Marketmind: Dollar flexes into Fed week, calm returns
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[July 21, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
As markets blew the froth off this year's extraordinary rally in Big
Tech stocks on Thursday, the dollar clocked its best day - and likely
its best week - for more than two months.
After the first real edgy day on financial markets in weeks, returning
calm on Friday suggests that sudden burst of activity - a stock and bond
market recoil and loud dollar pop higher - was more a re-set than a
rethink.
Many put the moves down to traders jockeying for position ahead of next
week's Federal Reserve meeting - which may well deliver the last
interest rate hike of the cycle. Another unexpectedly tight weekly
reading from the U.S. labour market sowed some lingering doubts that
we're on the cusp of 'peak Fed' just yet.
Grouch-like disappointment at forecast-beating profits at Tesla and
Netflix saw the supercharged FANG-plus index of the 10 leading tech and
digital mega cap stocks record its worst day of an otherwise spectacular
year so far - losing more than 4% as Netflix and Tesla shares were
almost decimated.
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And yet, that index remains up 76% for the year to date.
The tech wobble saw the Nasdaq recoil 2% in its biggest drop since
March. But the S&P500 lost a more modest 0.6% and the Dow Jones
industrials ploughed on regardless to notch its ninth straight daily
gain, aided by upbeat Johnson & Johnson.
What's more, Nasdaq and S&P500 futures are up again ahead of the bell on
Friday. A quieter earnings schedule is topped by American Express - but
nearly all the other banks have been impressive over the past week.
The optimists suggest a combination of ongoing jobs market strength and
some rotation of sectoral stock holdings underlines 'soft landing' hopes
and marks a healthy broadening of what has been a very narrow-led market
gain so far this year.
Pessimists think the Fed is not done tightening yet and any further rate
hikes after next week will just hasten a downturn in 2024. That has
sobered up the Treasury market a touch after a couple of weeks of
disinflation relief.
Futures are fully priced for a quarter-point rate rise next week, but
indicated less than a 50-50 chance of another hike by November and 75
basis points of cuts from the peak by this time next year. Two-year
Treasury yields nudged 12 bps higher to 4.88% on Thursday, but have
settled back to 4.85% since.
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U.S. dollar banknotes are seen in this
illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration
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The backup in yields saw the dollar put in its best showing since
early May - helped additionally by growing doubts about the
willingness of other major central banks to keep tightening their
policy rates once the Fed stops.
The Bank of Japan is leaning toward keeping its yield control policy
unchanged at its policy meeting next week, according to Reuters
sources, as policymakers prefer to scrutinise more data to ensure
wages and inflation keep rising.
With inflation having exceeded the BOJ's target for more than a
year, markets had been simmering with speculation the BOJ could
tweak yield curve control as early as this month.
Dollar/yen surged above 141 on Friday for the first time in 10 days.
China's markets remained in a funk, meantime, with anxiety growing
over the lack of a major fresh stimulus for the struggling economic
recovery as geopolitical tensions bite.
Authorities on Friday announced measures to boost consumption of
auto and electronic items as part of a broader drive to shore up the
country's faltering economy.
But all eyes are now on the annual Politburo meeting, which is
expected to take place before the end of July and where China's
leaders chart a policy course for the rest of the year.
Events to watch for on Friday:
* U.S. corporate earnings: American Express, Huntington Bancshares,
Schlumberger, Comerica, Regions Financial, Roper Technologies,
Interpublic,
![](http://archives.lincolndailynews.com/2023/Jul/21/images/ads/current/nutrienag_sda_HEROES_2023.png)
* Canada June house prices, May retail sales
* US Treasury Secretary Janet Yellen speaks in Hanoi
(By Mike Dolan, editing by Angus MacSwan; mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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