FOREX: USD/JPY Ends Consolidation Phase With Break Lower
- USDJPY has turned lower, ending the consolidation phase that dictated play last week. Weakness today puts the price through support drawn off the early August lows as well as 146.71, a key retracement. Price action this week marks a full reversal of the previously overbought condition.
- Meanwhile, speculation around the Trump-Putin meeting in Alaska at the end of the week continues to build - after which TASS have confirmed that Trump and Putin are to hold a joint press briefing. Trump is set to pursue an immediate ceasefire in the conflict - at which point more sincere negotiations and talks can begin over a conclusion to the war.
- Territory remains the key issue, with Kyiv ruling out the handing over of eastern territories, and Putin requiring some concessions as a result of his multi-year special operation. Oil and risk markets remain sensitive to the issue, with Trump warning of "very severe consequences" if no interim agreement is reached. Reports now suggest talks are to start at 1130 local time on Friday, in Joint Base Elmendorf-Richardson, Anchorage, Alaska. That's 2030BST/1530ET. The summit will include one-on-one talks as well as delegation talks between US and Russian ministers, followed by a joint press briefing with both the Russian and US Presidents.
- NOK trades stronger despite the unchanged Norges Bank rate decision - as the Bank's decision to play down the likely downward revision to near-term inflation forecasts in the September MPR and a lack of attention to the rise in LFS unemployment leans slightly hawkish. The August language is certainly not ruling out a September cut, but Norges Bank seem happy to keep their options open in noting that "The policy rate forecast we presented in June indicated one or two additional rate cuts in the course of the year". As a result, EURNOK is narrowing the gap to support at the 20-day EMA (11.8755), clearance of which would expose the 50-day EMA at 11.8080.
- PPI data is the scheduled highlight Thursday, with markets expecting PPI inflation to rise by ~0.2ppts on both the M/M and Y/Y metrics. Weekly jobless claims numbers are also set to cross. Fed speakers include Musalem and Barkin.
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EGBS: German Curve Bull Flattens; French Budget Eyed This Afternoon
Bund futures are up 45 ticks today at 129.63, but remain below initial resistance at 130.06 (20-day EMA). That keeps a bearish theme intact, with support to monitor at 129.08 (July 14 low). Market moving headline flow has been relatively light, with no obvious trigger for today’s strength in major EGB futures.
- The German curve has bear flattened, with 30-year yields down 4.5bps at 3.197%. A reminder that 30-year yields met resistance at the April 2023 high of 3.263% yesterday.
- Germany will sell E5bln of the new 1.90% Sep-27 Schatz at 1030BST today.
- At 1500BST/1600CET, French PM Bayrou is set to unveil the main proposals of the 2026 state budget, including spending cuts and tax hikes that risk collapsing his minority government. French political risks gradually been priced back into OATs in recent weeks, particularly when assessing French debt against semi-core/periphery peers.
- 10-year EGB spreads to Bunds are within 0.5bps of yesterday’s closing levels.
- Eurozone industrial production was much stronger-than-expected in May, with volatile Irish data once again a likely culprit. On a monthly SA basis, production rose 1.7% M/M, above the 1.0% consensus and April’s -2.2% (revised up from -2.4% initial).
- Meanwhile, the German July ZEW survey was also stronger-than-expected.
- Global macro focus remains on today’s US CPI report.
COMMODITIES: Gold Holds Well Above 50-dma
A bull cycle in Gold that started Jun 30, remains intact and the yellow metal is holding on to its recent gains. Note that medium-term trend conditions are bullish - moving average studies are in a bull-mode position highlighting a dominant uptrend. WTI futures maintain a bearish tone following the reversal from the Jun 23 high, and recent gains still appear corrective. Support to watch is the 50-day EMA, at $65.46. The average has been pierced, a clear break of it would signal scope for a deeper retracement.
- WTI Crude down $0.21 or -0.31% at $66.73
- Natural Gas down $0.04 or -1.04% at $3.431
- Gold spot up $17.43 or +0.52% at $3361.14
- Copper up $0.05 or +0.01% at $555.2
- Silver up $0.12 or +0.32% at $38.2789
- Platinum up $7.89 or +0.58% at $1378.02
US-RUSSIA: FT-Trump Indicates Support For Ukrainian Strikes On Moscow
The FT reports that US President Donald Trump privately encouraged Ukrainian President Volodymyr Zelenskyy to strike Moscow if possible in a phone call on 4 July, according to people briefed on discussions. FT reports that in the call, Trump asked, “Volodymyr, can you hit Moscow? . . . Can you hit St Petersburg too?” Trump asked on the call, according to the people. They said Zelenskyy replied: “Absolutely. We can if you give us the weapons.” Trump signalled his backing for the idea, describing the strategy as intended to “make them [Russians] feel the pain” and force the Kremlin to the negotiating table, according to the two people briefed on the call."
- In recent weeks, despite Trump's increasingly aggressive rhetoric towards Russia, the Russian gov't has not criticised the US president, often talking up peace talks and Trump's deal-making capacities. Open US support for strikes on Russia's major cities could change this stance significantly.
- The story comes hours after Trump announced the provision of "top of the line" weapons that will be sold to NATO partners and, in turn, sent on to Ukraine. The US President also threatened major sanctions on Russia if they do not return to the negotiating table within 50 days.
- CNN: “A White House official clarified to CNN that when the president referred to “secondary tariffs,” he meant 100% tariffs on Russia and secondary sanctions on other countries that buy Russian oil. The US conducts very little trade with Russia, making the secondary sanctions the piece with potentially the most bite."
