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USD bulls backed off the DXY Index’s pivotal resistance at 102, after the disappointing US jobs data. June’s nonfarm payrolls declined to 57k, significantly lower than the 113k expected. May’s payrolls were also revised to 129k from 172k. The US Treasury 2Y yield finally eased by 3.7 bps to 4.137%, below the 4.18% level at the hawkish July 17 FOMC meeting. The futures market’s odds for a September Fed hike declined to 43.5% overnight from its peak of 61.6% on June 22. Brent crude oil prices remain depressed at $71.60 per barrel, below its pre-war level of $72.48 at the end of February. US average gasoline prices declined to $4.45 per gallon by the end of June, retracing only half its war-related rise from $3.52 to $5.18 after Operation Epic Fury.
The S&P 500 Index initially declined by 1.5% after the disappointing NFP data, then ended the session unchanged, driven by late bargain-hunting amid reduced Fed-hike worries. Investors continued to rotate out of AI-related tech and semiconductor names on valuation worries, driving the Nasdaq Composite Index down for a second session by 0.8%, and the Dow Jones Industrial Average up by 1.1% to a fresh lifetime high.
The crowded JPY-short carry trades suffered a short-squeeze amid heavy volatility. USD/JPY, which had already retreated from its 40-year high of 162.84 on Wednesday, plunged to an intra-day low of 160.64, its lowest level since June 18. With a September Fed hike less certain, speculators retreated amid rumours that Japan’s Ministry of Finance might shift to unannounced stealth currency interventions, which could amplify volatility amid thin liquidity on today’s Independence Day holiday in the US bond and equity markets.
Following the failure to keep USD/JPY below 160 after the aggressive interventions in late April and early May, Japan’s new strategy appears to be targeted at shifting market psychology from scepticism to caution. By associating inflation risks with a weaker JPY, the Bank of Japan has also openly discussed outlining a sequence of hikes towards its estimated 2% neutral rate. With global central banks becoming less urgent about hiking rates amid significantly lower oil prices, players will likely be less complacent about their long JPY carry positions.
Quote of the Day
“Obstacles are those frightful things you see when you take your eyes off your goal.”
Henry Ford
July 3 in history
The first human Magnetic Resonance Imaging (MRI) scan was successfully performed in 1977, paving the way for non-invasive internal medical scanning.
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