Stocks close out blockbuster quarter and Fed’s Warsh in focus

Strong quarter for stocks

It was another positive session for US equity benchmarks on Tuesday, closing out an undeniably strong Q2. The S&P 500 booked its best quarter – adding nearly 15% – and the Nasdaq 100 pencilled in an eye-popping 27.5%, both notching their best performances since 2020. Chipmakers did the heavy lifting yet again, with the Philadelphia Semiconductor Index (SOX) adding 3.9% and capping off a record-breaking quarter, up 88%.

JPY continues to circle intervention territory

In FX, JPY remains the story of the day; USD/JPY recently breached 2024 highs and touched levels not seen since 1986. We are now on the doorstep of ¥163, and although intervention talks continue to mount, they are doing little to halt this run higher. 

With US banks closed on Friday in observance of Independence Day, liquidity will naturally be thinner; therefore, Japan’s MoF may seize this opportunity. However, some desks are now looking more northward, at levels between ¥164 and ¥165. Time will tell how this plays out.

For bonds, US Treasury yields bear steepened on Tuesday, buoyed by the recent US JOLTS data (I touch on this below), with the benchmark 10-year yield rising back above 4.5% and the 30-year closing back in on 5.0%.

Low hire-low fire US jobs market

The May JOLTS report revealed a modest 9,000-job increase, from 7.585 million in April to 7.594 million, indicating that the labour market remains fairly resilient. However, while openings rose, hiring fell by 45,000 to 5.170 million from 5.215 million. This suggests that although companies are posting vacancies, they are cautious and not pulling the trigger on onboarding. In terms of layoffs, we saw them rise to 1.708 million from 1.667 million (from 1.0% to 1.1%), led by ‘healthcare and social assistance’ and ‘construction’.

We also saw the June US consumer confidence data jump higher at the headline (91.2 versus a revised 90.6 reading in May), but the survey showed an increase in the share saying jobs were harder to get, rising to 22.5% – the highest level since 2021. 

These reports essentially reinforce the ‘low-hire, low-fire’ jobs market.

Busy day ahead: Eurozone inflation, US data and ECB forum in focus

First on the docket today is the June eurozone CPI inflation report at 9 am GMT. Estimates indicate the YY headline will ease to 3% from 3.2% in May, while the YY core – excluding food, energy, alcohol, and tobacco – is also expected to ease slightly to 2.5% from 2.6%. In my week-ahead briefing, I noted that ‘any softness in the inflation data reinforces ECB President Lagarde’s recent comments and could add to EUR weakness, while hotter numbers open the door for investors to fully price in a September meeting hike, potentially seeing the EUR turn higher’. Markets are currently pricing in nearly 30 bps of ECB tightening by year-end.

From the US, the June ADP private payrolls and the ISM manufacturing PMI report are up at 12:15 pm and 2:00 pm, respectively. For ADP, analysts’ expectations suggest private payrolls cooled slightly to 118,000 from 122,000, while the ISM headline number is forecast to remain unchanged at 54.0, with the prices paid and employment subcomponents eyed. For me, anything above (below) 130,000 (80,000) in ADP would be considered USD-positive (USD-negative), a move that would be emphasised if the ISM prices paid and employment indexes also came in strong (weak).

Finally, we have a big lineup at the ECB Forum in Sintra today, including Fed Chairman Kevin Warsh, ECB President Christine Lagarde, BoE Governor Andrew Bailey, and BoC Governor Tiff Macklem. The focus will be largely on Warsh. Which Kevin turns up? We saw hawkish Kevin at his first meeting; will he pull back today? Personally, I do not think we will get much from him, and he will likely stress price stability and what happens with the task forces. With that said, any repeated emphasis on returning inflation to target will keep rate-hike pricing alive into Thursday’s US payrolls report.