Headlines

* FOMC minutes revealed some Fed officials supported raising rates in June

* USs firms on rate hike views, yen treads water

* NFP payrolls may overstate US jobs gains suggest some Fed officials  

* Stocks slide, US yields climb amid hawkish Fed, China tensions  

FX: USD pushed higher for a third straight day. The near-term high is at 103.54 on the DXY. The FOMC minutes and comments form the Fed’s Williams indicated more hikes are definitely on the way.  The 2-year yield looks like it is breaking higher after bullish consolidation. The key level is 5% and the March top at 5.08%. The 10-year yield surged north and is heading to another big psychological level at 4%. Its March highs are around 4.07%.

EUR fell below 1.09 and a 3-week low at 1.0833 earlier today. It is desperately trying to cling to the 50-day SMA at 1.0858. GBP is trading in a narrow range for a third day today between 1.2683 and 1.2739.  USD/JPY has dipped this morning after tracking sideways since last Thursday below 145. AUD snapped its four-day win streak. USD/CAD didn’t roll over but pushed higher above the February low at 1.3262. The mid-April low is at 1.33.

Stocks: US equities retreated after returning from the Fourth of July holiday. Both the S&P 500 and the Dow ended three-day win streaks. Monday’s high at 4456 was last seen in April 2022. The Nasdaq 100’s recent high is at 15,284. Apple has dropped below its all-time high at $194.48. Meta surged to a 52-week high near $300 ahead of the launch of its rival Twitter app.

Asian stocks were mostly lower after the holiday period due to the rising yield environment. The Nikkei 225 slipped below the 33,000 level. The Hang Seng dropped with selling of Hong Kong-listed banks after China’s lenders cut rates for corporate US dollar deposits amid efforts to support the yuan.

US equity futures are in the red. European equity futures are pointing to a lower open (-0.5%). The Euro Stoxx 50 closed down 0.92% yesterday.

Gold spiked up to $1935 yesterday afternoon before closing on its low at $1914. Trading is sideways currently and contained awaiting incoming top tier data today and tomorrow.

Day Ahead – More data and digesting FOMC minutes

The FOMC Minutes provided little in the way of fresh insight but noted some policymakers would have been happy to accept a 25bps hike in June. Market expectations were unchanged more or less with a 25bp rate rise in a few weeks’ time nailed on. There is still only around a 38% chance of another move by November.

 There were also comments from Fed’s Williams that he is not content with where inflation is right now and thinks that they still have more work to do on rates. He added that the June rate pause was the right move, but future hikes are still in play. We get ISM Services data later today. This is important due to the weakness in the manufacturing numbers earlier this week. The key question is whether this sector follows manufacturing lower and into contraction territory below 50.

Chart of the Day – EURUSD tracking just above support

It’s been relatively quiet on the data front in Europe this week. We had downward revisions to the PMI figures highlighting the impending slowdown in Europe. Soft activity has weighed on the euro though last week’s persistent core inflation pressures will keep the ECB in rate hike mode. We note that three-year inflation expectations are stuck around 2.5% so above the bank’s 2% target.

There is at least one more increase priced in and another 25bp move in September is a major risk. Market pricing currently embeds two hikes by year end. The world’s most popular currency pair is trading around the 50-day SMA at 1.0858. Just below here is the 100-day at 1.0824. If we lose this support, then 1.08 comes into. Bulls needs to make gains through 1.0933 to retest 1.10 and above.