Headlines

* S&P 500 starts a new bull market as big tech lifts stocks   

* China deflation risk fuels calls for interest rate cuts

* Australia’s recession risk spikes as RBA peak rate seen at 4.35%  

* GBP/JPY jumps to highest level since 2016 near 175

FX: USD fell sharply against all its G10 peers. The surprise jump in the weekly initial jobless claims data to its highest since October 2021 was one catalyst. It helped cool Fed rate expectations. The DXY closed down 0.7% to the bottom of its recent range and on its low at 103.31.  The 2-year yield fell back near to 4.5%. The 10-year yield popped up to 3.82% before settling at 3.72%.

EUR enjoyed its biggest one-day gain since late March. The world’s most popular currency pair closed at 1.0781 near two-week highs. GBP jumped 0.98% to 1.2561 on a good day for cyclical currencies. This level was last seen in early May. USD/JPY finished below 139 but is bid above there this morning. BoJ Governor Ueda reiterated that the bank will patiently maintain current monetary policy easing.  AUD made back most of its losses from Wednesday. The aussie finished near its highs at 0.6715. USD/CAD printed an “inside day” after the BoC sell-off on the surprise rate hike. Stubborn inflation will most likely cause the BoC to raise rates again in July.

Stocks: US equities ended higher as the market consolidated recent gains.  The blue-chip S&P 500 traded 0.62% higher. It closed at 4293, its highest closing level this year and into bull market territory. That means it’s up 20% from its October lows. The tech-heavy Nasdaq outperformed climbing 1.27%. The Dow gained 0.5%. The Russell 2000 underperformed heavily, losing 0.41% as gains in tech took centre stage. The VIX dropped again to new lows at 13.65.  

Asian stocks traded mostly higher after Wall Street’s positive session. The Nikkei 225 led gains and moved back above 32,000. The Hang Seng was muted after weaker-than-expected Chinese inflation data pointed to a bumpy recovery.  

US equity futures are pointing to a strong open and potential new cycle highs.  European equity futures are indicating a better open (+0.1%). The Euro Stoxx 50 closed up 0.1% yesterday.

Gold bounced strongly off the 100-day SMA at $1941. As we said yesterday, this has acted as good support over the last few weeks and previously in March. The February high is at $1959. The top of the recent range sits above around $1985.

Day ahead – Price action indecisive amid thin volumes

As is often the way ahead of major risk events, markets oscillate on different news and drivers. But price action is choppy while markets try and figure out reasons why they are moving this way and that. Human beings love stories and themes they can relate to and reason why participants are buying and selling. Ultimately, it is just noise ahead of the main attractions. In our case the US CPI data on Tuesday and then a slew of central bank meetings next week including the FOMC, ECB and BoJ.

It could not get much bigger. That said, what policymakers do is pretty much baked in so their guidance and words will be key for policy, rates and FX going forward. The dollar has lost ground after the “doji” weekly candle last week. Stocks look like they are consolidating in bullish mode before an upside break. Gold is steady holding strong support.

Chart of the Day – GBP/JPY hits 175

It’s been a light data and news week for GBP. But sentiment has been relatively positive for cyclical currencies with the surprise rate hikes by both the RBA and Boc helping. More than 100bps of rate hikes are still priced in to UK money markets. Nest Tuesday sees wage and jobs numbers out of the UK, ahead of the BoE meeting the following week. Indeed, we get the all-important UK CPI data one day before the MPC sit down. The still-dovish BoJ stand in stark contrast to the policy tightening of the BoE.

This has caused GBP/JPY to move ever higher recently. The pair is up nine weeks in the last eleven. After sticking above the April 2022 high at 168.43 in May, the October top at 172.12 offered limited resistance. It looks like we are moving higher again after recent bullish consolidation around 174. The Febraury 2016 top is 175.01 with some summer 2014 resistance in this area too. Big round numbers are targets above.