Headlines

*Major bank earnings come in mixed, Apple to slow hiring and spending

*Russian gas supply halt risks 1.5% cut to EU’s GDP in worst case

*Dollar retreats as jumbo rate hike bets ease back

*Asian shares drift lower after Wall Street about-turn

USD extended its losses from last week. The DXY traded lower by 0.64% to close at 107.36 after dipping to a low at 106.89. EUR traded to an intraday high at 1.0201 before closing at 1.0143. GBP popped up to 1.2033 but now trades back near the mid-June low at 1.1933. USD/JPY trades off Friday’s high at 139.38 around 138. AUD and NZD continue to rebound for a third day this morning. CAD is also better bid as oil climbs and commodities firm.

US equities closed lower after initially starting quite brightly to kick off the week. Better than expected Goldman earnings were trumped by the downbeat Apple news. The S&P500 lost 0.84%, the Nasdaq dropped 0.81% and the Dow fell 0.69%. Nine of the eleven major sectors lost ground on the S&P500. Healthcare and utilities suffered the biggest falls while energy was the largest outperformer. Asian shares have slipped this morning, giving back some of yesterday’s gains. US futures are very modestly in the green today.

Market Thoughts – USD eases off highs and 100bp hike

The dollar has added to some of the negative price pressures from the end of last week. The market had got excited by a jumbo 100bp Fed rate hike at its upcoming meeting after the US CPI beat. This was given as high as an 80% chance intraday last week. But Fed Fund futures now see around a 30% probability, with 75bps the most likely move.

We are currently in the blackout period for Fed speakers as we near next Wednesday’s meeting. Last week, some of the most hawkish FOMC officials backed away from a 1% hike saying that was not their base case. A more positive risk mood did not help the bid for the dollar yesterday, though this has abated this morning. Q2 corporate earnings are worth watching, with Netflix later today and big tech next week. Any news on the Nord Stream re-opening will also be critical for risk assets and currencies.

Chart of the Day – EUR/GBP tracking sideways

It’s a data heavy week for sterling, as is normally the way in the middle of the month. We get employment data out today, followed by the CPI release tomorrow. There are also confidence surveys and retail sales, plus PMIs on Friday. Political noise may grow louder too with a leading candidate in the contest to be the next PM potentially threatening the independence of the Bank of England. The euro has that Nord Stream news and the ECB meeting to contend with this week.

GBP is expected to strengthen on the back of solid data. Continued tightness is forecast in the jobs figures, while another steep inflation number should keep rate hike bets elevated. Chances of 50bp rate hike at the 4 August BoE meeting are rising. EUR/GBP is quite messy truth be told. It topped out in mid-June at 0.8721. The pair is now trading below the late March high at 0.8512. Resistance above here is the 50-day SMA at 0.8513. Support come in around 0.8450 and then last week’s low at 0.8403.