Wall Street rallies to fresh record highs on tech strength

Headlines

* S&P 500 and Nasdaq print more all-time highs with strong semis

* Powell says neutral rate may have gone up short-term

* BoE’s Pill signals lingering concerns on inflation persistence

* Apple pushes to all-time high on reports it will boost iPhone 16 shipments  

FX: USD sold off modestly as traders looked to the latest CPI data. Fed Chair Powell focused on two-way risks while needing more inflation figures to qualify for rate cuts. There appears to be more emphasis on the better balance in the economy and a focus on the labour market.

EUR is tracking sideways in a possible bullish consolidation pattern. The 200-day SMA is support at 1.08 while initial resistance is 1.0845. The French political picture looks to be messy with a lengthy process ahead around choosing a new PM. Markets suspect a technocratic option may be the most likely option, which they are comfortable with.

GBP hit a four-month high above 1.28, after hearing from BoE Chief Economist Pill.  He said more evidence of falling inflation was needed before cutting rates. He added that wage growth and service inflation still showed “uncomfortable strength”. Markets trimmed the odds of an August rate cut to 50%. The spike intraday high from mid-June is 1.2860.

USD/JPY moved closer to the recent 38-year peak at 161.95 from the start of the month. The BoJ’s taper plan may see monthly bond buying halved in line with the calls of Japanese private banks.

AUD edged higher as recent bullish consolidation looks to break to fresh cycle highs beyond 0.6761. NZD/USD sold off sharply as the RBNZ used less hawkish language than expected. The bank said policy will remain restrictive, but the level of restraint will be tempered over time with the expected drop in inflationary pressures. The major is back to the 200-day SMA at 0.6071.

US Stocks: US markets rallied hard, and yet more record closes. The benchmark S&P 500 settled 1.02% higher at 5,633. The tech heavy Nasdaq 100 finished 1.09% up at 20,675. The Dow Jones closed 1.09% higher at 39,721. TSMS sales boosted semi stocks. Apple caught a bid with the tech giant becoming the first company to settle with a market cap of over $3.5 trillion. Tesla rose over 1% with the stock headed for an eleventh straight daily gain. TSMC reported a 33% jump in sales during June and said Q2 sales surged 40%. Nvidia looks to be closing in on its recent all-time high.

Asian stock futures are up. Asian stocks were mixed after Fed Chair Powell’s ongoing messaging and muted performance in the US.  The ASX 200 mildly underperformed. The Nikkei 225 oscillated between red and green after initially printing fresh intraday record highs. The Hang Seng was kept in positive territory by tech names. The Shanghai Composite was muted after softer than expected Chinese CPI data.

Gold found a bid again, though it gave up some gains as it tried to get beyond near term resistance at $2384. Yields were steady with the 10-year US Treasury hovering around 4.30%. The dollar was modestly sold into.

Day Ahead – US CPI

Consensus sees the all-important monthly US core inflation reading, which strips out volatile food and energy components, printing at 0.2% in June, for a second straight month. That would mark the smallest back-to-back gains since August last year. That works out to 3.4% for the annual core inflation figure, matching the three-year low in May. The headline figures are predicted to rise 0.1% m/m from a flat prior reading and 3.1% y/y, down two-tenths from the May print.

Focus will be on core services inflation after the category, excluding energy and shelter, fell sharply last time by 0.5% m/m. That component accounts for roughly 25% of the total CPI basket and was adding 0.1% to 0.2% to overall CPI when it was rising by 0.4% during the first few months of the year. Wages have been the prime source of those sticky price pressures and have been fairly benign recently. However, it is not uncommon for core services ex-housing to see large gains after big declines.

Chart of the day – Can the dollar find a bid?

The greenback has been struggling recently after finding resistance around 106 in late June. Last Friday’s softer-than-expected US jobs data raised hopes of a late summer rate cut. Money markets are currently pricing in around a 75% chance of a 25bps move. A hot CPI report could help USD find buyers as it would knock those rate cut bets. That said, there are still two more CPI and PCE reports ahead of the mid-September FOMC meeting.

The dollar sold off last week on weak data. Downside risks in the US economy appear to be intensifying with the best lead indicators for changes in the economic cycle signalling a soft landing. There are roughly 50bps of policy easing priced in for this year, so much will depend on if the report comes in cooler. Many expect that to happen, raising the pressure on the Fed to act, with four FOMC meetings remaining in 2024. There’s a minor fib level at 105.12 with next support below at the 200-day SMA at 104.47 and then a major Fib level at 104.26.