Markets track sideways ahead of major risk events

Headlines

* Fed 2024 rate cut expectations fall to lowest since October

* ECB jostling over back-to-back summer cuts has already begun

* Brent crude to remain below $100 a barrel, Goldman Sachs says

* Gold propelled to record peaks by FOMO and central bank buying

FX: USD fell modestly in a narrow range. The greenback only made gains against the low yielders, JPY and CHF. Treasury yields hit fresh highs with the 10-year close to 4.50% before pulling back. It is slightly surprising that the dollar hasn’t seen solid gains after the stellar jobs report.

EUR advanced in quiet trade with eyes on the big risk events taking place from Wednesday with US CPI and then the ECB meeting the following day. No changes are expected at that meeting with a June rate cut virtually fully priced in. A “dovish hold” likely, with changes to the language key for the timing and scope of policy easing.

GBP traded in positive territory above 1.2650, after a couple of whippy days. Prices had dipped below 1.26 on Friday after NFP. There is very little data until Friday’s GDP figures.

USD/JPY hit a high of 151.94 as Treasury yields jumped up earlier in the day. Prices have hovered just below here for some time now. More verbal jawboning by the Japanese authorities about intervention is likely. But much could depend on the odds of a Fed June rate cut. If just two cuts are more likely, the major may break decisively through 152.

AUD was the leader of the pack in a relatively quiet day in FX. Metals remain firm, helping the antipodeans. USD/CAD struggled again to beat the 1.36 resistance zone. It printed at 1.3647 on Friday after disappointing Canada jobs data. But wages remain strong so that means the BoC will keep rates on hold, with perhaps not even any concession to rate cut chatter at its meeting on Wednesday.

Stocks: US equities were essentially unchanged in a very tight range. The broad-based benchmark S&P 500 finished 0.04% lower at 5202. The tech-laden Nasdaq 100 lost 0.05% to close at 18,100. The Dow Jones settled 0.03% down at 38,892. Tesla rebounded after CEO Musk said the EV-maker will unveil its Robotaxi in August. Real Estate was the leading sector while energy was the major laggard as Brent crude closed down from a five-month high.

Asian Stocks: APAC futures are mildly in the green. Markets traded mixed as traders digested the strong NFP data. The Nikkei 225 outperformed helped by the recent yen weakness. The Hang Seng and Shanghai Comp swung between gains and losses with some mild encouragement from Yellen’s meetings in China.

Gold hit more record highs, at $2354 on FOMO and momentum trading. The Middle East risk premium eased as Israel said it would remove some troops from Gaza. Central bank buying underpins long-term support for the precious metal.

Day Ahead – Markets figuring out NFP price action

The dollar has not responded to more strong employment data which is perplexing many. Adjustments to rate cut bets have turned significantly since Friday’s stellar NFP report. Odds were less than a 50% chance of a rate cut in June, while there are now only around 63bps of easing priced in for the year.

Is the de-dollarisation trend making a mark? Gold’s incredible bull run has put the PboC in the spotlight as a very strong consistent buyer of the precious metal. It is known to want to diversify away from the USD. But perhaps, there is another reason due to the job figures. There remains a noticeable difference between official data and what businesses are telling survey compilers with layoff notices and reports. ISM employment components are in contraction territory, the National Federation of Independent Business (NFIB) hiring intentions survey are at the lowest level since May 2020 and job lay-off announcements have been on the rise.

Chart of the Day – Tesla bounces just above strong support

Tesla rebounded strongly yesterday on the Robotaxi announcement. This was after reports it was going to scrap its low-cost EV project that saw the stock end last week down over 6%. The price has been in the doldrums this year with a recent disastrous Q1 delivery report adding to the bears case. Chinese competition, falling EV demand and questionable strategy are all other reasons as to why the stock has been hit.

Initial support sits at $160.51 with long-term support below at $152.37. A bounce needs to get back above the long-term down trendline. The March swing high at $184.25 sits above.

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