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FXStreet notes that the latest SNB quarterly policy update, including the annual financial stability report, passed by without fanfare. In the view of economists at CIBC, the persistent easy policy bias is expected to mean a weaker Swiss franc.

“The SNB acknowledged an improved macro environment due to a pickup in global trade, a move which will benefit Swiss exports and support the current account surplus. However, the CPI upgrade proved marginal, in contrast to most global central bank counterparts. Although the CPI peak for this year was modestly revised up, annual inflation is expected to come in at only 0.6% in both 2022 and 2023. The expected CPI shortfall over the forecast horizon underlines a persistent easy policy bias.”

“We expect policy to remain on hold into 2023 despite the fact that the central bank upgraded their 2021 GDP assumption to 3.5%, compared to 2.5-3.0% in March.”

“In view of the persistent CHF overvaluation, and the fact that intervention is the primary policy tool, we expect the SNB to continue to intervene as necessary.” 

“With the SNB set to remain resolutely on hold, we look for widening implied rate spreads versus the USD, encouraging a correction in the recent accumulation of CHF longs, from three-month extremes. Look for a positioning reversal to pace a weaker CHF in H2.”

eFXdata reports that analysts at CIBC Research discuss today's U.S. CPI print for June.

"Price pressures were scorching hot in the US in June, as surging demand combined with supply chain issues to lead the way higher. Total monthly prices rose by 0.9%, well above the consensus forecast of 0.5%, leaving annual inflation at 5.4%. A sharp rise in used car prices accounted for over one-third of that monthly gain, adding to the jump in energy prices. Excluding energy and food, prices also increased by 0.9% on the month, above the consensus expectation of 0.4%, leaving annual core inflation at 4.5%, close to a thirty-year high."

"Another upside surprise in inflation suggests more widespread impacts of supply chain issues, and raises further questions about how quickly these factors will fade amidst strong demand. Ultimately, with economic slack expected to be eliminated later this year, price pressures should be firm enough through 2022 to see the Fed hike rates in the second half of that year."

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that aluminium (LME) still has the 2603.00 May high and above in its sights while remaining above the 2304.50/2301.00 zone.

“Aluminium remains side-lined below the May high at 2603.00 which remains in sight, though. Above it lie the February 2006 and November 2007 highs at 2661.00/2678.10. If exceeded, the July 2006 high and April 2018 peak at 2710.00/2718.00 would be targeted as well.” 

“Minor support is still seen at the current July low at 2432.00 and along the six-month support line at 2422.40 as well as at the early June low at 2390.50 and the June low at 2352.00. While remaining above the latter, upside pressure should remain in play.  Below the next lower March high and May low at 2304.50/2301.00 the 2020-2021 support line can be found at 2257.59, the February high at 2243.00, and the late March low at 2206.00.”

• Short-term uncertainty remains but recovery is not at stake
• We must be patient and tolerant with deviations that we would not tolerate previously
• Risk of losing credibility if ECB's new guidance does not show more leeway on inflation
• There is no inflation overshooting logic in the strategy
• Increase in eurozone inflation is eminently temporary
• More room for manoeuvre on monetary policy than previously
• ECB has not changed its mandate, in which priority is price stability. It isn’t a dual mandate like that of the U.S. Federal Reserve - growth and price stability

• Says Swiss long-term inflation expectations remain well-anchored
• SNB has high degree of credibility in markets and with the public
• Monetary policy is already flexible and symmetric; it has served us well
• Our framework has given us ability to deal with external pressures

U.S. stock-index futures declined on Tuesday, as hotter-than-expected CPI data for June overshadowed a strong start to the Q2 corporate earnings season.  

Global Stocks:

FXStreet reports that Jane Foley Senior, FX Strategist at Rabobank, notes that the market will be digesting the messages from Chinese and US economic data this week to decide whether ‘peak growth’ is a concern or whether it is too early to rein in risk appetite. While USD/JPY has recovered from last week’s lows, the existence of these concerns has likely capped upside potential for now, he suggests.

“Our 1 and 3 month USD/JPY forecasts stand at 111.00. This assumes no sharp retrenchment of risk appetite through the summer which would benefit the JPY.” 

“We expect the debate regarding the potential for Fed tightening to keep the USD well supported while a dovish BoJ is likely to keep the carry trade alive for JPY based investors.”

“If US inflation is firm enough to keep alive the debate about the possibility of a Fed rate hike in late 2020, USD/JPY is likely to edge higher.”

(company / ticker / price / change ($/%) / volume)

Boeing (BA) upgraded to Peer Perform from Underperform at Wolfe Research; target $224

The Labor Department announced on Tuesday the U.S. consumer price index (CPI) jumped 0.9 percent m-o-m in May, following an unrevised 0.6 percent m-o-m gain in the previous month. This was the largest one-month rise in headline CPI since June 2008.

Over the last 12 months, the CPI climbed 5.4 percent y-o-y, accelerating from +5.0 percent y-o-y reported for the period ending in May. This was the highest reading since August 2008.

Economists had forecast the CPI to increase 0.5 percent m-o-m and 4.9 percent y-o-y in the 12-month period.

According to the report, the index for used cars and trucks continued to rise sharply, surging 10.5 percent m-o-m in June. This gain accounted for more than one-third of the seasonally adjusted all items advance. Meanwhile, the food index climbed 0.8 percent m-o-m, while the energy index jumped 1.5 percent m-o-m.

The core CPI excluding volatile food and fuel costs also rose 0.9 percent m-o-m in June after an unrevised 0.7 percent m-o-m gain in the previous month.

In the 12 months through June, the core CPI surged 4.5 percent compared to an unrevised 3.8 percent advance for the 12 months ending May. This was the largest 12-month increase since November 1991.

Economists had forecast the core CPI to rise 0.4 percent m-o-m and 4.0 percent y-o-y last month.

• We will keep China's economic operations within reasonable range
• We will maintain continuity and stability of macro policies

FXStreet reports that an economist at UOB Group Ho Woei Chen, CFA, and a senior FX strategist Peter Chia assess the recent RRR cut by the PBoC.

“On Friday (9 July), the People’s Bank of China’s (PBoC) announced a 50 bps cut to banks’ Reserve Requirement Ratio (RRR) that will take effect on 15 July. This applies to all financial institutions except those with RRR of 5.0%.”

“The move will reduce financial institutions’ weighted average deposit reserve ratio to 8.9% and is estimated to release CNY1 trillion of liquidity into the system.”

“In its press communication, the PBoC affirmed that there is no change to its prudent monetary policy stance. The central bank will continue to keep monetary policy stable and maintain reasonable and sufficient liquidity, keeping the money supply and the growth rate of total social financing in line with the nominal GDP growth.”

“China’s monetary policy will continue to be guided by its principle of avoiding massive stimulus measures, even during the pandemic last year. The PBoC will continue to balance its growth objective with financial imbalance risks. Moreover, market liquidity has stabilized as seen in the overnight interbank rate which had previously spiked in January on concerns of tightening liquidity. Although economic growth is expected to slow in 2H21, we do not foresee outright monetary policy easing by cutting the benchmark Loan Prime Rate (LPR). Our forecast for the 1Y LPR and the 5Y & above LPR are unchanged at 3.85% and 4.65% respectively. We think one more RRR cut may still be possible to stabilize growth should the economic outlook falters in 2H2021.”

FXStreet reports that economists at Standard Chartered are bullish on CAD over a 12-month horizon and believe current corrective weakness offers attractive investment entry points over the short and medium term.

“The Canadian economy has rebounded quickly. Growth and employment data are strong. Canada has buoyant housing markets, favourable trade positions and a central bank that has already begun the path to monetary policy normalisation. We expect the latter to be reinforced by both the Bank of Canada tomorrow.”

“Canada has benefited from higher oil prices and strong US growth.”

“USD/CAD should encounter a band of strong resistance between 1.2550 and 1.2700, which can provide an attractive entry-level for an eventual decline below 1.2250 towards 1.2000."

Goldman Sachs (GS) reported Q2 FY 2021 earnings of $15.02 per share (versus $6.26 per share in Q2 FY 2020), beating analysts’ consensus estimate of $9.84 per share.

The company’s quarterly revenues amounted to $15.390 bln (+15.8% y/y), beating analysts’ consensus estimate of $12.172 bln.

GS rose to  $381.50 (+0.26%) in pre-market trading.

USD rose slightly against most of its major rivals in the European session on Tuesday as investors awaited the U.S. inflation data for June (due at 12:30 GMT), hoping to get indications on the timing of the U.S. Federal Reserve's potential scale-back of bond buying. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.1% to 92.34.

Economists forecast consumer inflation to have increased 0.5% m/m last month, slightly decelerating from May's +0.6% m/m. On y/y basis, the CPI is expected to have advanced 4.9% after a 5% jump in the previous month. Excluding food and energy costs, inflation is seen to have gained 0.4% m/m and 4% y/y. 

There are worries that the hotter-than-expected inflation data could compel the Fed to begin tapering its asset purchases soon.

Market participants also digested the comments of the St. Louis Fed president James Bullard, who said in an interview with The Wall Street Journal (WSJ) that he thinks that “the time is right to pull back emergency measures”, given the facts “the economy growing at 7% and the pandemic coming under better and better control.” He also added that “we do want to do it gently and carefully, but I think we’re in a very good position to start a taper.”

JPMorgan Chase (JPM) reported Q2 FY 2021 earnings of $3.78 per share, beating analysts’ consensus estimate of $3.09 per share.

The company’s quarterly revenues amounted to $30.500 bln (-7.9% y/y), beating analysts’ consensus estimate of $29.713 bln.

JPM fell to $156.20 (-1.14%) in pre-market trading.

FXStreet reports that FX strategists at UOB see USD/CNH to trade in a consolidative fashion, likely between 6.4600 and 6.5000 in the next weeks.

24-hour view: “We highlighted yesterday that ‘upward pressure has waned and the current movement is viewed as part of a consolidation’ and we expected USD to ‘trade between 6.4670 and 6.4900’. Our view for consolidation was not wrong even though USD traded within a narrower range than expected (6.4735/6.4829). The quiet price actions offer no fresh clues and USD could continue to consolidate. However, the slightly weakened underlying tone suggests a lower trading range of 6.4660/6.4870.”

Next 1-3 weeks: “...the risk for a higher USD has dissipated. The current movement is viewed as part of a consolidation phase and USD could trade within a 6.4600/6.5000 range for a period of time.”

FXStreet reports that analysts at Mizuho Bank suggest that the AUD/USD pair’s room on the downside looks set to widen in July.

“There are concerns that the pace of the economic recovery might slow on the two-week lockdowns implemented in Sydney (NSW) and other regions. The aussie will also be impacted by the RBA’s policy stance. In the US, meanwhile, the FOMC adopted a hawkish stance at its last meeting.” 

“It seems Australia’s domestic fundamentals to be released this month will continue to remain firm, but the AUD/USD pair could be weighed down by ongoing lockdowns.”

PepsiCo (PEP) reported Q2 FY 2021 earnings of $1.72 per share (versus $1.32 per share in Q2 FY 2020), beating analysts’ consensus estimate of $1.53 per share.

The company’s quarterly revenues amounted to $19.217 bln (+20.5% y/y), beating analysts’ consensus estimate of $17.975 bln.

The company also issued upside guidance for the full FY 2021, projecting EPS of ~$6.20 versus analysts’ consensus estimate of $6.09.

PEP rose to $151.84 (+1.56%) in pre-market trading.

• I think with economy growing at 7% and pandemic coming under better and better control, I think time is right to pull back emergency measures
• We do want to do it gently and carefully
• I think we’re in very good position to start a taper; I don’t need to get going tomorrow, but I think we’re in very good shape for this
• Says he does not believe the housing sector is in bubble and wants to ensure it stays out of trouble
• Does not expect Fed funds rate to be hiked until late 2022

FXStreet reports that analysts at CIBC anticipate some near-term consolidation for CNY and CNH and have revised forecasts for more modest appreciation accordingly.

“Changing rate expectations have the potential to narrow yield differential away from CNH favour, though there is still some way to go (10yr bond China 3.06 vs US 1.34). The Long-term relationship of USD/CNH to the spread between 10-year yields is near to equilibrium at present levels.” 

“China warnings of one-sided moves below 6.40, and ongoing efforts to use the occasion of strong growth this year to rein in levels of domestic leverage levels, have counted against forecasting standout CNH outperformance. Still, long-term GDP divergence and outperformance against other major economies continued strong demand for China assets, including for bonds, which helps to counter a slower pace of domestic credit expansion, instructs further medium-term CNH appreciation.”

CNBC reports that Morgan Stanley is urging investors to be cautious on Chinese stocks, given the country’s recent regulatory crackdown on its internet companies.

The investment bank reiterated its call to downgrade Chinese stocks under the MSCI China index to equal weight, which means they are expected to perform equal to other stocks in other emerging markets. That call was first made in January this year.

Jonathan Garner, chief Asia and emerging market equity strategist at Morgan Stanley explained why the bank has repeated that call. “What we are seeing, I think, is that the anti-trust regulation is proving sort of much deeper and more long lasting than we had thought,” he said.

Fears over regulatory scrutiny on Chinese tech companies are growing again, after China announced a cybersecurity review of ride-hailing app Didi in early July.

Beijing recently started a new battlefront in tackling the use and collection of data. A data security law passed in June defined the rules around how all companies collect, store, process and transfer data. The law will take effect in September. 

Authorities said last week that China plans to strengthen supervision of all Chinese firms listed offshore, as well as tighten rules around how data security is managed by firms. On Saturday, China’s cyberspace regulator proposed that any company with data on more than 1 million users must go through a cybersecurity review before listing overseas.

“So there’s a high degree of uncertainty as to how this affects the investment landscape and the growth of internet space in China,” Garner said.

FXStreet reports that economists at CIBC look for CAD to continue to unwind gains in the coming months.

“While the tone in the Treasuries market hints of growth concerns, these are more reflective of doubts about overseas economies. Stateside, past fiscal stimulus, pent up savings, and rising labour income should fuel a healthy consumer-led rebound in growth ahead. America’s much larger dose of fiscal stimulus and earlier reopening will see it eliminate economic slack a few quarters ahead of Canada, which is inconsistent with the market’s pricing for earlier and more aggressive rate hikes north of the border. A recalibration in those expectations will underpin a continued if modest depreciation in CAD over the rest of 2021, taking USD/CAD to 1.27 by the end of this year.”

“Gains in the price of oil lately have done little to limit CAD depreciation. Markets might be sharing our view that OPEC+ will eventually reach a deal on paring back previous production cuts. A more general softening of commodities prices in the next year as supplies catch up to the recent demand surge would also put pressure on the CAD.”

Reuters reports that a central bank official said that China will base the pace and intensity of monetary policy on the domestic economy and inflation trends in the second half of the year.

Sun Guofeng, head of the monetary policy department at the People's Bank of China (PBOC), said China's policy will prioritise stability and focus on domestic conditions, adding that possible tightening by the U.S. Fed would have a limited impact on China's monetary policy.

"It's normal for the United States and China to have different operations of their monetary policy," Sun said.

"China's stance of prudent monetary policy has not been altered."

The PBOC announced on Friday it would cut the amount of cash banks must hold as reserves, releasing around 1 trillion yuan ($154.67 billion) in long-term liquidity to underpin its post-COVID economic recovery that is starting to lose momentum.

The PBOC last cut the RRR in April last year, when the Chinese economy was still badly affected by the coronavirus crisis.

CNBC reports that the International Energy Agency warned that world oil markets are likely to remain volatile following a breakdown in talks between OPEC members and their non-OPEC allies, creating a no-win situation.

The IEA said energy market participants were closely monitoring the prospect of a deepening supply deficit if a deal was not reached by the Organization of the Petroleum Exporting Countries and its oil-producing allies, a group known as OPEC+.

“Oil markets are likely to remain volatile until there is clarity on OPEC+ production policy. And volatility does not help ensure orderly and secure energy transitions — nor is it in the interest of either producers or consumers,” the IEA said.

The IEA said it expects global oil demand to rise by 5.4 million barrels per day this year and by a further 3 million barrels in 2022, largely unchanged from last month’s forecast.

Meanwhile, the “remote” possibility of a market share battle between producers is hanging over energy markets, the IEA said, warning that higher fuel prices and rising inflation could damage a fragile economic recovery.

FXStreet reports that in the view of economists at HSBC, higher shorter-dated US rates or a more significant global slowdown would be the key catalysts for the USD to strengthen more meaningfully.

“When the FX market is focused on the Federal Reserve’s (Fed) policy tightening, the USD should mostly exhibit pro-cyclical behaviour – strengthening when US data is good and weakening otherwise. Nevertheless, the USD is still not behaving like this. Thus, we are in the last stretch of the USD’s cyclical decline that started in April 2020, and remain less convinced that its turning point has now been reached.”

“To be clear, we are debating when the USD’s cyclical decline will end, rather than refuting the ending. Our long-standing view has focused on the actual start of the Fed’s tapering being supportive for the USD, although this should have greater meaning for the G10 than emerging markets (EM) FX, especially those major central banks that could be expanding their balance sheets in contrast to the Fed.”

Reuters reports that ECB president Christine Lagarde said in an interview published on Tuesday that the European Central Bank has pledged to be "persistent" and will not repeat its past mistake of tightening policy too early.

"The use of 'persistent' (in the ECB's new strategy) is an indication that there cannot be premature monetary tightening as we have seen it in the past," Lagarde told.

She added it was now time to show that "the persistence we have demonstrated" was having the desired effect of reviving inflation in the euro zone.

FXStreet reports that economists at UBS do not think the fundamental case for lower yields is convincing – they think technical factors have pushed yields down. 

“We do not expect Delta or other variants to disrupt the economic recovery in developed markets, although there is scope for a modest delay. The impact of the Delta variant depends on the level and speed of vaccinations, the reliance on m-RNA vaccines, and current immunity levels. On balance by those metrics, the US and Europe should be less vulnerable to reopening delays than select parts of Asia and Latin America.”

“Market concerns and pricing are running ahead of likely Fed policy change. A tightening in Fed policy is contingent on economic conditions improving. On inflation, the Fed believes that inflation will ease as pandemic-related disruptions clear and base effects dissipate. In our view, tapering plans should be outlined by the end of the year, but only start next year, and a rate hike should only follow in 2023, compared with market pricing for the second half of 2022.”

“We view the move in yields as being driven largely by temporary technical factors and maintain a risk-on view. We expect yields to resume their rise and reach 2% by the end of the year as the US economy fully reopens, the labor market continues to improve, and the Fed shifts towards tapering.”

During today's Asian trading, the US dollar was trading steadily against most major currencies after rising at the end of the previous session on the background of data on inflation expectations in the US.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.04%.

The expectations of the population regarding the level of inflation in the United States in a year jumped in June to the highest in almost a decade, according to data from the Federal Reserve Bank of New York.

According to the results of the consumer expectations survey conducted by the Federal Reserve Bank of New York, the average estimate of inflation expected in a year rose to 4.8% in June, the highest value for all time since 2013, compared with 4% in the previous month. The value of inflation expected in three years remained at 3.6%, the study says.

Inflation in the US has accelerated in recent months due to the consequences of the coronavirus pandemic, which the Federal Reserve System mainly considers "temporary".

The Chinese yuan rose slightly against the US dollar on the background of data on China. China in June increased exports by 32.2% compared to the same month last year - to $281.42 billion, according to the data of the General Customs Administration.

The growth continued for the twelfth month, while the rate of increase accelerated compared to 27.9% in May. The volume of imports last month increased by 36.7% and amounted to $229.89 billion. This is lower than the May figure of 51.1%, which was the highest in a decade. Experts on average expected an increase in the first indicator by 23.1%, the second - by 30%.

According to the report from Insee, in June 2021, the Consumer Price Index (CPI) rose by 0.1% over one month, after +0.3% in May. Economists had expected a 0.2% increase. The prices of services slowed down (+0.1% after +0.3%) and those of food fell back (–0.7% after +0.5%). The tobacco prices were stable. The prices of manufactured goods (+0.5% after +0.1%) and those of energy (+1.1% after +0.5%) accelerated.

Seasonally adjusted, consumer prices advanced by 0.2% as in May.

Year on year, consumer prices rose by 1.5%, after +1.4% in May. Those of manufactured goods rebounded (+0.7% after –0.1%). Food prices fall slightly less than in the previous month (–0.2% after –0.3%). The tobacco prices grew at the same rate as in May (+5.3%). The prices of services (+0.8% after +1.1%) and those of energy (+10.9% after +11.7%) slowed down.

Year on year, core inflation grew in June, up to +1.1%, after +0.9% in May. The Harmonised Index of Consumer Prices (HICP) rose by 0.2% over one month after +0.3% in the previous month; year on year, it increased by 1.9%, after +1.8% in May.

According to the report from the Federal Statistical Office (FSO), the Producer and Import Price Index rose in June 2021 by 0.3% compared with the previous month, reaching 102.7 points (December 2020 = 100). Economists had expected a 0.4% increase.

In particular, basic metals and semi-finished metal products, scrap and petroleum products saw higher prices. Compared with June 2020, the price level of the whole range of domestic and imported products rose by 2.9%.

In particular, higher prices for scrap were responsible for the increase in the producer price index compared with the previous month. Basic metals, semi-finished metal products, timber products and petroleum products also became more expensive.

The import price index registered higher prices compared with May 2021, particularly for basic metals and semi-finished metal products. The same applied to petroleum products, computers, motor vehicles and motor vehicle parts, food products and other transport equipment. Petroleum and natural gas as well as vegetables, melons, and potatoes, in contrast, became cheaper.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1984 (2867)

$1.1953 (1326)

$1.1928 (1296)

Price at time of writing this review: $1.1860

Support levels (open interest**, contracts):

$1.1820 (728)

$1.1795 (2603)

$1.1764 (1959)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 6 is 59128 contracts (according to data from July, 12) with the maximum number of contracts with strike price $1,1700 (10542);

GBP/USD

$1.3979 (1032)

$1.3955 (668)

$1.3936 (293)

Price at time of writing this review: $1.3880

Support levels (open interest**, contracts):

$1.3834 (1300)

$1.3817 (1537)

$1.3796 (815)

Comments:

- Overall open interest on the CALL options with the expiration date August, 6 is 9569 contracts, with the maximum number of contracts with strike price $1,4000 (1313);

- Overall open interest on the PUT options with the expiration date August, 6 is 13855 contracts, with the maximum number of contracts with strike price $1,3950 (1537);

- The ratio of PUT/CALL was 1.45 versus 1.44 from the previous trading day according to data from July, 12

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

According to the report from the Federal Statistical Office (Destatis), the inflation rate in Germany, measured as the year-on-year change in the consumer price index, stood at +2.3% in June 2021. Following a continuous rise observed since the beginning of the year, the inflation rate has slightly slowed (May 2021: +2.5%). Destatis also reports that consumer prices were up 0.4% on May 2021.  

The prices of goods (total) increased by 3.1% between June 2020 and June 2021, which was above average. Energy product prices (+9.4%) continued to be considerably higher than the overall inflation rate, after +10.0% in May 2021.

The prices of food were up a below-average 1.2% in June 2021 compared with the same month a year earlier, following 1.5% in May 2021. 

The year-on-year increases in energy product prices had a clear upward effect on the inflation rate. Excluding energy prices, the inflation rate would have been +1.6% in June 2021; excluding the prices of heating oil and motor fuels, it would have been only +1.5%.

The prices of services (total) increased by 1.6% in June 2021 compared with the same month a year earlier. Net rents exclusive of heating expenses, which are important as they account for a large part of household final consumption expenditure, rose by 1.4%.

Compared with May 2021, the consumer price index rose by 0.4% in June 2021. Energy product prices were up 0.8%, especially the prices of heating oil (+3.3%) and motor fuels (+1.7%). In contrast, the prices of food went down slightly (-0.4%). Consumers had to pay less, in particular, for fresh vegetables (-5.4%) than in the previous month.