Macro Matters – Weekly review, w/c July 3

TradeDay Macro Matters

Macroeconomic / Geopolitical Developments

• The re-emergence of the hawks.

• Bond yields are moving higher once more.

• Uncertainty persists over instability in Russia.

The Influence of the Hawks Re-Emerges

Central banks have adopted increasingly hawkish stances, as seen during the central bank forum in Sintra, Portugal. Leaders of the Fed, ECB, and Bank of England reiterated concerns about inflation and the necessity of higher rates, likely to persist longer than initially anticipated. Markets are pricing in these expectations, further solidifying the higher-for-longer narrative.

Yields Looking to Move Higher Once More

US economic surprises, coupled with hawkish signals from Powell, Lagarde, and Bailey, have driven bond yields higher across the US, Eurozone, UK, and New Zealand. Even the Bank of Japan hinted at policy tightening in 2024, though Japanese yields remain subdued. This has deepened the yen’s losses across major crosses as rate differentials expand.

The Uncertainty of Instability in Russia

The fallout from last weekend’s apparent coup attempt in Russia adds to geopolitical risks. Wagner Group’s movement to Belarus raises questions about potential new offensives or internal challenges to Russian stability. Markets remain cautious but have avoided significant selling pressure for now.

United States

• Better-than-expected growth data.

• Smooth outcomes from Fed’s bank stress tests.

• Index futures break higher once again.

US Data Confounds Recession Predictions

US data continues to defy recession forecasts. Consumer confidence, durable goods orders, and housing data have all surprised to the upside. Upward revisions to Q1 GDP and robust Q2 growth expectations (Atlanta Fed GDPNow at +1.8%) underpin support for higher Fed rates. The USD finds renewed strength, consolidating within a medium-term range of 100.78–105.88 on the Dollar Index.

The US Banking Crisis Fades but Leaves Scars

Despite fears of a systemic banking crisis in March, stress tests indicate large banks remain resilient. Regional banking stocks have stabilized but remain 25% lower than early Q1 levels. Higher capital requirements may dampen share buybacks, limiting upside for some financial stocks.

US Index Futures Push Higher Again

Following healthy corrections, both NASDAQ 100 and S&P 500 futures have resumed their rallies. The NASDAQ eyes 15500 and 16009 as key resistance levels, while the S&P 500 targets 4509 and 4631. Improved breadth supports these breakouts, contrasting with the narrower gains seen in May.

What’s Next?

Key US data includes ISM surveys and Friday’s Payrolls report, with consensus forecasting 226,000 jobs added. Upside surprises could further fuel the USD rally and index futures.

Europe

• Hawkish rhetoric from ECB and BoE chiefs.

• Eurozone inflation reinforces expectations for rate hikes.

Hawkish ECB and BoE Support EUR and GBP

The ECB and BoE maintain their hawkish tone, bolstering the EUR and GBP relative to weaker currencies like the JPY and AUD. Flash inflation data showed core HICP inflation rising, ensuring a 25bps ECB hike at the July meeting.

What’s Next?

Final PMIs for the Eurozone and UK may have limited impact, with a relatively quiet calendar ahead.

Asia

• China seeks to stabilize the yuan.

• FX intervention looms for Japan.

• RBA likely to pause rates at 4.10%.

China Looks to Support the Yuan

Efforts to stabilize the yuan include stronger mid-point fixings and state bank USD sales. Upcoming Caixin PMIs will be closely monitored for further sentiment shifts.

Japan Prepares for FX Intervention

USD/JPY nears the 145 threshold, prompting Japanese officials to signal possible intervention. While further upside is possible, traders remain alert to a potential pullback.

RBA Expected to Pause at 4.10%

May’s lower-than-expected inflation reduces the likelihood of further rate hikes, with markets expecting the RBA to remain on hold.

Commodities

• Oil futures eye direction from the OPEC meeting.

• Gold futures face pressure from rising yields and a stronger USD.

Range-Bound Oil Futures Look to OPEC

Oil futures remain range-bound, testing resistance around $72.72 and $75.06. Uncertainty surrounding OPEC’s next moves could drive volatility.

Higher Yields and a Stronger USD Weigh on Gold Futures

Gold futures re-align with their traditional negative correlation to the USD and yields. Key resistance at $1931–$1933 caps near-term upside, while support at $1855 remains crucial.

On the Calendar

• Manufacturing and services PMIs dominate early week activity.

• US labor market data, including Friday’s Employment Situation report, takes center stage.

• RBA monetary policy decision expected on Tuesday.

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