Stocks choppy as markets await next catalyst

Headlines

* Israel threatens to expand Rafah operation as US struggles to revive talks

* RBA keep policy unchanged; no hike bias sees AUD slide

* Gold slips as traders eye Fed rate cut path

* Dow rises for a fifth straight day Treasury yields tick lower

FX: USD finished higher after buying later in the day saw it move further away from 105. The greenback had been consolidating for most of yesterday, with no fresh catalysts after last week’s hectic few days of major risk events. Yields continued to drift lower for a fifth straight day. This could cap major upside in the dollar.

EUR finished lower for the first day in five. There were mixed data releases with German factory orders lower than expected, but decent trade figures. The 50-day and 200-day SMAs sit above, just below 1.08.

GBP sold off after four days of consecutive gains. Prices had been trading around the 200-day SMA, currently at 1.2547. There was more solid data, with construction PMI the highest in more than a year. Attention is on the BoE meeting on Thursday.

USD/JPY continued higher, further away from major support around 152. Yen weakness is down to a renewed focus on wide US/Japan yield spreads.

AUD underperformed after the RBA were not as hawkish as hoped. Prices again met resistance around 0.6641. USD/CAD rose as positive risk sentiment failed to offset falling crude oil prices.

Stocks: US equities printed in very narrow ranges, marginally higher on the day.  The broad-based benchmark S&P 500 finished 0.13% higher at 5,187. That was its fourth straight higher close and its best running win since March. The tech-heavy Nasdaq 100 lost 0.01% to close at 18,091. The Dow Jones settled up 0.08% at 38,884. Disney dragged on the indices as it slumped 9.51%. The streaming entertainment division posted a surprise profit but was eclipsed by a fall in its traditional TV business and weaker box office. Nvidia fell 1.72% after the WSJ reported that Apple was developing its own chip to run AI software. Tesla slid 3.72% on weaker China sales numbers.

Asian Stocks: APAC futures are mixed. Asian stocks traded mixed in contrast to the follow through buying we saw on Wall Street to kick off the week. The ASX 200 was higher with a late boost from the less hawkish RBA. The Nikkei 225 gained as it caught up after its day off. The Shanghai Comp snapped its 10-day win streak. That was its longest streak of gains since 2018.

Gold fell modestly as it continues to consolidate around $2300.

Day Ahead – USD/JPY and RBA Meeting review

Traders are watching to see if the Japanese authorities will intervene again to try to support the yen. Japanese interest rates remain exceptionally low which means that yield differentials between the US and Japan remain wide. That means the carry trade also remains attractive as JPY is the funding currency of choice. The carry trade is where investors borrow in yen and invest in dollars, which weakens the yen and strengthens the greenback. In addition, this is helped by lower volatility that has returned to markets since the Fed meeting last week. Markets may increasingly want to test Tokyo’s resolve.

The Aussie’s softness reflects the RBA decision to hold its key policy rate unchanged and maintain a neutral policy bias. Traders had probably anticipated a more hawkish message. The central bank noted inflation was not coming down as quickly as expected and lifted its inflation forecast slightly. But after the higher-than-expected Q1 inflation data, positioning was mildly more hawkish. Services inflation is the kicker which means the bank didn’t rule anything in or out regarding rates.

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