Iran strikes, Burnham’s gilt test a inflation surprises

Dow stumbles for a third day

The Dow Jones ended its third straight day on the ropes, with 52,000 absorbed and scope for further underperformance seen to as far south as 50,600. The S&P 500 wrapped up marginally lower by 0.2%, but market breadth showed 331 names ended the session in the red, with sector performance telling a similar story, as 8 of 11 lost ground on the day.

We have a very heavy Q2 mega-cap earnings calendar on the radar, with Tesla and Alphabet kicking off on Wednesday, followed by Microsoft, Meta, Apple, and Amazon landing the following week.

Middle East headlines keep Oil elevated

Oil benchmarks were fairly volatile on Monday, jolted by a barrage of mixed headlines from the Middle East. The US has now struck Iranian targets for the 10^th consecutive day, while mediators are attempting to ease hostilities. At the same time, Houthi militants are threatening to blockade Saudi shipping in the Red Sea.

Brent crude remains about 26% higher than the July lows of US$70.14, with buyers and sellers squaring off near the underside of daily resistance at US$90.12.

Gilts on watch: PM Burnham picks Healey as Chancellor

Andy Burnham received the keys to Number 10 yesterday, replacing Sir Keir Starmer and marking the 7^th UK PM since Brexit!

Burnham’s policies will be under the microscope over the next few weeks. Markets also reacted to Burnham's surprise pick of John Healey as Chancellor yesterday; the appointment signals a larger defence spending commitment, which saw UK Gilts sell off – particularly at the long end of the curve – along with modest losses in the GBP.

Canadian CPI miss and New Zealand CPI beat

We got the June Canadian CPI inflation data yesterday, and it was a print I watched closely. Ultimately, I was looking for a beat in these data, given positioning showing CAD modestly bearish and the USD overstretched to the upside. However, the report came in broadly lower than expected, with the headline YY print cooling to 2.8% from 3.2% in May, and the BoC’s preferred measures – CPI trim and median – also easing, bringing the average to 1.85%. 

Nevertheless, although we saw a short-lived uptick in USD/CAD, the move was lacklustre, barely breaking local highs. It was only later in the US session that the pair punched higher, though this move was also not much to write home about. 

We then had the Q2 26 New Zealand CPI inflation numbers land later in the session. This was another release I watched closely. YY headline inflation reached 4.1%, surpassing the market’s median estimate of 4% and the RBNZ’s 3.9% forecast. While this was a meaningful beat, you may recall that in yesterday’s post, I noted that given the estimate distribution, a print above 4.1% would have packed more of a punch. It was this, and the lacklustre QQ number (1.5%), that likely held NZD bids back. A modest hawkish rate repricing was also seen, with investors now pricing in 57 bps of RBNZ tightening by year-end, up from 55 bps a day ago.

UK employment: A mixed bag

Earlier this morning, the May UK employment report showed unemployment unchanged at 4.9%, defying the market’s median estimate of 5%, while employment change rose by nearly 150k, surpassing the median forecast of 50k and April’s reading of 100k. For me, this was a mixed release and a challenging print to trade out of, as we also saw the 3M earnings come in below expectations and actually hit the lower end of the forecast distribution at 4.3%.

The GBP did see a bit of a push higher, though it was nothing to get excited about. Tomorrow’s UK June CPI inflation report also hits the wires at 6 am GMT, which could be interesting. Aside from the UK data this morning, the economic calendar is pretty thin today.

 That is it from me this morning; have a great day ahead!