Early Morning Call: USD/JPY at new 23-year high; UK CPI; Powell testimony

Is the equity rebound already over?

Yesterday, the main three US indices posted sizeable gains, all in excess of 2%.

But overnight, a totally different picture emerged, as all major indices in the APAC region showed losses. Technology stocks were the most affected, with South Korea’s tech index, Kosdaq falling more than 3%, followed loosely the Hang Seng Tech Index.

In Europe, FTSE 100, DAX and CAC 40 all opened lower, after recording modest gains on Tuesday.

In Japan, Bank of Japan (BoJ) minutes showed that many board members expressed the need to support the country's economy and therefore keep the bank's massive stimulus programme in place. Yet, other members have concerns regarding the recent yen volatility. "A few members said excessive fluctuations in the foreign exchange market over a short period of time, such as those observed recently, would raise uncertainties about the future and make it more difficult for firms to formulate their business plans".

But it was also stressed that the BoJ's monetary policy aims to achieve price stability, not to control exchange rate moves.

USD/JPY

Yesterday the yen fell further against the dollar. USD/JPY climbed above ¥136 for the first time since October 1998.

Sterling also is under scrutiny today. The latest data shows that UK consumer price index (CPI) set a new 40-year high in May. CPI rose by 9.1% on a year-on-year basis, in line with economists’ expectations.

Factory gate prices increased more than anticipated, by 15.7%. Also watch out for Canada inflation data at 1.30pm.

Jerome Powell testimony

Federal Reserve (Fed) chair, Jerome Powell, will head to the US congress later today for his semi-annual testimony.

He will first have to answer questions from the Senate Banking Committee, an exercise to be repeated tomorrow in front of the House Financial Services Committee.

Commodities

On the commodity markets, WTI and Brent fell in excess of 3%.

US President Joe Biden is today expected to call for a temporarily suspension of the 18.4-cents a gallon federal tax on gasoline, before meeting US oil bosses tomorrow to ask them to do more to bring fuel prices down.

China growth remains a concern for commodity traders. Dalian iron ore fell to a 16-week low, while copper now trades below $8,900 per tonne.

Gold is down for a fourth straight day, closing down on $1,821 support.

Finally, traders will remain attentive to the price of cotton. The commodity is down for a 10th consecutive day and yesterday broke its March 2022 support.