• Japan financial authorities express concern about rapid yen weakening

Reuters have a follow-up piece posted with some remarks out of Tokyo on levels and potential co-ordinated intervention (not expected):

• „Tokyo could intervene if the yen slides below 135 to the dollar and starts going into a free fall. That’s when Tokyo really needs to step in,“ said Atsushi Takeda, chief economist at Itochu Economic Research Institute in Tokyo.

• „But Washington won’t join so it will be solo intervention. For the United States, there’s really no merit in joining Tokyo on intervention.“

I mentioned 135 as a level last week, but said it was my wild-ass guess. I suspect maybe this 135 is pretty much the same, but hey, maybe not. I think the key words are „if the yen … starts going into a free fall“. „Free fall“ is what we’ll have to interpret. Looking at the chart below …. what’s it gonna take???

With the US CPI data on Friday sending yields into the opposite of a free fall (ie. they are surging) ready yourselves for a push at 135 and above for USD/JPY in the week to come.

This article was written by Eamonn Sheridan at www.forexlive.com.

• US May CPI +8.6% y/y vs 8.3% expected
• US June prelim UMich consumer sentiment 50.2 vs 58.0 expected
• Canada May employment change 39.8K vs 30K estimate
• US May federal budget deficit $66 vs $120 billion expected
• ECB’s Nagel: Confident that inflation expectations can get back to levels we want to see
• ECB’s Kazaks: Gradual rate hikes does not mean slow
• Bank of Italy lowers 2022 GDP forecast to 2.6% from 3.8% in January
• US Treasury report concludes no country is manipulating its currency

Markets:

• S&P 500 down 117 points, or 2.9%, to 3900
• US 10-year yields up 11.3 bps to 3.155%
• WTI crude oil down 86-cents to $120.65′
• Gold up $23 to $1871
• USD leads, GBP lags

Jitters were running high ahead of the May US CPI report but the reality was even worse than the fears. All the numbers in the report were high and with oil prices continuing to strengthen, there’s no visible relief on the horizon.

The market reaction suggests a re-think on the pace and terminal top of rate hikes was underway today. It meant a stronger US dollar and higher Treasury yields along with a dramatic selloff in stock markets.

The moves in the dollar weren’t as large on most fronts. The commodity currencies fell 50-80 pips in the second day of declines.

The euro fell a full cent as the talk of ECB rate hikes is replaced by fears of a European recession and sovereign debt crisis. The pound was hit even harder, falling 180 pips as it played some catch up with recent risk aversion. The fall to 1.2310 is the lowest since May 15.

The crux of the problem is shown most-clearly in bonds. US 2-year yields rose a whopping 25 basis points to 3.065%. That’s the first trip above 3% — which is a crucial level — since 2008. The long end held in for a period but eventually puked as well, pushing 10-year yields up 11 basis points to 3.15%. That leaves 2s/10s at just +9 basis points, while 5s/30s inverted on Friday.

We finished near the extremes in FX for the second day in a row.

This article was written by Adam Button at www.forexlive.com.

The stronger than expected CPI reversed premarket stock gains and pushed the major indices lower. A weaker Michigan consumer sentiment didn’t help with the overall sentiment.

• The weekly percentage declines in the Dow, S&P, and NASDAQ weeks was the worst since January 21
• Major indices closed near lows for the day
• Dow Jones is down 10 of the last 11 weeks
• NASDAQ and S&P is down 9 of the last 10 weeks
• All 11 S&P sectors were lower. The worst sector was consumer discretionary which fell over -4.1%. Technology fell -3.9%, Financials fell -3.65%. Consumer staples was the best performer at -0.38%

The final numbers for the day are showing:

• Dow industrial average fell -880.02 points or -2.73% at 31392.80
• S&P index fell -116.96 points or -2.91% at 3900.85
• NASDAQ index fell -414.19 points or -3.52% at 11340.03
• Russell 2000 fell -50.57 points or -2.73% at 1800.28

For the trading week:

• Dow fell -4.58%
• S&P index fell -5.08%

• NASDAQ index fell -5.6%
• Russell 2000 fell -4.41%

Looking at the Dow 30, the worst performers were:

• Dow, -6.06% -6.06%
• Goldman Sachs -5.48%
• Boeing, -5.05%
• J.P. Morgan, -4.65%
• Salesforce, -4.6%

The only winning stock in the Dow was Walmart with a gain of +0.63%. The best of the worst showed:

• Verizon fell -0.16%
• Procter & Gamble fell -0.36%
• Walgreens boots fell -0.43%
• Coca-Cola fell -0.58%

After the close Tesla has proposed a 3 for1 stock split. The stock closed at $696.69. In after-hours trading it is trading up to $716.23.

Amazon shares went through their 20 for 1 stock split this week. For the week after a rise on Monday, the shares are ending the week down -10.38%.

This article was written by Greg Michalowski at www.forexlive.com.

It’s increasingly clear that the Fed is now in the middle of one of the most-rapid tightening cycles ever. For next week’s meeting, the market now sees an 18% chance of a 75 basis point hike with at least 50 bps as a certainty.

Just a few weeks ago there was talk about a pause after another 50 bps hike in July but now at least 50 bps more is priced in for September with more beyond.

Here’s the most likely path, as implied by Fed funds futures:

June 15: 50 bps to 1.25-1.50%

July 27: 50 bps to 1.75-2.00%

Sept 21: 50 bps to 2.25-2.50%

Nov 2: 50 bps to 2.75-3.00%

Dec 14: 25 bps to 3.00-3.25%

That would be a cycle of five straight 50 basis points hikes (including last month) with the Fed trying to get back ahead of the curve. Into 2023, hikes continue to be priced up to 3.50-3.75% at this time next year.

CIBC boosted its baseline by 25 bps today but still thinks what the market is pricing is too much, and the way markets are tumbling, they may have a point.
Total annual inflation is set to remain elevated for longer, given the rise in oil prices and the
continued pressure on food supply chains. While core annual inflation could still decelerate in June, that will reflect base
effects. We’ll need to see an unwinding of supply chain issues and a slowdown in shelter costs to drive inflation closer to
target, and this data suggests that the Fed will want to get rates up a bit sooner, and a quarter point further, than our prior
forecast. Four 50 basis point hikes this year will take the ceiling for the funds rate to 3%, but unlike market expectations
for further hikes, we expect that to produce enough of a growth slowdown to quell inflation in 2023.
At this point, the top is unknowable but anyone looking to hold any kind of risk trade needs to shelter themselves against a storm in rates.

This article was written by Adam Button at www.forexlive.com.

It’s been seven terrible weeks for most global financial markets but seven straight weeks of gains in crude oil.

WTI finished down by 84-cents on Friday but climbed $1.80 on the week. It’s the highest finish to a Friday since 2008.

Earlier this year oil spiked as high as $130.50 when the Ukraine war broke out but it was a short-lived spike and finished that week at $109.33.

The latest rally has come on signs of persistent shortages despite Chinese lockdowns, more OPEC supply and the SPR release. The next challenge is the risk of rapidly-slowing global growth amidst higher rates.

So far though, crude has passed all the tests and technically, not much stands in the way of a return to $130.

Even today with all the bearishness in stocks and bonds, the 0.7% decline is hardly material. WTI fell as low as $118.33 but rebounded more than $2 from the lows.

For the weekend, two spots to watch are Libya and Norway. In Libya, rebels are threatening to block another port while in Norway workers could announce a strike.

Demand destruction is likely creeping in; in part because gasoline and diesel prices are even-higher than they should be, because of refinery problems. Yesterday, US retail gasoline prices hit $5/gallon on average nationally for the first time.

This article was written by Adam Button at www.forexlive.com.