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GBP

Dollar Steamroller Keeps Going

It’s not July 4th yet, but fireworks are going off in the financial markets. The dollar has risen sharply in line with a surge in Treasury yields over the last three sessions after a dismal performance from President Biden in Thursday’s televised debate triggered a dramatic reappraisal in the odds on a Republican sweep. With former president Trump cruising toward a second term and his party seen gaining control over both houses of Congress, markets think increased tariffs, reduced immigration, and lower taxes will lead to higher inflation, larger deficits, and more Treasury issuance. Breakeven inflation rates – a measure...

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RBA’s inflation challenge

• Firmer USD. No major economic releases but bond yields & the USD rose overnight. USD/JPY around levels last traded in late-1986. AUD round trip.• AU inflation. Monthly CPI higher than anticipated. Odds of another RBA rate hike as soon as 6 August have risen. Relative trends should be AUD supportive.• Events. RBA Dep. Gov. Hauser speaks & US durable goods due. PCE deflator released Fri night. US Presidential Election debate tomorrow (Fri 11am AEST). Financial markets have livened up a bit over the past 24hrs. Although outside of Australia where yesterday’s monthly CPI data surprised and triggered a repricing...

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Australia’s inflation problem

Australia’s inflation genie is struggling to be put back in the bottle. The monthly CPI indicator for May was hotter than predicted. Headline inflation re-accelerated to 4%pa (from 3.6%pa in April), its fastest pace in 7-months with the 3-month and 6-month annualized run-rates also ticking higher. Positive base-effects were a factor but the detail under the hood would also be on the RBA’s radar given it has indicated limited tolerance for upside surprises. Notably, the disinflation across ‘goods’ prices looks to be stalling (‘goods’ inflation has held steady at 3.3%pa over the past few months, above its pre-COVID average). And...

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Holding pattern

• Range trading. US equities rebound, while bond yields & the USD tread water. Upside surprise in Canadian inflation generated limited CAD impact.• AU CPI. May reading of the monthly CPI due today. Data will include more services prices. Consensus looking for annual inflation to re-accelerate.• US events. No major US data or speeches tonight. Durable goods (Thurs night AEST) & PCE deflator (Fri night AEST) the next key US releases. In the main global markets continue to range trade with Northern Hemisphere summer trading conditions kicking into gear. Unlike the modest falls across European equities (EuroStoxx50 -0.3%), US equities...

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Watching & waiting

• Consolidation. Quiet start to the week. Easing French election risks supported European equities & the EUR. Softer USD pushed AUD a bit higher.• JPY watch. USD/JPY is around levels which previously triggered bouts of FX intervention. Verbal rhetoric by Japanese officials is starting to pick up.• Inflation pulse. US core PCE deflator (due Fri) likely to slow, while monthly AU CPI (due Weds) could re-accelerate. Diverging trends are AUD supportive. It has been a quiet start to the new week. This isn’t surprising given the bulk of the potential market moving global releases such as US durable goods orders...

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