Bonds flat, stocks in the green ahead of US CPI
Updated Updated Tue, 2025 June 10 09:28
* US-China trade talks extended into their second day as markets await news
* Scott Bessent emerges as possible contender to succeed Fed’s Powell
* Global economy on track for worst decade since 1960s, World Bank warns
* Stocks up, dollar flat in relatively quiet trade
FX: USD had another narrow ranged day with several asset markets in a holding pattern ahead of US CPI and news from the US-China trade talks. Details on the latter have been sparse with Commerce Secretary Lutnick noting discussions with China are “going really well” and added they may spill over into today. Meanwhile, the US and India have reportedly advanced towards an interim trade deal and are expected to sign the agreement by the end of the month. While the trade topic is running in the background, things to watch later today is the 10‐year US Treasury auction, and also the 30‐year tomorrow. Some major market players last week declared a buyers strike for the latter. Weak sales are likely to prompt Treasury and dollar losses.
EUR held up and above 1.14 as markets again listened to various ECB speakers. Stournaras said the stable EU policy is drawing investors to the euro, on which Vujcic assumes the push towards euro area assets will continue. Meanwhile, ECB’s Holzmann, who dissented at the last ECB meeting, said a pause in cutting rates could last a while and Villeroy said the central bank is reluctantly neutral and likely at its terminal rate for this easing cycle.
GBP was the major underperformer after soft labour market data. The jobless rate ticked up again to the highest since July 2021, while the monthly drop in payrolls was the biggest drop outside of the pandemic since data began in 2014. Along with the cooler wages due mainly to base effects, money markets have added to rate cuts bets with now around 46bp of easing priced in for 2025, versus 39bp before the figures. Cable remains above 1.3434 and moved off its lows after the economic release.
USD/JPY was also an underperformer after Bank of Japan Governor Ueda doused any market expectations for a rate hike after he said short‐term inflation is still some distance from its inflation goal (ie achieving 2% sustainably). He also pointed out the BoJ has limited room to underpin growth with easing, given the 0.5% short-term rate.
AUD eked out a gain with prices potentially building for a breakout. There was mixed consumer confidence and sentiment data. CAD was also consolidating again just above the 9-month high from last week at 1.3633. There is still around 29bps of BoC easing for this year, which may be a little high and mean more CAD strength if those bets get reined in.
US stocks: The S&P 500 added 0.55% to settle at 6,039. The Nasdaq closed up 0.66% at 21,942. The Dow Jones finished higher at 42,867. Stocks were hit early in the afternoon US session as President Trump said Iran is becoming much more aggressive in nuclear talks. But the indices closed very near their highs for the day. Sectors were all green except for Industrials, with outperformance in Energy, Consumer Discretionary, Healthcare and Communication Services. US-China trade talks may resume today. Tesla added 5.67% so is up 10.5% on the week after its 14.8% drop last week. Alphabet added 1.34% after OpenAI tapped Google in an unprecedented cloud deal despite their AI rivalry, according to Reuters. OpenAI reduced dependency on Microsoft in favour of Google. That said, Google faces pressure to balance its external cloud offering and AI development. Meta is recruiting a new “superintelligence” AI team to pursue AGI.
Asian stocks: Futures are mixed. Asian markets were mostly higher with a positive mood around the US-China trade talks. The ASX gained after the long weekend and is very close to the record highs made in February. Further upside was capped amid mixed consumer and business sentiment surveys. The Nikkei 225 found resistance again around 38,450/500 but closed higher on yen weakness. Governor Ueda’s comments helped sentiment. The Hang Seng and Shanghai Comp centred on the trade talks.
Gold printed a doji denoting indecision ahead of the inflation data released today. Support is $3,272 and the 50-day SMA at just below at $3,265. Data revealed that China’s central bank added gold to its reserves for a seventh consecutive month in May.
Day Ahead – US CPI
Consensus expects headline US CPI to rise +0.2% m/m in May unchanged from April, and 2.5% y/y, which would be a rise of two-tenths from a month earlier. The core rate, which strips out volatile food and energy prices, is forecast to pick up to +0.3% m/m versus +0.2% prior and 2.9% y/y from 2.8% in April. The May inflation report will be closely watched to assess if the tariffs imposed in April are affecting consumer prices.
There is some uncertainty around if it is too early for the trade levies to be completely reflected in this data. Pre-emptive price hikes haven’t shown up fully while seasonal factors may play a part too, as a fall in vehicle prices will likely prevent a bigger overall increase in goods inflation. But higher prices are fully expected in the coming months, with the latest Fed Beige Book signalling costs and prices are to rise at a faster rate going forward.
Chart of the Day – Dollar still languishing near lows
It seems the full impact of tariffs may not be felt in inflation until the summer and July and August data. Price pressures seen then may mean the Fed sits on its hands for longer and prevents officials from cutting rates well into the final quarter of the year. Of course, a hotter report would spark concerns and should underpin some support for the greenback. The three-year low in the Dollar Index sits at 97.92. With prices still in the long-term bear channel, resistance comes in at the 50-day SMA at 99.45, which has capped the upside previously. To change the trend, it looks like prices would need to get above the mid-May high around 102.
