June has seen markets adjusting to the next page in the central banker’s playbook to combat sticky and stubborn inflation as broader economies remain relatively resilient. Headline CPI rates are coming down, but the core prints, which exclude volatile food and energy prices, are proving more difficult to tame. In the US, low unemployment rates have allowed consumers and the economy to withstand the most aggressive tightening cycle in recent memory. This ultimately means rate cuts have been priced out for this year. In addition, expectations of higher rates for longer have been revised, especially Stateside as the economy continues to confound the recession-callers.

While the dollar has tried to rebound in the second half of the month against European currencies, it has stayed bid against those countries with divergent, more dovish monetary policies. US stock markets have continued to outperform their peers, fuelled by the ongoing rally in tech megacaps and tailwinds from AI. The US market is made up of over 30% of these types of companies, whereas European markets have around a 7% tech concentration. Certainly, if we get some selling in this froth in US markets, then this outperformance could be at risk.

Gold has floundered in this “higher rates for longer” environment after breaking down from its four-week range seen from mid-May. Recent strength in the greenback allied to much higher short-term Treasury yields have been a pretty toxic mix for gold bugs, as we highlighted in our last monthly review. It seems the dollar will only turn decisively lower on the back of much softer US inflation and jobs data. For the time being, upside data surprises have been a key theme.

Major events of the month, in numbers:

*6.25% UK Rates: The peak terminal rate in the UK has soared in recent weeks above 6% as ugly inflation readings continue to plague the Bank of England. A surprise 50bp rate hike took the bank rate to 5% and signalled the MPC’s urgency to combat the scourge of the economy. This came a day after core CPI rose to a 31-year high in May at 7.1%. Money markets currently price in around 116bps of additional rate increases. Can the domestic economy stomach this amount of policy tightening or will falling headline CPI assuage the hawks? GBP/USD made 14-month highs but has given back some gains on dollar strength.

* 145.07 USD/JPY: The dollar has performed strongly against the low-yielding yen, climbing over 3.5% for a third straight month of gains. A still hawkish FOMC contrasts sharply with the BoJ who see their elevated inflation story as temporary. This policy divergence has led to big bond yield differentials. It has pushed the major to seven-month lows and towards the previous intervention level around 145 seen last autumn. We’ve had some verbal jawboning from the Japanese authorities. It is likely that only a shift in either Japanese or US monetary policies will change this long-term trend.

*15,284 Nasdaq 100: The tech-laden US equity index has gained another near-5% in June to hit highs last seen in January. This means its year-to-date gains are a staggering 37% which means it is on track for its best first half on record. AI “mania” continues to see strong gains in a handful of high-growth companies which is steering broader markets higher as well. Apple’s recent record close puts it in sight of a closing $3 trillion market cap. The stock has jumped 46% in 2023 with buyers drawn to stable cash flows and a fortress balance sheet. Nvidia is the new tech darling as it has become the first chipmaker to be worth over $1 trillion, having surged 185%. But Washington’s escalating effort to curtail Chinese access to chips could be a new flashpoint to watch out for.