• US equities grind lower amid cautious sentiment ahead of the key US CPI.
  • US 10-year Treasury yield drops to the lowest since March.
  • GameStop declines after market on firm’s rejection to forward guidance.
  • US-China tussles escalate, challenges for tech sector identified.

Given the risk sensitivity over ahead of the key data/event, US shares remained on the back foot by the end of Wednesday’s North American trading session. The sentiment could also be traced to a lack of major catalysts even as the Sino-American tensions grow stronger.

Market’s measures of volatility, Volatility Index (VIX), dropped to the lowest in over a year amid cautious sentiment as traders await the US Consumer Price Index (CPI) amid mixed clues. Also on the wait-list is the European Central Bank’s (ECB) monetary policy meeting. The ECB is less likely to entertain markets, except for being important due to the economic guidance, whereas the battle between the early signals of the US CPI and the Fed’s rejection to reflation fears wobble investors.

It’s worth noting that the US Senate’s passage of a $200 billion bill to ward off reliance on some of the Chinese technology joins the latest push by the US antitrust lawmakers to weigh on the big technology firms to weigh on the sentiment. Even so, “meme” stocks remained volatile and so do the US bonds.

Against this backdrop, Dow Jones Industrial Average (DJI) dropped 0.44% or 152.68 points to 34,447.14 whereas S&P 500 came in second with 0.18% downside, or 7.71 points, to 4,219.55. Nasdaq also posted losses on the day, down 0.09% or 13.16 points to 13,911.75.

Drugmakers like Pfizer and Merck benefited from US President Joe Biden’s covid vaccine donation plans whereas the social-media-frenzy ace GameStop couldn’t cheer upbeat earnings, -$0.45 EPS versus -$0.71 expected, as the firm keeps refraining from forwarding guidance. Further, shares of AMC and Bed Bath & Beyond also closed lower.

It’s worth noting that the steady US Wholesale Inventories and upbeat MBA Mortgage Applications couldn’t entertain traders ahead of the week’s crucial events.

Read: US CPI May Preview: Inflation angst is coming

As per the draft communiqué of the two-day meeting of the Group of Seven (G7) nations starting from Friday, conveyed by Bloomberg, “The Group of Seven leaders is set to vow to deliver at least 1 billion extra doses of vaccines over the next year to help cover 80% of the world’s adult population.”

The document, seen by the Bloomberg report also cites the global policymakers’ plan to end the pandemic by December 2022.

Additional details (via Bloomberg):

G-7 pledge to better tackle forced labor in global supply chains, including in the solar and garment sectors and involving state-sponsored forced labor of minorities. While that section does not mention China by name, it follows global criticism of its treatment of Uyghur Muslims in Xinjiang.

Calls for a fresh, transparent, WHO-convened study into the origins of the coronavirus.

There is a call for Russia to hold to account groups within its borders who conduct ransomware attacks, use virtual currencies to launder ransoms, and carry out other cybercrimes.

The group welcomes the recent talks toward a full resumption of the 2015 Iran nuclear deal, while condemning its use of proxy forces and non-state armed actors.

FX implications

Given the market’s current focus on the US Consumer Price Index (CPI) for May and the ECB meeting, the news failed to generate any reaction. That said, the S&P 500 Futures remain depressed by the press time of early Thursday morning in Asia.

The Financial Times (FT) came out with the early signals of how the first UK-US talks between British Prime Minister Boris Johnson and his American counterpart, President Joe Biden, will take place during Thursday’s key meeting in London.

“At their first face-to-face meeting, the UK prime minister and US president are expected to announce a task force charged with reopening transatlantic travel and agree in principle a deal to jointly develop technology, including artificial intelligence,” said FT.

The report also states, “But the meeting in Cornwall ahead of the G7 summit is set to also involve tensions: Biden will urge Johnson to work with the EU to end the stand-off over post-Brexit trading arrangements for Northern Ireland (NI).”

Elsewhere, The Times flashed the headlines saying, “Biden accuses Johnson of ‘inflaming’ Irish tensions.”

Market reaction

Although the news becomes a blow to the healthy market sentiment, be it from the Brexit point of view or concerning the western tussle with China, anxiety ahead of the key US inflation and ECB keeps the risk catalysts tight-lipped by the press time. That said, the GBP/USD also holds lower ground near 1.4115, after a two-day drop, by the press time of early Thursday morning in Asia.

  • AUD/USD holds lower ground after a two-day fall.
  • US 10-year Treasury yields dropped to the lowest since March amid anxiety.
  • Data from Australia, China falls short of entertaining traders, so do RBA’s Kent and Aussie Treasurer Frydenberg.
  • Australia Consumer Inflation Expectations may offer intermediate moves but all eyes are on the US CPI.

AUD/USD kick-starts Super Thursday by keeping the previous declines, directed towards 0.7700, around 0.7730 amid the initial Asian session. This in turn reversed the early-week gains, printing mild weekly losses by the press time. Despite a lack of activity, nervous sentiment ahead of the crucial US inflation data release kept the risk-barometer pair pressured the previous day and could pressure the moves ahead of the catalyst. However, Australia’s Consumer Inflation Expectations for June can entertain markets.

Crunch time…

AUD/USD traders paid a little heed to the domestic factors while taking clues from the broad macro, mainly the risk-sensitivity ahead of the important US economics, on Wednesday. IN doing so, the quote ignored upbeat comments from Aussie Treasurer Josh Frydenbegn and RBA Assistant Governor Christopher Kent, not to forget weaker-than-expected Westpac Consumer Confidence, -5.2% versus -4.8%, for Australia.

China’s strongest Producer Price Index (PPI) since 2008, in contrast to the downbeat Consumer Price Index (CPI), for May, were also among the catalysts that got a dull welcome.

Other than the pre-data caution, escalating tension between the US and China also contributes to the sluggish sentiment. The US passage of a bill, through the Senate, aiming to compete with Chinese tech, followed by Beijing’s expected response, preceded the draft communiqué for the G7 suggesting new examination of origins of the covid. This could be traced to US Secretary of State Antony Blinken’s previous vow, per Axios, to hold China accountable for covid origin.

Elsewhere, vaccine optimism increases and so do chatters surrounding US stimulus but nothing could gain major attention than the wait-and-watch mood ahead of the US CPI ex Food & Energy (Core CPI) for May, expected 3.4% versus 3.0% prior YoY.

Amid these plays, US 10-year Treasury yields declined four basis points (bps) to 1.49%, the lowest since March whereas the Wall Street benchmarks portrayed another sluggish day.

Although global markets and the AUD/USD prices are likely to remain subdued ahead of the key data, the expected strength of Aussie Consumer Inflation Expectations for June, forecast 3.6% versus 3.5% previous readouts, may trigger the quote’s consolidation.

Read: US CPI May Preview: Inflation angst is coming

Technical analysis

A gradually firming bearish bias below 21-day SMA and a three-week-old falling trend line, respectively around 0.7745 and 0.7770, backs 0.7675 re-test.