USD moves higher, stocks too even as yields stay steady

Headlines

* Dollar rises even after cooler US PPI and initial jobless claims data

* Nasdaq, S&P 500 boast record closes in narrow driven advance

* Fed’s favoured inflation gauge set to rise by least in six months

* Gold tumbles on hawkish dot plot change, breaks win streak

FX: USD rose over 0.5% and has made back nearly all its losses from Wednesday. Prices have risen to the 50-day SMA at 105.12 with resistance just above at 105.25. Gains were limited after dovish US data, with PPI and initial jobless claims weaker than forecast. The 10-month high in the latter highlighted a softening labour market. PPI figures will feed into the core PCE data at the end of the month, with a one-handle possible. Treasury yields traded relatively unchanged on the day.

EUR fell with lower-than-expected industrial production not helping the single currency. Political uncertainty looms large in France but also potentially Germany. France/Germany bond spreads are very close to recent peaks. A move beyond might mean the recent low in the major at 1.0719 is broken.

GBP again struggled around the 1.28 zone. Strong support sits around 1.27 with this week’s spike high from Wednesday at 1.2860. UK CPI and the Bank of England meeting next week could shake up GBP.

USD/JPY traded in a narrow range in concert with the 10-year US Treasury yield. Initial resistance is at 157.37/40 ahead of 157.67/71. Focus is on the BoJ meeting and Governor Ueda’s press conference (see below).

AUD slipped in line with its peers. Jobs data beats estimates, with the unemployment rate one-tenth lower at 4%. This all pointed to the labour market remaining relatively tight and the RBA remaining higher for longer. CAD made gains but settled below 1.3750. BoC Governor Macklem echoed comments from last week’s rate cut. He said there was no need for policy to be as restrictive and there were limits to how far policy can diverge with the Fed, but they are not here yet.

US Stocks: Wall Street’s main indices posted yet more record highs for a fourth consecutive day. The S&P 500 finished up 0.23% at 5,434. The Nasdaq 100 settled higher by 0.57% at 19,577. The Dow closed down -0.17% at 38,647. Tech was easily the biggest gainer once more (+1.36%) with communication services (-0.98%) and energy (-0.89%) the main laggards. Broadcom stock hit a record high, up 12%, after the chipmaker raised its forecast for revenue. Nvidia got a boost too, rising 3.5%. It split its stock last week and the shares are up over 7% since. Tesla gained 2.9% after Elon Musk said shareholders will back moving the HQ to Texas and his pay package.

Asian Stocks: APAC futures are mixed. Asian stocks were also mixed as tech led the way on Wall Street to record highs for the indices. Markets had to digest the Fed and US inflation data. The ASX 200 moved north thanks to tech and better than expected jobs data. The Nikkei 225 fell back below 39,000 as the BoJ kicked off its two-day meeting. The Hang Seng was positive even with automakers being slapped with EU tariffs.

Gold dropped sharply after three straight (small) days of gains. Strong support sits at $2277. Treasury yields remained around their recent lows with the 10-year at 4.13% after the softer CPI data trumped the more hawkish dot plot on Wednesday.

Day Ahead – Bank of Japan meeting

The BoJ is widely expected to keep its policy measures unchanged. Markets will be on watch for any forward guidance either in the statement or later press conference by Governor Ueda. There is growing consensus that this may lean hawkish, potentially signalling a rate hike as early as July. There is likely to be discussion around the bank’s buying and reduction of Japanese Government bond purchases.

Strong wage growth sets the stage for the next rate rise. Inflationary pressures have eased modestly but may increase soon with the removal of utility subsidies in June. Persistent yen weakness raises concerns about a potential return of imported price pressures. Retail sales have also rebounded.

Chart of the day  – USD/JPY near intervention zone

The economic activity and price outlook have improved marginally since the last BoJ meeting. This has seen the odds of a July rate hike currently move to around a 70% chance. All things being equal, this should help USD/JPY fall. But the major is still elevated even though there is resistance just above 157, ahead of a major barrier at the May highs at 157.67/71.

The Japanese authorities will be relatively happy there is at least some two-way risk. Of course, they will be hoping their $62bn spent on intervention in May turns out like events in 2022, when the major turned sharply south as US rates cooled. The 50-day SMA is at 155.52 and has acted as support on a few occasions this year.