First Light News: Quarter-end Crosscurrents, Hormuz Risk & JPY Hits 40-Year Lows

Today is the final trading day of June, the end of the quarter, and the first half of the year. So, in addition to geopolitics and event risk, it is worth noting that portfolio rebalancing could distort flows unrelated to fundamentals.

Stateside, it was green across the board for key US equity benchmarks yesterday, with most posting daily Morning Star bullish patterns. At the sector level, consumer discretionary (XLY) and technology (XLK) led the charge. The S&P 500 is also on track to notch its best quarter since 2020, but even more impressive is South Korea’s KOSPI, which is up more than 70% in Q2!

Oil Benchmarks Hold Support Ahead of Doha Talks

In the commodities complex, bids and offers are roughly balanced right now, with Brent crude and WTI finding temporary support at US$72.40 and US$69.70, respectively. The US and Iran are set to meet in Doha today, potentially offering fresh insights after a weekend of renewed strikes around the Strait of Hormuz.

Whether Oman plays ball or not, the Iranians are pushing to exert control over the Strait and to charge tolls. The US has said this is unacceptable, and I feel this will keep a geopolitical premium baked into energy prices for a while yet.

JPY Breaches ¥162 & Hits 40-year Lows

For FX, the JPY is, once again, in the spotlight this morning after USD/JPY popped above the ¥162 mark – its first time since 1986. This comes despite comments from Japan’s Finance Minister. As you would expect, the move has reignited speculation that Japan’s MoF will step in following April-May’s record ¥11.7 trillion defence of the currency, which clearly did very little to help. Therefore, it is worth keeping a close eye on MoF/BoJ statements and jawboning.

However, we are now firmly in intervention territory. With the USD on firm footing and the yield differential between the US and Japan still wide, the MoF has its work cut out for them. This is especially true if Fed Chairman Kevin Warsh comes out hawkish at the ECB forum this week or if we see a solid US May jobs report on Thursday. Notably, markets are pricing in a 50/50 chance of a rate hike this year, with the Bank of America recently calling for three rate hikes!

Eurozone Inflation, Canadian GDP & US JOLTS in Focus

We have a string of eurozone inflation prints today, including French and German data, with the bloc-wide report due tomorrow, helping to build the picture of whether the ECB still has room to hike this year. Money markets are pricing in one full rate hike, plus a 20% chance of another, which I feel is excessive. Any softness in the eurozone inflation data 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.

The April Canadian GDP figures hit the wires today, with economists expecting a modest 0.4% expansion, matching March’s reading. I do not see this print as a game-changer, with most of the focus on Thursday’s US jobs report. A soft-but-not-disastrous Canadian number that simply confirms the BoC’s wait-and-see stance is unlikely to move USD/CAD much on its own.

From the US, focus shifts to the May JOLTS job openings report and the Conference Board’s consumer confidence reading. A positive jobs print would likely see US yields bear flatten and the USD catch a bid, while disappointing figures may weigh on the USD.

Written by FP Markets Chief Market Analyst, Aaron Hill