Price hikes, Fed rate expectations and a rough morning for risk

Apple price hikes spark a global tech rout

US mega caps took a sizeable hit on Thursday, with Apple (AAPL) announcing price increases that sent the stock south by more than 6% amid fears of margin pressure from chip shortages and rising input costs. Asia Pac stocks were also down overnight, with South Korea's KOSPI wiping out Wednesday’s upside move and Japan’s Nikkei 225 shedding over 4%, though it still remains just shy of all-time highs of 72,831.

The downside move in Asia was also weighed by reports from the NYT that OpenAI may delay its IPO until next year, with some desks noting that current volatility in the tech sector could weigh on investor appetite. European and US equity index futures are red this morning, with the Nasdaq 100 down about 1%.

Oil modestly bid on Hormuz tensions

In the commodities complex, oil benchmarks ended yesterday’s session modestly on the front foot, with Brent crude snapping a three-day losing streak. The push higher came on the back of reports that a vessel was struck in the Strait of Hormuz, essentially delivering a reminder that the reopening phase of this key waterway is unlikely to be a one-way path following its three-month closure. Clearly, while oil is off its highs this morning, there is still a lot more work to be done here.

Gold is also holding just off US$4,000, though barely. Bids have been lacklustre in this region, weighed down by rising real yields and expectations of Fed tightening.

US inflation continues to run hot

Yesterday, we welcomed the May US PCE inflation numbers. YY Headline and core rose in line with expectations, reaching 4.1% (up from 3.8% in April) and 3.4% (up from 3.3%), respectively. The headline number reached its highest level since April 2023, and is well above the Fed’s 2026 3.6% projection, with the core registering its highest point since October 2023, and just above the Fed’s 3.3% year-end projection.

This, coupled with the fact that 9 of the 18 Fed officials pencilled in at least one rate hike this year, an upward revision to Q1 26 real US GDP (final estimate), and lower US jobless claims, keeps the door open at the Fed for possible rate hikes. Markets now price in 15 bps of Fed tightening by year-end, with a rate hike fully priced in by mid-2027. I must admit, the market reaction was a little less volatile than I thought it might have been following the Fed’s move away from forward guidance.

USD index eyeing a breakout higher?

The USD index is in an interesting technical location, and I feel that is worth noting. As you can see from the charts below, the monthly timeframe shows scope for further outperformance toward the 50-month SMA at around 103.03, though the daily price is hampered by resistance at 101.78. Consequently, a breakout north of daily resistance could trigger follow-through buying toward the daily resistance at 102.99, which sits just south of the monthly SMA.