Fed’s hawkish tilt, tech stocks slide and UK PM Starmer resigns

US stock indices were largely on the ropes yesterday, weighed down by selling in key tech companies, including Alphabet (GOOG), down 5.1%, Amazon (AMZN), down 4.8%, and Microsoft (MSFT), down 3.2%. SpaceX (SPCX) also pencilled in a third consecutive losing session, dropping an eye-popping 16.4% after the company confirmed plans to sell investment-grade bonds.

In the commodities complex, oil benchmarks closed lower on Monday amid progress in US-Iran peace talks. This has pushed Brent crude and WTI below their 200-day SMAs, with the former (latter) perhaps targeting support around US$72.36 (US$66.43).

JPY nears 1986 levels

The USD index added 0.2% yesterday – a move that left the USD/JPY within striking distance of levels last seen in 1986! While a break above the ¥161.95 high set in mid-2024 is possible, I feel this could be a recipe for a bull trap, as traders watch closely for any signs of intervention.

For bonds, US Treasury yields bear flattened on Monday, bolstered by the Fed’s hawkish tilt. Short-dated maturities reached levels not seen since early 2025. Thursday’s US May PCE price index data could be an interesting report to watch, helping to determine whether that hawkish repricing is justified.

UK PM Keir Starmer resigns – Andy Burnham set for the top spot

PM Keir Starmer threw in the towel yesterday morning and announced his resignation. Markets barely moved in the immediate aftermath, presumably because they had already priced in this outcome following the former Mayor of Manchester, Andy Burnham’s by-election win – now an MP for Makerfield. It is hard to believe that Starmer’s successor will be the 7th PM the UK has had since the Brexit referendum in 2016.

Burnham has publicly declared he will run for PM following Starmer’s resignation, with nominations opening on 9 July. It is widely believed that Burnham will succeed Starmer as PM, with former Health Secretary Wes Streeting backing him shortly after being sworn in. More than 200 Labour MPs greeted him in Westminster Hall, underscoring a show of force. This support makes a leadership contest unlikely, and it may be avoided before nominations close on 16 July.

Canadian inflation shows mixed results – BoC pricing unresolved

The May Canadian CPI inflation print offered very little for traders to work with – I was ultimately looking for a broad miss in the core measures, given that I believe BoC rate pricing is overstretched to the upside relative to current Canadian inflation. 

YY headline came in above consensus at 3.2%, up from 2.8% in May, while the BoC’s preferred measures – the CPI trim and median – were in line with consensus at 2.1% and 2.0%. Markets continue to price in 24 bps of tightening by year-end.

Day ahead: PMIs taking a back seat – Aussie inflation eyed

The day ahead is largely centred on the June S&P Global manufacturing and services PMIs, with a focus on eurozone, UK, and US metrics. However, while these are events I watch closely and that tend to generate market-moving outcomes, the surveys were completed before the US-Iran peace agreement was signed. Consequently, their market significance may be limited, as they could be viewed as lagging indicators.

Beyond this, the May Australian CPI will be worth watching during tomorrow’s Asia-Pac session. Economists expect the YY headline to reach 4.4%, up from 4.2% in April (estimate range 3.8% to 4.9%), while the YY trimmed-mean is also expected to increase to 3.5% from 3.4% (estimate range 3.3% to 3.6%) – the RBA’s preferred measure of underlying inflation.

Year-end pricing implies 13 bps of RBA tightening, with August’s meeting at 6 bps and September at 11 bps. Given the RBA’s recent comments about upside risks to inflation, if price pressures rise – particularly the trimmed mean – this could prompt investors to increase rate-hike bets for August, a move that would bolster the AUD. We also have the May Australian jobs report on Thursday, which is expected to show improvement on April’s rather pitiful result. If this comes in hotter than expected, it may fuel upside in AUD.

However, the risks cut both ways here. If the trimmed mean comes in flat or softer, it would undermine the case for further hikes and likely prompt investors to unwind the modest tightening still priced into year-end, potentially weighing on the AUD. Further to this, another disappointing jobs report would be difficult for the RBA to dismiss as noise, adding to the case that the door is likely closing on further rate increases. This would likely weigh on the AUD, particularly against the USD, after the Fed shifted to a more hawkish stance.