Quiet markets ahead of Powell and US CPI data

Headlines

* S&P 500, Nasdaq extend record closing runs, before Powell testimony

* Euro slips, but off lows as France faces hung Parliament

* Gold drops off a seven-week high as USD and Treasury yields edge up

* Bitcoin steadies after last week’s bloodbath, below 200-day SMA

FX: USD stopped an eight consecutive day of selling as prices edged marginally higher. There was little news to speak about. President Biden continued to state he was still running in the November election, though speculation remains high about various different scenarios. US CPI data is released on Thursday.

EUR saw two-way price action after the French second round of voting. The shock left-wing NFP victory put paid to any overall majority. But that means gridlock which we alluded to in our Week Ahead preview. Macron’s centrist party came second, offering some balance and potentially preventing big spending plans. Markets likely favour a technocratic government as opposed to any NFP-led coalition. The 200-day SMA sits at 1.0797.

GBP moved up to a high of 1.2845 just after the start of the US session before gradual selling saw it end near flat. We heard from our first BoE official in some time after the UK general election blackout ended. Haskel, a known hawk, said a tight jobs market means inflation is likely to be higher than the bank’s 2% target “for quite some time”.

USD/JPY printed a narrow doji. The major found initial support at the previous intervention high in late April at 160.20. Japanese wage data, when adjusted for inflation, fell for the 26^th month in a row. But a hot headline, the hottest since 1993, could bolster July rate hike expectations. We get Japan and Tokyo CPI before the BoJ meeting at the end of July.

AUD made a fresh multi-month high at 0.6761, a level last seen at the start of the 2024. Prices pared gains settling lower on the day. CAD printed in a narrow range holding above strong support around 1.3595. Friday’s jobs report saw higher unemployment while the economy shed 1400 jobs. The market is currently pricing in around 55bps of rate cuts by the BoC and a 60% chance of a July move.

US Stocks: US markets again made fresh record highs and closes, though the ranges were small in a quiet session.  Tech again led the way while communication services lost over 1%. The benchmark S&P 500 settled 0.1% higher at 5,572. The tech heavy Nasdaq 100 finished 0.23% up at 20,439. The Dow Jones closed 0.08% lower at 39,344. US earnings season kicks off on Friday when JPM, Citigroup and Well Fargo release their results. These big banks are viewed as a bellwether for the economy with credit and lending in focus. For now, markets are very calm – the broad-based S&P 500 hasn’t fallen by more than 1% in one day since April.

Asian stock futures are mixed. Asian stocks were mostly in the red as the region couldn’t build on the dovish NFP reaction.  The ASX 200 moved down on energy and mining stocks. The Nikkei 225 hit a fresh record high, but buckled on mixed data. The Hang Seng lagged on property stock weakness. The Shanghai Composite was muted ahead of China CPI and trade data.

Gold gave up all Friday’s NFP gains. Bullion fell back below the midpoint of the May high and low at $2363.

Day Ahead – Powell Testimony

Fed Chair Powell appears for his semi-annual Congressional testimony later today before the Senate Banking Committee, and the House Financial Services Committee the next day at the same time (10am ET). This comes after his recent comments at last week’s ECB Sintra conference and the minutes to the June FOMC meeting, but before US CPI on Thursday. In Portugal, Powell said the Fed has made quite a bit of progress on inflation, and it is getting back on the disinflationary path.

Recent Fedspeak has also made it clear that policymakers are encouraged by recent data, particularly on inflation. However, they want to see more of it which probably means a couple of summer months spent watching and waiting. Much will depend on core CPI, which means whatever Powell says in his testimony could become old news rather quickly.