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Risk Appetite Surges After Soft Inflation Data

The dollar is stabilising this morning, but is still headed for a weekly loss after yesterday’s US consumer price index report showed inflation easing even more than markets had expected, triggering a stampede into risk-sensitive assets. Two- and ten-year yields are inching higher after falling to their lowest since March, equity futures are setting up for a more positive open after experiencing a violent sectoral rotation – the Russell 2000 small-cap index advanced by the most against the Nasdaq 100 since November 2020 – and currency markets are entering a consolidative phase. The pound and euro are both adding to...

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Markets Hold Firm After Cautious Fedspeak

Federal Reserve chair Jerome Powell was disappointingly non-committal on the likelihood of a September rate cut in yesterday’s appearance before the Senate Banking Committee, explicitly saying “I’m not going to be sending any signals about the timing of future actions”. The Fed Funds futures curve remained essentially unchanged, with two moves priced in this year, and roughly four expected by June 2025. Dovish hints were there, though, for those determined to find them. In noting that “elevated inflation is not the only risk we face,” saying that labour costs are “not a source of inflationary pressures now,” and emphasising the...

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Will Fed Chair Powell rattle markets?

• Quiet markets. Small market moves overnight with reaction to the French election result minimal. Bond yields consolidated. USD a touch firmer.• Fed commentary. Fed Chair Powell speaks tonight. Will he note the loosening in the jobs market & keep the door open to rate cuts later this year?• AU data. Consumer confidence & business conditions due today. Diverging macro/policy trends in Australia’s favour are AUD supportive. A quiet start to the week with the major asset markets confined to tight ranges. Reaction to the surprise result in the second round of the French parliamentary elections where the leftist alliance...

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US payrolls in focus

• US holiday. Quiet trading with the US shut for Independence Day. European equities, yields, & EUR higher on the back of easing French political risks.• AUD upswing. Softer USD & relative macro trends supporting the AUD. AUD/USD near the top of the range it has occupied since early-January.• US jobs. US non-farm payrolls released tonight. Signs the US jobs market is cooling could bolster Fed rate cut expectations which would drag on the USD. With the US markets shut for Independence Day it was relatively quiet overnight. There was a bit of a ‘risk on’ vibe in European trading...

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Mixed signals

• Mixed markets. Divergence between US & European equities, while long-end bond yields & the USD gave back a little ground. AUD a touch firmer.• US macro. Fed Chair Powell noted there has been “quite a bit” of inflation progress. But more is needed. The ‘quits rate’ points to lower wages/inflation.• Data flow. Australian retail sales due today. UK election tomorrow. In the US, ADP employment, services ISM, & jobless claims released tonight. While there was a bit of divergence in equities overnight (the major European markets slipped back ~0.5% and the US S&P500 rose ~0.6% to be within striking...

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