USD slides, gold gains amid higher yields and Bitcoin

Headlines

* US Treasury Secretary Yellen warns of bumpy inflation decline

* BoJ to discuss negative interest rate policy exit next week

* Dollar drifts lower as market in consolidation post-inflation data

* Bitcoin price nails new $73,600 all-time high as ETFs eat away at supply

FX: USD turned lower as it dipped below the 50% retracement of this year’s rally at 102.79. Yesterday’s US CPI data hasn’t moved the rate cut dial too much. There’s now currently a 65% chance of a move in June, down from 70% before the hotter headline figures. But the “supercore” number, which excludes shelter, did fall quite sharply from January’s outsized print, though it remains above 4%.

EUR looks to be breaking to the upside after recent bullish consolidation. There’s a minor Fib level and last Friday’s top at 1.0976/81.  The ECB is keen to wean banks off free cash but will try to do this without causing market volatility. That’s according to the operational framework released yesterday.

GBP kept above 1.28 after mixed data. The UK economy retuned to growth in January after a technical recession in the second half of 2023. The inline 0.2% print raises hopes for expansion in first quarter, bolstered by growth in the services sector.

USD/JPY printed an inside day after strong wage signals from several major Japanese companies. Toyota, Nissan, Panasonic and Hitachi have responded to union wage hike demands in full. This puts markets on alert for the Rengo agreement announced Friday and next week’s BoJ meeting. Traders are pricing in a high chance of a 10bps rate hike.

AUD outperformed its peers and could be breaking to the upside from this week’s bullish consolidation.  Falling iron ore prices are a headwind. However, the latest CFTC data shows the biggest net short in five months. USD/CAD dropped below the 200-day SMA and 50-day SMA at 1.3478/73. Oil prices advanced as Ukraine struck crude refineries inside Russia.

Stocks: US equities were muted as investors digested the mixed US inflation figures. Fed officials remain in their blackout period ahead of next week’s FOMC meeting. The broad-based benchmark S&P 500 closed 0.19% lower at 5,165. The tech-laden Nasdaq 100 slid 0.83% to finish at 18,068. The Dow Jones settled 0.1% up at 39,043. Energy and materials were the leading sectors, while technology finished over 1% lower. Intel tanked 4.5% as the Pentagon withdrew from allotting $2.5bn chip grants. Tesla fell to fresh 10-month lows below long-term support. The EV maker was downgraded by a big US investment bank on price, demand and valuation concerns.

Asian futures are marginally in the green. APAC stocks traded mixed tech-led were offset by real estate developer worries in China and the Japan wage hike announcements. The Nikkei 225 swung between gains and losses. The Shanghai Composite was pressured by developer default fears.

Gold has rallied after yesterday’s first down day in ten. US CPI barely changed the June rate cut odds. ETF investors in gold continue to reduce their holdings. The record high sits at $2195.

Day Ahead – US Retail Sales

US retail sales are expected to rise +0.3% m/m after the prior disappointing -0.8%. The ex-autos measure is also seen printing +0.3% m/m, the prior was -0.6%. Weather conditions were largely to blame for the softness in January. This time, where the weather was better, spending was likely to be resilient.

Consumer confidence has rebounded recently. But it remains relatively weak given how resilient the consumer has been over the last year. The labour market has been solid too, which should mean wage growth remains relatively healthy. That could change if the employment starts to deteriorate.

Chart of the Day – Dow closes near record highs

The Dow Jones Industrial Average remains in a bull channel, though less steep than the uptrend in the last couple of months of 2023. More recently, equities have been choppy with the mixed CPI data adding to the environment with higher yields. The benign inflation outlook is combining with the ongoing AI-frenzy/ That means high volatlity in some single names – witness the 11% intraday swing last week in Nvidia, the third biggest company by market cap.

The Dow Jones has whipsawed too but there are still-high hopes for a rate cut at the end of this first half of 2024. 3M jumped recently on news of a new CEO. But Boeing has weighed with a 10% decline over the past month as negative headlines continue. The all-time intraday high in the Dow sits at 39,282 with the best ever close at 39,131.

AUTHOR

Jamie Dutta >

Jamie Dutta is a Market Analyst for Vantage. He comes with extensive experience as a full-time trader and financial market commentator, having worked as a trader in top tier investment banks and trading houses.