q3 due to factory shutdowns for improvements. Netflix tanked 8% lower after hours despite blowout subscriber growth. But guidance was weak with Q3 revenue missing estimates.

Asian stocks were mixed, even after the choppy performance from Wall Street. The Nikkei 225 underperformed after the latest trade data. The Hang Seng was lifted by early strength in the property sector.

US equity futures are lower amid pressure from Tesla and Netflix. European equity futures are pointing to a slightly softer open. The Euro Stoxx 50 closed down 0.2% yesterday.

Gold made a move above resistance from the May and June highs around $1984 earlier this morning. A struggling dollar is giving bugs a lift.

Data Breakdown– Good new on UK CPI, bad news for GBP

We hyped up yesterday’s UK June inflation report for good reason. A “huge input for the Bank of England’s August rate hike decision”. In the event we got a welcome surprise set of softer data. The core fell more than expected and all-important services inflation too. Of course, one report doesn’t make a trend, though policymakers will be relieved if the general direction of travel is now down.

This means sterling’s strong outperformance is at risk if UK disinflation is in play and BoE rate expectations are pared back. Close to 140bps of rate hikes were priced in at the start of July. There are now around 75bps of rises by December. That would mean a peak rate of 5.75%. That said, we note that swaps are still pricing in a fair bit more than a 25bp hike at the August meeting. As per above, 1.2848 is strong support from the June highs in GBP/USD.

Chart of the Day – FTSE 100 jumps on lower rate hopes

We wrote a few weeks ago about how the UK’s FTSE 100 had lagged other major indices. This was mainly due to its composition of rate sensitive companies and the lack of tech stocks. But yesterday, it enjoyed its biggest one-day gain since November. Property companies especially surged after the cooler CPI data and hopes that rates could peak lower.

After falling to a low of 7229 earlier this month, the FTSE 100 has rebounded strongly. Yesterday’s move took it through the 200-day SMA at 7564. Today is seeing another push higher towards the 100-day SMA at 7645. The midway point of this year’s low/high range is at 7626.