STATE OF THE MARKETS

Stocks, bonds and the Dollar dropped. US stocks dip lower on Monday after Fed officials signaled a 75 basis point rate hike was most likely in the July FOMC meeting, though investors priced in a full point hike is possible. S&P (-0.84%) fell the most, followed by Nasdaq (-0.81%), Dow (-0.69%) and Russell (-0.34%) as the Dollar pulled back to the 106.80 barrier. Expecting another hike, bonds were sold off across the board, sending yields higher, with the 10Y benchmark piercing back the 3% mark.

In the commodity markets, lower Dollar sent major commodities higher, with crude rebounded and settled higher around $98.70/bl while gold was on firm support at the $1,700/oz handle. Elsewhere, iron ore was little changed at around $106.70/tn as investors await for the next catalyst.

In the FX space, King Dollar was sold alongside Loonie, Swissy, Kiwi and Yen in the short and medium term accounts while Sterling, Aussie, Euro, Loonie and Kiwi were in demand. Long term accounts were noted to back into selling Yen while buying Sterling.

On Tuesday, markets expect a higher volatility as earnings seasons kicked into higher gears with reports from Johnson & Johnson (JNJ), Novartis (NVS), Lockheed Martin (LMT), Netflix (NFLX), Truist Financial (TFC), Haliburton (HAL), Citizens Financial (CFG) and JB Hunt Transport (JBHT) as well as the latest numbers on US housing markets.

OUR PICK – EUR/JPY

Long term sentiment remains bearish. Though short and medium term sentiments have improved, long term remains bearish as risk of Euro Zone fragmentation was highlighted by the ECB. Euro bonds were sold off for the past few weeks, forcing yields to spike higher and ECB has called for an emergency meeting to address the higher borrowing costs for governments. Yen traders might be willing to buy Euro albeit at a lower exchange rate unless the issue is resolved.