Written by More of the same from Warsh
Fed Chair Kevin Warsh continued to keep his cards close to his chest in his first appearance with his global counterparts at the ECB’s annual central banking forum in Portugal yesterday. Taking part in a panel discussion together with host Christine Lagarde and the BoE’s Bailey and BoC’s Macklem, Warsh reiterated the Fed’s commitment to its 2% price objective, saying anyone who thought the Fed would be comfortable with above-target inflation would be “disappointed”.
Warsh also stuck to his position on forward guidance, offering no clues on the outlook of monetary policy or even the US economy. However, he did explicitly say that “inflation risks have come down” in the past few weeks, amid the slump in oil prices on the back of the US-Iran truce.
Lagarde, Bailey and Macklem all struck a similar tone not only on the reduced inflation threat, but also on forward guidance – a possible indication of a new era for the world’s major central banks.
Dollar choppy after Sintra, NFP in the spotlight
Nevertheless, the US dollar finished the day higher against a basket of currencies, even in the absence of any hints about an imminent rate hike, amid some speculation in recent days of a July move, and Treasury yields also climbed.
If there was any takeaway from Wednesday’s panel discussion it’s that Lagarde and Bailey now seem less inclined to push for rate hikes, pointing to a dovish tilt. Both the euro and pound came under pressure yesterday but are recouping most of those losses today.
The rise in Treasury yields is even more surprising considering yesterday’s mixed bag of US data. ADP employment rose by less than forecast in June, while the ISM manufacturing PMI also missed expectations. On the positive side, the ISM’s price index for manufacturing fell sharply in June and job layoffs also fell during the month.
All eyes are now on today’s official jobs report, which comes out a day early due to markets being shut on Friday for the Independence Day celebrations.
Payrolls likely increased by 110k in June, easing from the prior 172k, while the unemployment rate probably held steady at 4.3%. Weekly jobless claims will also be watched.
Any upside surprises in the data could revive bets of a July hike, which declined slightly after Warsh’s comments on inflation.
Yen bounces from 40-year lows on possible intervention
The Japanese yen also slid on Wednesday but has jumped today amid some suspicion that Japanese authorities intervened after the currency hit a fresh 40-year low of 162.83 to the dollar. The dollar is currently trading down by about 0.8%, falling to around 161.20 yen.
The move comes after reports earlier on Thursday suggesting that Japan’s Ministry of Finance is adopting a different tactic to intervention and will no longer provide any warning before taking action so as to squeeze out speculators.
The dollar is down across the board today, spurring a strong rebound in gold, which is up about 1% to trade around $4,070.
Oil on the backfoot as US and Iran talk
Oil prices continued to drift downwards on Thursday, with WTI futures approaching $68 a barrel to the lowest since before the Iran war. Traders ignoring the recent days’ tension between the US and Iran and instead staying optimistic about the prospect of peace were proved correct, as two days of indirect talks ended with some progress.
US Vice President JD Vance said the negotiations are “going well” and will soon move onto the nuclear issue. However, several differences remain on key issues, notably on the Strait of Hormuz, as Tehran insists on charging tolls for passing ships.
Stocks steadier after fresh chip selloff
But for now, the positive progress aided sentiment in equity markets, where chips stocks have been hit by another bout of turbulence. Shares in Asia came under pressure, with South Korea’s KOSPI plummeting 8.7% and Japan’s Nikkei falling 2.5%. However, the selloff was confined to the semiconductor sector and comes on reports that Apple is in talks with Chinese chipmakers as it seeks alternative supplies amid the global chip shortage. Such an agreement risks hurting existing chip giants, which have been profiting from the soaring margins.
European stocks are mostly up and US futures are steady, following yesterday’s losses on Wall Street, which were minimized due to a near 9% surge in Meta’s stock. Meta is reportedly planning to sell excess AI cloud computing capacity to other businesses, which would be one way to seek returns on any overinvestment in AI.
Meanwhile, there was little reaction to the headlines that President Trump has decided not to renew the USMCA agreement, meaning that although the deal remains in place for another decade, it would need to be reviewed annually.
By XM.com
