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Markets:
- Gold flat at $1806
- US 10-year yields down 8.5 bps to 2.89%
- WTI crude oil up $2.51 to $108.29
- S&P 500 up 1.1%
- JPY leads, AUD lags
This was a holiday-thinned trade with Canada out and many US traders heading out early for the long weekend but it was also the start of a new month of trade.
There were some massive moves in FX and bonds. The dollar and yen soared in Asia and Europe with the euro, pound and Australian dollar crumbling. The latter ran stops after busing the May low and fell to 0.6765, which is the lowest since June 2020.
In the bond market, 5-year yields were down 22 bps at the lows to 2.88%, a far cry from 3.62% on June 14. It’s a similar story across the curve as it bull flattens. The Fed funds market has taken down the terminal top to 3.34% in Feb and falling 50 bps over the remainder of the year from there.
The moves in the dollar and bonds both unwound to some extent. 5-year yields halved the decline while the dollar did the same.
EUR/USD fell as low as 1.0367 before bouncing to 1.0422. Cable was even more intense in a swan dive to 1.1971 before bouncing 130 pips (and still ending down 85 pips).
The commodity currencies turned around with the loonie finishing nearly flat with the help of oil and gas, far outperforming its commodity cousins. I’d caution on that trade as Canada was out.
The yen was the winner on the day as spread compression becomes the norm. The BOJ may have won the war if inflation starts coming down again and so do international bond yields. That will be an interesting one to watch in the days ahead.
