Stocks dip, USD ticks up on hawkish Fedspeak

Headlines

* Yields rise on comments from Fed’s Williams about a rate hike

* ECB clear on June rate cut but views diverge on July

* US dollar modestly firmer after strong data, Fed comments

* S&P 500 wavers as it tries to recover from losing streak

FX: USD turned higher through the session after dipping initially. US Treasury yields led the advance as the 2-year touched 4.99%. The US Treasury issued a joint statement with South Korea and Japan which acknowledged the “serious concerns” of those two countries about the recent declines in their currencies. G7 finance ministers also reiterated that disorderly FX moves can be harmful. This suggest broader international concerns over the USD’s rise may be strengthening. The Fed’s Williams opened up a door to potential rate hikes, even though they are not his current base case.

EUR turned lower after printing a high at 1.0690. A hawkish ECB official questioned a June rate cut citing some caveats. But it looks like a done deal currently and priced as such. Major support is now around 1.06.

GBP printed a top at 1.2484 before sellers moved cable lower on little fresh news. UK retail sales are out later today. This week’s cycle low is at 1.2405.

USD/JPY dropped below 154 before the 10-year US Treasury yield picked up above 4.60%. The BoJ meeting is next week, with CPI data out today.

AUD popped up to 0.6456 before falling towards 0.64. Employment data was mixed with the jobless rate remaining low. USD/CAD made back losses though modestly better risk appetite was initially a CAD positive. That said, wide US/Canada short-term spreads should keep the greenback well-supported on dips.

Stocks: US equities were subdued unwinding initial gains on hawkish Fedspeak. The broad-based benchmark S&P 500 finished 0.22% lower at 5011. This was the fifth straight day of declines. That hasn’t been seen since late October 2023. The tech-dominated Nasdaq 100 lost 0.57% to close at 17,394. The Dow Jones outperformed again, up 0.06% to settle at 37,775. Tech led the drop with TSMC selling off after its earnings report trimmed the company’s outlook for the semiconductor industry as a whole. That was in spite of decent quarterly figures and its own guidance. Tesla closed below long-term support at $152.37. Google said it planned to share more AI progress on its earnings calls next Thursday.

Asian Stocks: APAC futures are in the red. Markets traded mostly higher after shrugging off US tech weakness. The Nikkei 225 pushed above the 38k level. The ASX 200 was helped by BHP’s decent quarterly production update. China indices were better bid, but the upside was capped by US-Sino frictions. US President Biden called for an increase in tariffs on Chinese metals.

Gold hovered above $2360 as yields and the dollar moved higher. Ongoing Middle East turmoil is keeping an underlying bid to the precious metal.

Day Ahead – Japan CPI, UK Retail Sales

Japan inflation is likely to be propped up by the weaker yen and higher commodity prices. The overall figure is forecast to remain at 2.8%. Core is expected to rise 2.6% from 2.8% prior. The easing of the latter is due to high base effects from last year which are seen persisting so bringing down CPI going forward. The BoJ is likely to revise up its inflation forecast at next week’s meeting, though no change to policy is expected.

UK retail sales will be the final data point of a busy week for UK releases. Inflation has been sticky, especially services prices while wages stayed elevated. Retail sales are predicted to show no growth, matching the prior print. The early Easter holiday may have brought forward some food sales. But the wet weather probably hurt high street retailers. There’s around 44 bps of rate cuts priced into the UK curve for 2024.