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Tech leads stocks higher, ECB hints at June rate cut

Vantage Updated Updated Thu, 2024 April 11 08:54


* ECB holds rates and points to first cut in June, some see July pause

* US producer prices rise but show some relief in key categories

* Gold hits more record highs at $2374 on softer price data

* EUR/USD closes in on 2024 lows near 1.07, USD/JPY rises to 153.31

FX: USD climbed higher again after its stellar, breakout day yesterday. The DXY hit a near five-month top at 105.52 as Treasury yields moved up. Jobless claims fell to a five-week low reinforcing labour market strength. However, the March producer price index rose less than expected. That could push the Fed’s favoured inflation gauge, core PCE, lower.

EUR sold off for a second day as the ECB opened up the door to a June rate cut. The statement language was changed and explicitly talked about reducing the current level of policy restriction. Subdued growth and faster-than-expected falls in inflation are driving the dovish stance. Market pricing was actually little changed with an 84% chance of June move, and just a 25% chance of a second cut in July.  The February swing low is at 1.0694.

GBP declined initially again with all eyes on 1.25 December lows. A weak close on the week below here could see a deeper drop to 1.2350. But buyers stepped in late on. An MPC official cautioned against early rate cuts. This is seen in pricing with a move not fully priced until September. GDP is released today.  

USD/JPY moved modestly higher, building on the CPI breakout. Prices remain above 153 as US Treasury yields continue to go north. We had some inevitable jawboning from Japanese officials, but nothing new.

AUD tried to steady, supported by higher local bond yields. The 0.65 psychological barrier could offer support. USD/CAD built on its burst higher yesterday, pushing above 1.37 before paring gains. The cautious sounding BoC is not helping the loonie.

Stocks: US equities rebounded after near 1% slide the previous day as tech led the way. The broad-based benchmark S&P 500 finished 0.74% higher at 5199. The tech-laden Nasdaq 100 surged 1.65% to close at 18,307. The Dow Jones lost 0.01% at 38,459 and lower for a fourth straight day. The Vix, Wall Street’s fear gauge, closed below 15. Tech giants dominated gains with Apple rising by 4.33%, Nvidia by 4.11% and Broadcom by 4.54%. But Chevron, Boeing and Verizon weighed on the Dow Jones.

Asian Stocks: APAC futures are mixed. Markets traded softer after the hot US CPI data and Fed rate cut bets being unwound. The Nikkei 225 held onto 39,000 on currency weakness. The ASX 200 sold off as tech and rate-sensitive sectors struggled amid higher yields. The Shanghai Comp bucked the trend on weaker China CPI and persistent PPI deflation kept more support measures on the table.

Gold prices firmed some more after softer-than-expected US producer price data. Persistent geopolitical worries are adding to the precious metal’s lustre. Bullion hit a record high for an eighth straight session on Tuesday.

Day Ahead – UK GDP

UK monthly GDP data for February will be released. The market expects a small uptick of 0.1% for February, which is down from the 0.2% increase in January. But this should add to the view that the UK’s flirtation with recession was only brief.

Service sector growth is expected to be tepid, while an improvement in industrial production is expected at only 0.1%. The former could lead to some fears that the UK consumer is struggling. On the one hand this could make future economic growth less certain. The flip side could make the BoE veer towards cutting interest rates sooner rather than later. Focus will quickly turn to next week’s CPI and wages data.

Chart of the Day – Dow suffering below 50-day SMA

Earnings season kicks off today when JP Morgan Chase, Citigroup and Wells Fargo are set to report results. S&P 500 companies are expected to post a 3.2% earnings growth, according to FactSet. That would mark the third straight quarter of y/y earnings growth for the index. Investors are counting on robust corporate profits this year to support rising valuations as the stock market has rallied to record highs. The main US indices’ price-to-earnings ratio have been hovering at its highest in about two years.

Technically, the Dow broke down sharply last Thursday out of this year’s bull channel. Prices recently dropped below the 50-day SMA at 38,894 and yesterday tapped a major Fib level of the 2024 rally at 38,171. The 38,000 psychological level beckons if we lose that support.