Stocks hit again as USD finds a bid

Headlines

* Top Democrats now believe Biden will exit US Presidential election bid

* ECB’s Lagarde says September rate meeting will be “wide open”

* Nasdaq falls for second day as tech exit continues

* Gold falls for second day as bond yields find a rare bid

FX: USD reversed almost all the prior day’s losses trying to find support around 104.26. The 200-day SMA sits at 104.39. Risk off sentiment kicked off on Biden’s re-election chances fading with a potential exit touted this weekend. Weekly initial jobless claims, for the week that coincides with NFP, rose and saw some dollar selling. Friday is the final day of Fedspeak ahead of the blackout. Most significant has probably been the Fed’s Waller, a known hawk, who gave a clear hint that a September rate cut is likely.

EUR fell back losing all the gains from the day before after failing at resistance around 1.0933. The ECB meeting offered market very little new, with something for the hawks and doves. A September rate cut is seen as highly likely by money markets. But after that is the key question with one more cut only seen as feasible, according to a Bloomberg story. There are around 46bps of cuts priced for the rest of 2024.

GBP finally eased overbought conditions after hitting one-year highs above 1.30 earlier in the week. Wage growth was in line with estimates but still sticky, unemployment steady at 4.4%, both hardly endorsing an August rate cut. There are around 12bps priced in.

USD/JPY dipped to 155.36 before yields found a bid. The major settled very close to its highs at 157.35.

AUD fell for a fourth straight day. The jobs growth data came in better than forecast, though there was an unexpected uptick in the unemployment rate. Strong data may keep the RBA sidelined for some time.

US Stocks: US markets gapped lower with some buying only seen in the last hour of the session. The benchmark S&P 500 closed 0.78% lower at 5,544. The tech dominated Nasdaq 100 finished down 0.48% at 19,705. The Dow Jones closed 1.29% lower at 40,665.

Energy was the only winning sector with healthcare, consumer discretionary, financials and materials all down over 1%. Earlier in the day, TSMC had topped sales and EPS expectations, alongside raising guidance. Netflix reported after the close and beat estimates as ad-supported memberships rose 34%. But revenue guidance disappointed and the stock was mixed after hours.

Asian stock futures are in the red. Asian stocks followed the negative mood Stateside after tech selling weighed, alongside tariff fears. The ASX 200 saw tech and telecom drag, but there was mixed jobs data.  The Nikkei 225 underperformed amid yen strength and tech struggling. The Hang Seng and Shanghai Composite were mixed and rangebound with trade frictions ever present.

Gold sold off for a second day, having made fresh highs at $2483. The May top was at $2450. Treasury yields and the dollar picked up from their recent sell-offs.

Day Ahead – Japan CPI, UK Retail Sales

Headline Japan CPI is forecast to tick up one-tenth to 2.9% while the core is seen up two-tenths to 2.7% in June. Tokyo CPI and producer prices have pointed the way to higher prices with solid wage growth seen continuing. Offsetting that should be the government’s energy subsidy programme. The next BoJ meeting is on 31 July with the latest inflation forecast likely to stay around its 2% target through early 2027, potentially supporting another rate hike.

Expectations are for UK headline retail sales to rise 0.2% m/m, lower than the prior 1.3%. Cooler weather is likely to have crimped sales activity and in-store spending. Services inflation and wage data this week has been relatively steady, remaining lofty. That has seen BoE August rate cut bets slide.

Chart of the day – USD/JPY certainly lively

USD/JPY has been subject to all kinds of drivers recently. Falling short-dated Treasury yields have been a big catalyst of the recent move. The latest US CPI data helped cement a September Fed rate cut, which is now seen as a near certainty by money markets. Politics/Trump has influenced the major too. His focus on the yen’s weakness could potentially help the Japanese authorities in their attempts to steady the currency. They are now potentially seen as more opportunistic in their intervention, with action pre- and post- major risk events like the FOMC meeting and CPI data releases.

Prices have dropped sharply from the early July and multi-decade peak at 161.95. They found support around 158.09 before falling to a major Fib level (61.8%) of the May low to July high move at 165.71. The major bounced off here back above the 50% mark at 156.90.