STATE OF THE MARKETS

Stocks down amid safe haven flows. US stocks closed lower on Wednesday ahead of the inflation reports and Fed’s meeting next week. Dow (-0.44%), Nasdaq (-0.09%) and S&P (-0.18%), including Russell (-0.71%); all trended lower as investors flock to bonds safety, forcing 1M (-3.08%), 3M (-2.54%), 5Y (-2.74%) and 10Y (-2.55%) yields edged lower as New York closed.

Crude futures that broke the $70.50/bl barrier, closed below $70, as EIA reports shows that inventories rose more than expected as Summer began. Gold was in a tight range, $1899.40 to $1886.58/oz, as investors awaited the inflation numbers that could push the precious metal to either side.

Flight to safety was manifested in the FX space as Swiss seized the helm of demand while King Dollar was synching across all accounts’ horizons. Commodity currencies of Aussie and Kiwi remain on offers together with Sterling that lost bid as tensions over Ireland arises between UK and Europe. Euro seems to be on firm bid ahead of the ECB decision Thursday.

OUR PICK – USD/JPY

Short-term upside, medium-term downside. Our FX sentiments show a short term upside and a medium term downside for USD/JPY as markets battle between rates, inflation and Biden’s infrastructure spending. Annual inflation is expected higher (4.7% vs 4.2%) while monthly is lower (0.4% vs 0.8%) which all put Dollar in limbo. If numbers were actually higher, then we could see stocks tumble as markets expect yields to rise, hence Dollar bidding. The dilemma that plague Dollar bulls are the new $6 trillion infrastructure spending that have been the talk of talks ever since the Obama administration. The bill never was passed, Trump tried but failed; and now Biden brought it back to the table. If passed, it will literally kill the Dollar. If it’s just another talk for politicians to get ground support, then Dollar might still stand a chance to rally on short covering.