US Open Note – Stocks near highs and dollar flickers green on hawkish Fed rhetoric

Markets prepare to digest Lagarde’s speech and US consumer confidence data

After Friday’s weaker than expected PCE inflation, and expected tapering talk over the summer, not to mention yesterday’s confident tone from Fed officials around their inflation goal, the main focus will turn to Friday’s payrolls report for clues in the labour sector. 10-year yields are at 1.48% and the dollar index is prodding above the 92.00 mark as the greenback’s reach is being felt across the forex arena, subduing the euro below the $1.1900 figure and suppressing cable near the $1.3800 barrier. The euro and pound saw little improvement from the results of the German inflation m/m figure and the lending numbers in the UK. The US housing sector is also holding strong with a 1.8% house price index result for April beating the estimate of 1.5% m/m.

ECB’s Lagarde is due to speak today at 13:40 GMT and a potential dovish speech could be validated by today’s inflation data. ECB President Lagarde is likely to reiterate vigilance around the recovery, and progress made with respect to inflation, but this could weigh on the common currency, a move that could be exacerbated with a strong US consumer confidence gauge for June, from the Conference Board.

Fresh strength in the world’s reserve currency has managed to provide some footing for the USD/JPY pair, securing it above the 110.00 per dollar barrier. Moreover, it has been boosted by recent weakness in the antipodean currencies.

Countries with sluggish inoculation campaigns like Australia are experiencing a new wave of infections linked to the delta variant, which has brought about new lockdowns in many parts of the country and resulted in a halt on the travel bubble between New Zealand.

Delta strain drags oil down; commodities draw attention

Despite OPEC members agreeing on curbing supply, WTI oil futures extended yesterday’s pullback from its 32-month high temporarily breaching the $72.00 per barrel mark after concerns that global demand may ease, as the Covid-19 Delta variant threatens to reawaken economy-wide lockdowns. In spite of recent setbacks in metals, the broader picture for commodities moving into the year is positive. Gold has managed to keep its feet above $1,764/oz and silver is ranging around the $26.00/oz level.

Nonetheless, the concern remains that commodity inflation could become an issue for businesses as economies struggle to keep up with the pace of economies reopening and demand surges, especially in developed countries. Moreover, droughts across parts of North America are triggering surges in agricultural prices at a time when the Fed is trying to get a clear picture on inflation.

ECB President Lagarde is due to start speaking at 13:40 GMT, while at 14:00 GMT the US consumer confidence gauge is expected.

Then at 16:00 GMT President Weidmann of the Bundesbank is speaking.

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