June 26, 2024

“The Aussie dollar is the clear winner this morning, with rocketing inflation now likely to trigger a further rate hike in the eyes of the market. The French election continues to guide the euro, while the big event for the dollar is coming up soon with core PCE.”

Tim Hallinan – Trading Director

Main Headlines

While most of the G10 central banks have begun or are soon to begin cutting interest rates, there is a growing case for the Reserve Bank of Australia to restart its hiking cycle, after a fifth month of no disinflationary progress. The May CPI figure surged from 3.6% to 4.0%, prompting markets to price in around a 50% chance that the RBA hikes again in September, having last raised rates in November 2023.

Both the UK’s main parties have booted candidates amid an election betting scandal that has seen multiple party members being investigated for profiting from insider knowledge around the general election date. What began as something limited to the Conservatives has quickly spread to the Labour Party, who has suspended Kevin Craig after an alleged bet on his constituency’s result.

GBP

Sterling continues to rely on its peers for directional cues ahead of next week’s election. It drifted sideways against the dollar yesterday, holding up despite some hawkish commentary at the Fed as traders prepare for a core PCE print on Friday. The pound inched higher towards the 22-month high that it notched against the euro a few weeks ago, however, as markets position defensively ahead of the French election starting this weekend. The pre-election BoE speaker blackout continues and it’s only CBI realised sales in the diary today.

EUR

A disappointing German consumer confidence figure and an extending lead in the polls for the RN has the euro on the backfoot this morning. The GfK index snapped its four-month improvement streak this morning as the German consumer opted to spend less and save more in June, joining an array of indicators signalling a slowdown in eurozone growth momentum. The latest poll of polls from Bloomberg yesterday put Le Pen’s lead at 35%, and it’s becoming increasingly clear that the party can expect a strong vote result on Sunday, although both markets and business appear to be even more concerned about the heavy spending plans of the New Popular Front coalition on the left. Whatever the outcome of the vote, the French budget deficit is likely to suffer. On rates, the ECB’s Rehn has said that market bets for two more rate cuts this year looks realistic, bolstering the recent rise in cut expectations this year.

USD

Hawkish commentary from Fed speakers fuelled some bullish momentum in the dollar yesterday, with Michelle Bowman arguing against cutting rates this year and reiterating her willingness to vote for a further hike if necessary. Fed speakers are not yet willing to get excited about the recent disinflationary progress, having been burned in the first quarter by a stall in the downward trajectory. For Bowman, it’s immigration and high federal spending that pose upside risks and could put rate cuts on ice until next year – the Congressional Budget Office expects a fiscal deficit at 7% this year. Daly, however, was keen to emphasise the other side of the Fed’s dual mandate, warning of rising unemployment if the risks are not considered in both directions. The new home sales data today is not a gamechanger, but will be parsed for further signs of a cooldown in the US economy after building permits and housing starts came in week last Thursday. Friday’s core PCE inflation print remains the primary focus for markets, and traders are likely to be hesitant to take on big positions until that arrives.

Markets

After a sharp downward correction to Nvidia – briefly the world’s most valuable company last week – over the past few days, its stock came back with a vengeance yesterday, rising nearly 7% in the session. The bounce in tech shares more generally helped to lift major indices in the US and Europe, although Asia struggled to replicate it. Analysts in the equity space have largely pinned the volatile moves down to the influence of quarter-end book flows and speculation.

Main Economic Events (All Times CET)

3:30am: Australian CPI Inflation
8:00am: German GfK Consumer Climate
12:00pm: UK CBI Realised Sales
4:00pm: US New Home Sales

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