Stocks up, USD and yields down again on poor data

Headlines

* House Democrats consider demanding Biden withdraw from race

* Dollar tumbles after weak data, Biden rumour, yen hits 38-year low

* Stocks break to the upside and more record highs

* Gold surges as Treasury yields fall sharply back to support

FX: USD sold off for a fifth straight day; that was last seen in early March. The Dollar Index dipped below long-term trendline support and the 50-day SMA at 105.15 before clawing back some losses. The ISM Services PMI data was awful with the headline falling into contraction territory and its lowest print in four years. Business activity and new orders slumped, though prices slid too. Weekly initial jobless claims also continued their upward trend.

EUR popped higher to 1.0816 and above a few key resistance levels before paring gains. There was mixed PMI data with Germany missing but the region and France beating estimates.

GBP strengthened on the back of dollar weakness. The high of the day was 1.2777 with bulls eyeing up strong resistance around 1.28. Anything but a huge historic landslide victory for Labour will be seen as a surprise.

USD/JPY made more new multi-decade highs as the major hit 161.95 for the first time since December 1986. The yen also dropped to an all-time low versus the euro at 174.48, beating highs form July 2008. We’re all on “yentervention” alert, though lines in the sand are being drawn higher up in the major.

AUD finally tried to burst higher out of the recent two-month range. We have been waiting for this!  Prices made a new cycle high at 0.6733, a level last seen in early January. CAD dropped below the 50-day SMA at 1.3684 with prices falling to a low at 1.3617. Next support is a Fib level at 1.3594, where the 200-day SMA also resides.

US Stocks: Equity indices hit more record highs led by tech, though stocks were choppier. The S&P 500 added 0.51% to finish at 5,537. The Nasdaq 100 settled up 0.87% at 20,187. The Dow finished flat at 39,308. Three sectors were in the red with healthcare by far the weakest. Amazon fell over 1% as Bloomberg ran a story that Jeff Bezos is set to sell $5bn of stock, after the shares hit a record high on Tuesday. Tesla built on its 10% gain on Tuesday with another surge higher of 6.5%. It won’t surprise you to hear that the share price is now severely overbought. Media stories said that the EU inspection of Tesla’s China factories could result in the EV-maker getting lower duty than an average of 21% on Chinese makers.

Asian stock futures are in the green. Asian stocks were positive though gains were capped on weak China Caixin PIM data. The ASX 200 was supported by better than forecast retail sales and strength in the commodity sector. The Nikkei 225 pushed higher beyond 40,000 with yen weakness helping. The Hang Seng neared 18,000 again. The Shanghai Composite struggled amid trade frictions.

Gold finally moved higher and above its 50-day SMA at $2338. Falling yields and the dollar helped bugs add to the bid.  

Day Ahead – UK election

It is election day in the UK, and the most recent BBC poll tracker puts Labour at 39%, Conservatives at 21%, Reform UK at 17% and Liberal Democrats at 11%. This is a small but noticeable narrowing with the Conservatives gaining a little support at the expense of Labour. But, there is very little doubt about a Labour landslide win, so the election should not be a huge event for financial markets. A stronger than expected result by populist/hard-Brexiteer Reform UK is the most obvious risk for a sell-off in GBP assets.

Even then, the chances of the election result shifting the Bank of England policy direction are very low. We have not heard from BoE official due to their election purdah, so their commentary will be welcome by markets. The pound should continue to rely on key domestic data, plus US macro data and EU politics. The domestic figures include June CPI and wage data on 17 and 18 July. That comes ahead of the 1 August BoE meeting. Markets currently see a near coin toss chance for a rate cut.

Chart of the day  – Gold breaking higher?

Gold has been fairly uneventful recently with prices tracking around its 50-day SMA, currently at $2338. The RSI during this time has been consistently around 50, reinforcing the neutral momentum. Interestingly, bond yields haven’t really gone anywhere either, though they have been volatile with the 10-year trading from 4.5% to 4.2%. The dollar has appreciated but a further sell-off from recent highs could now be the catalyst gold bugs need to see more upside.

The World Gold Council in its half-yearly report expects bullion to remain range-bound over the second half of 2024. It says falling interest rates are likely to continue supporting prices as higher investment flows towards gold as an inflation hedge. There might also be hedging versus ongoing geopolitical tensions. However, the council did warn of a drop in central bank demand as a downside risk. The next upside level is the 50% mark of the May low/high move at $2363. Strong support at $2277.

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