European stock markets traded tentatively higher on Thursday morning with Treasury yields pulling back slightly after the post-CPI ramp. Gold is steady at $2,375, oil has found some footing after a sharp 3 per cent decline in the previous session, and the euro and others have bounced a bit against the dollar. Bitcoin has tested the $60,000 support level and the charts don’t look great. US unemployment claims data, Philly Fed, and lots of Fed speakers on the sheet.
Wall Street fell for a fourth straight day, with the S&P 500 now down about 4 per cent from the recent all-time high, led by a fall for chipmakers on soft figures from ASML. Nvidia declined almost 4 per cent for the session, whilst Tesla extended its losses by a further 1 per cent after soft sales figures. Both the Nasdaq and S&P are down 3 per cent for the week.
The 10-year US Treasury yield fell back to 4.58 per cent after coming close to touching 4.7 per cent this week. Two-year yields, which touched 5 per cent, were last at 4.92 per cent. That eased some of the upward pressure on the dollar, and let Asian equities recover overnight as well as ushering in the better start to the day in Europe. The FTSE 100 recovered half a per cent to 7,885 in early trade, though it remains down 1 per cent for the week.
Oil found some support after sinking by its most in two months. WTI and Brent both dropped 3 per cent on Wednesday on a couple of points – one is demand, the other the lack of any immediate escalation in the Middle East, which has taken some of the wind out of the geopolitical risk premium. Of note, crude futures have now given up all the gains since the 1 April attack on the Iranian consulate. On the demand side, JPMorgan said oil consumption in April has been 200,000 barrels per day (bpd) below its forecast. Meanwhile, inventory data was a tad bearish – the Energy Information Administration (EIA) reporting that oil inventories rose by 2.7mn barrels in the week ending 12 April, about double the expected rise. And Iran: exports from the country have hit a six-year high, with sales averaging 1.56mn a day, it’s been reported.
Finance ministers from the US, Japan and South Korea issued a joint statement saying they will “consult closely on foreign exchange market developments in line with our existing G20 commitments, while acknowledging the serious concerns of Japan and the Republic of Korea about the recent sharp depreciation of the Japanese yen and the Korean won". It’s not quite the Plaza Accords mark two, but there are clear concerns about relative dollar strength as the Fed pivots back to its old higher for longer messaging.
No cuts ‘til next year? BofA: “We think the bias on the committee is still to get started this year and expect the first cut in December. But… one challenge for December is unfavourable base effects on core PCE inflation... Powell said the year-on-year rate is the most important measure. If we take him at his word, there is a real risk that the Fed may not cut until March 2025 at the earliest.”
Finally, trade wars are not going anywhere, whoever wins in November. President Biden called for a tripling of tariffs on Chinese steel and aluminium as he also pledged US Steel would remain “a totally American company”.
The Trader is written by Neil Wilson, chief market analyst at Finalto
