• Israel denies report of partial withdrawal from South Lebanon
• Mixed US PCE data with cool headline but core touch hotter
• Wall Street mixed with more sector rotation, USD steadies near highs
• Micron soars on AI-fuelled guidance; Apple sinks on price hikes

Forex

USD retreated from recent highs. Dollar gains appear to have run out of steam for the moment with alot of good news priced in, while markets appear to have accumulated a large net long USD position in response to the shift higher in US rate hike expectations. That move has also moderated slightly, perhaps reflecting US/Iran peace news and easing energy prices. Modest selling was seen following a softer-than-expected headline PCE m/m reading at 0.4% (exp. 0.5%) though the core printed a touch hotter. Q1 GDP growth was revised up above expectations, and personal income and spending topped forecasts.

EUR consolidated its recent break down with prices trading just above the fresh cycle lows in the mid-1.13s. Comments from the ECB remain hawkish, with Schnabel highlighting the need for higher rates in order to achieve the central bank’s 2% inflation target. But rate expectations remain soft, with only 27bps of rate hikes priced by December, down from 33bps a week ago.

GBP steadied as cable traded around the late March trough at 1.3159. There are numerous reports flying around about the incoming Burnham economic plans. These include discussions of growth-centred reforms like a breakup of the Treasury, a relocation of the Bank of England and an overall easing in the self-imposed fiscal rules created by the current Chancellor, Rachel Reeves. The latter could spark some tensions in gilt markets, so treat that one with some hesitancy as we didn’t see a reaction in bond markets.

JPY printed a doji denoting indecision, just below the key long-term top just below 162. Hawkish comments from the BoJ’s Tamura have added to Wednesday’s guidance from Governor Ueda, suggesting a ‘neutral’ interest rate level at 2%. That is versus the current policy rate at 1%.

Stocks

US stocks: The S&P 500 lost 0.01% to close at 7,358, the Nasdaq closed up 0.75% at 29,440 and the Dow Jones settled higher by 0.14% at 51,926. Six sectors closed higher with Industrials, Health and Materials all leading again, but tech was flat and Consumer Discretionary was the clear laggard. Micron soared over 16% as it beat saw a huge upside blowout on revenue and EPS, while Q4 guidance was notably above expectations. Apple 20% price hikes on new MacBooks and iPads saw the stock down 6.1%.

Asian Stocks: Futures are mixed. APAC stocks traded mixed on but mostly positive with the Korean Kospi leading gains on Micron’s stellar results. The ASX 200 was softer on mining and materials weakness offsetting better than expected jobs data. The Nikkei 225 rallied back above 72,000 as tech and continued lower oil prices helped risk taking. The Hang Seng and Shanghai Comp were mixed as Hong Kong was dragged lower by losses in miners.

Gold

Gold halted a five-day losing streak as prices consolidated just below the crucial $4,000 level. The dollar and Treasury yields moved lower helping.

Day Ahead – Tokyo Inflation

This data is the forerunner to nationwide inflation. The headline is forecast to rise two-tenths to 1.6%, with ex-food and energy at 1.8%. Government subsidies have helped keep CPI below 2%, though the weaker yen could be a factor. The BoJ warned at its recent meeting that underlying inflation could rise above its price target. Intervention is currently front and centre of USD/JPY traders, with prices hovering just below 162 and a previous long-term top.

Chart of the Day – S&P 500 on 50-day SMA

Stock markets have been mixed recently with competing drivers. Optimism surrounding memory names improved following a strong Micron earnings report, but amplified concerns over hyperscalers’ spending plans limited further upside, and weigh in the background. Notably, the Magnificent 7 underperformed the market as debt and equity issuance continues to act as a headwind. This has seen sector rotation with the underlying strong macro backdrop helping more defensive names. Chartwise, the S&P 500 has found support at the 50-day SMA at 7,356. Prices have been choppy this month, after printing record highs on the first day of June at 7,620. Initial support after the 50-day SMA sits at 7,313 and 7,237.