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The bulls have been running in Pamplona this week, and in the market you’d better run for cover if you are not running with them. Softer-than-expected inflation data from the US unleashed the bulls, sending the Nasdaq and S&P 500 to their highest finishes since April 2022 as short-end yields and the dollar tumbled. European markets are steadier this morning after registering gains yesterday, whilst Asian markets were broadly firmer on the soft US inflation report. The FTSE 100 was flat a little above 7,400 and the DAX was also unchanged above 16k. Gold firmed to $1,964, USDJPY plunged to test 138, cable hit 1.30 for the first time since April last year and oil made fresh two-and-a-half month highs as yields crumbled and markets dialled back rate hike expectations. 

It was all down to the two-year low for US inflation at 3%; whilst core inflation, down to 4.8%, was way lower than expected so yields were down sharply and USD (DXY) tested the YTD lows and cracked, in turn sending gold to a month high and I think we are seeing a bit of a market recalibration to think – once again – that the Fed probably only has one more hike in the can…markets now pricing out chance of second extra hike and bringing forward timing for cuts...temptation seems to be to overread the significance of one month of data and actually the Fed will stay higher for longer – maybe less about the destination of peak and more about how long they stay there once they get there.  

From 5% on Friday to under 4.7% today, the sharp move in the US 2yr note yield has been dramatic. The re-steepening in the yield curve also noteworthy and a big recession tell. This is the last hurrah.  

Interesting to see yields down across the complex…lower US inflation and Fed stopping soon has implications for BoE and ECB…maybe one more 50bps hike from the BoE and that is it? I don’t know...will be hard for them to keep going if the Fed has stopped and UK data this morning shows the economy shrank in May, albeit less than expected.  

Elsewhere, Chinese trade data disappointed and signalled waning global demand. Exports fell 12.4% in June, whilst imports declined by 6.8%. US PPI inflation and weekly unemployment claims later, whilst Delta Air Lines and PepsiCo get earnings season underway.  

They drove ol’ Dixie down...weakest since Apr ‘22 for DXY futures


Cable breakout.



Oil – breakout from the wedge continues, next levels is the 200-day SMA 



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