S&P 500 flirts with 5,000 as Nvidia slides

Headlines

* Dollar edges down below 106 from five and a half month highs

* S&P 500 slides for fourth straight loss, Nasdaq and semiconductors drop

* UK CPI at lowest level in two and a half years, services inflation still sticky

* Gold moves off its record close above $2,400 even as yields falls

FX: USD fell for the first time in five sessions after making fresh cycle highs on Tuesday at 106.51. Markets were still digesting Fed Chair Powell’s comments that elevated inflation had not given the Fed greater confidence. That meant rates could remain where they are for as long as needed, as it will take longer to get to target. This all confirmed market doubts about how much the Fed will be able to cut rates his year. And underpins solid support for the dollar unless data turns sharply.

EUR stopped the six-day losing streak. But policy divergence is now the key theme. This was highlighted by Powell’s speech and ECB President Lagarde’s comments that the bank is ready to cuts rates if inflation keeps easing. Support sits just below 1.06. Prices need to hold above 1.07 to slow the downtrend. The final March CPI reading was left unchanged at 2.4%.  

GBP gave up half the gains from most of the day after mildly hotter than expected CPI data. Services inflation came at 6% while core remains above 4%. But sterling was sold later in the day after BoE Governor Bailey said he expects a strong drop in inflation next month. Certainly, helpful base effects should drag the data lower in the months ahead. Support in cable is at 1.2364.

USD/JPY traded in a narrow range not quite beating the high from Tuesday at 154.78. The 10-year Treasury yield fell back after printing multi-month highs on Tuesday at 4.69%.

AUD steadied near the recent low trading just above 0.64. Focus is on today’s jobs data. USD/CAD had a similar trading day holding just below recent highs. Markets are reluctant to fully price a 25bp rate cut in June. BoC Governor Macklem recently noted that BoC/Fed monetary policy can diverge, but there were limits to how far that can go.

Stocks: US equities fell again as tech led the losses. The broad-based benchmark S&P 500 finished 0.58% lower at 5022 for a fourth consecutive down day. The tech-heavy Nasdaq 100 lost 1.24% to close at 17,493. The Dow Jones outperformed down 0.12% to settle at 37,753. It’s the longest losing streak for the S&P 500 since the first week of the year. Chip stocks fell with the semiconductor index down 3.2%. The SOX is now down over 6% on the month after advancing nearly 50% over the past 12 months.

Asian Stocks: APAC futures are mixed. Markets traded mixed after the heavy recent selling. The Nikkei 225 was choppy after mixed trade figures. The ASX 200 was muted after Rio Tinto’s quarterly production update showed a fall in iron output and shipments form a year ago.

Gold printed another modest red candle, even though yields fell. It’s a healthy “pause for breath” though Friday’s spike record high at $2431 does look tough to beat in the near term.

Day Ahead – Australia Jobs

Headline employment is expected to print at around +15k for March while the unemployment rate is seen ticking up two-tenths to 3.9% from the prior 3.7%. That would be more broadly in line with the well-established, gradual uptrend over last year.

The February report showed a surprising surge in job gains of 116.5k, so a correction is expected, with seasonal dynamics expected to fade.  The RBA, like every central bank, are monitoring incoming data intently. But the latest inflation data has been encouraging even though the labour market remains tight.

Chart of the Day – AUD/USD struggling in risk sensitive environment

The risk mood and higher US rates are overshadowing aussie fundamentals at present. That could put the Aussie more at risk of a further decline in the short term than a material rebound. Domestically, inflation could print higher than expected for a couple of months and should make the RBA look relatively hawkish. China’s growth story has marginally also improved of late. That should be a positive theme for the highly exposed AUD.

The major posted a five-month low at 0.6389 on Tuesday. The next bear target is at 0.6338. The previous year-to-date low from mid-February is at 0.6442 which may act as initial resistance. Above here is a major Fib retracement level around 0.65.