The AUD is the strongest and the CAD is the weakest as the North American session begins. The USD is weaker a day after rising sharply. Recall from yesterday, the leaders of major central banks at the European Central Bank’s annual gathering in Sintra, and expressed hawkish sentiments.

• ECB President Christine Lagarde confirmed a potential rate hike in July (she said September was data dependent, however),
• Federal Reserve Chair Powell mentioned the possibility of consecutive rate increases once again.
• Bank of England Governor Andrew Bailey indicated that tight monetary conditions would persist due to elevated inflation in the UK.

However, Bank of Japan Governor Kazuo Ueda diverged from his counterparties trend, emphasizing the need for an accommodative monetary policy in Japan due to low underlying inflation.

Today, Powell noted that a significant majority of the Federal Open Market Committee (FOMC) expects multiple interest rate hikes to be appropriate by the end of the year, acknowledging the tightness of the labor market. Additionally, he recognized that inflation is currently exceeding the Federal Reserve’s target. The potential impact of tighter credit conditions on the economy remains uncertain, and Powell emphasized the importance of not taking the resilience of the financial system for granted. Lastly, he mentioned that while rate hikes have been implemented, it will take time for the broader economy to fully feel the effects of these actions.

As the week comes to an end, upcoming inflation releases will provide further data for the central bankers and markets to digest. Spanish consumer inflation slowed to 1.9% in June, below the European Central Bank’s target of 2% (although was higher than expectations).

German preliminary CPI came in at 0.3% MoM and 6.4% YoY. The national HICP MoM 0.4% vs 0.3% expected and 6.8% vs 6.7% expected. Data is not behaving.

The euro area’s CPI index will be released on Friday, with expectations of continued price growth at 5.6% YoY and 5.5% for the core. Additionally, Friday will see the final reading of the U.S. core PCE price index will be released (est. 0.3%), and Tokyo’s core consumer price data (est 3.4%), which serves as a leading indicator for Japan’s nationwide figures.

Be aware today for some large option strike levels in play for the 10 AM fixing. The bigger the strike expiration, the bigger the cash hedge and magnetic effect on FX spot.

• EUR/USD at 1.0925 is surrounded by 3.5-billion euros of nearby strikes. The current price is just above that level at 1.0933

• GBP/USD has been trading around £542-million 1.2665 strikes. The current price is about 8 pips above that level at 1.2653

• USD/CHF capped by $2-billion 0.8980-0.9020 strikes. The price high today stalled between those areas and backed off to the downside. • USD/JPY amid $3.5-billion strikes between 144.00-144.50. The price trades between those levels at 144.22

In other news, late yesterday, the Federal Reserve announced that all major U.S. banks have successfully passed the annual stress tests. The tests, which included scenarios such as high unemployment and a decline in real estate prices, demonstrated the resilience of the 23 largest banks. It is important to note that these stress tests are mandatory only for the largest banks, while concerns earlier in the year focused on midsize and regional banks. Now, investors eagerly await updates from the major banks regarding their plans for stock buybacks and dividends, which typically follow the successful completion of the stress tests.

U.S. futures are trading higher in pre-market trading, which is helped by the positive earnings report from Micron and the positive bank stress test news. The major equity averages are on track to deliver a solid first half of 2023, with the S&P 500 up 14%, the Nasdaq Composite gaining nearly 30% (its best first half since 1983), and the Dow Jones Industrial Average rising by 2% so far this year. Nike’s quarterly results, with potential concerns over slowing sales in North America impacting the athletic apparel maker’s performance.

Today’s economic calendar features several key indicators in the United States, including the final GDP, unemployment claims, GDP price index, and pending home sales, with expectations and previous figures providing insight into the current economic landscape.

At 8:30am:

• Final GDP q/q (USD): Expectation is a growth rate of 1.4%, compared to the previous rate of 1.3%.
• Unemployment Claims (USD): Expectation is 264K, which is the same as the previous figure.
• Final GDP Price Index q/q (USD): Expectation is a growth rate of 4.2%, consistent with the previous rate.

At 10:00am:

• Pending Home Sales m/m (USD): Expectation is a decrease of 0.5% in the month-on-month comparison, whereas the previous figure showed no change (0.0%).

A snapshot of the markets currently shows:

• Crude oil is trading up $0.23 at $69.79
• Spot gold is trading up $2.40 or 0.13% $1910.12
• Silver is up $0.12 or 0.55% $22.82
• Bitcoin is trading higher at $30,645. That is up from the near 5 PM level at $30,080

In the premarket for US stocks, the major indices are trading modestly higher in premarket trading

• Dow Industrial Average is trading up 118 points after yesterday’s -74.08 point decline
• S&P index is trading up 15.5 points after yesterday’s -1.55 point decline
• NASDAQ index is trading up 69.17 points after yesterday’s 36.08 point rise

In the European equity markets, the major indices are trading mixed

• German DAX up 0.28%
• France’s CAC up 0.73%
• UK’s FTSE 100 down -0.29%
• Spain’s Ibex up 0.33%
• Italy’s FTSE MIB up 1.00% (delayed)

In the Asian Pacific market today, markets were mixed

• Japan’s Nikkei rose 0.12%
• Australia’s S&P/ASX 200 index fell -0.02%
• China’s Shanghai composite index fell -0.22%

In the US debt market yields are higher

• 2-year yield 4.374% +3.8 basis points
• 5-year yield 4.017% +4.5 basis points
• 10-year yield 3.748% +3.7 basis points
• 30-year yield 3.832% +2.8 basis points

In the European debt market, benchmark 10-year yields are higher:

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