Markets Meander As Hunt For Catalyst Continues

WHERE WE STAND – I’ve never watched paint dry, but I imagine I now have a pretty decent idea of how that would feel, after watching the market action yesterday.

Amid a barren data docket, and relatively light news flow, markets essentially did diddly squat for most of the day, treading water in incredibly uninspiring fashion. I know it’s only June, but we are on the verge of another heatwave here in London, so maybe it’s not too early for me to start throwing out the ‘summer markets’ narrative. Certainly, that’s what yesterday felt like.

That’s not to say there aren’t catalysts on the horizon worth being aware of. Just in the next fortnight, there’s the June jobs report, plans for the ‘one big beautiful bill’ to make its way to President Trump’s desk, and the scheduled expiry of the pause on ‘Liberation Day’ tariffs. Still, participants don’t seem especially bothered by any of that right now, nor by any potential EoM/Q/H flows that might begin to make themselves known in the coming days.

For the time being, then, markets seem content to take the ‘path of least’ resistance across the board, unless and until one of those scheduled catalysts, or some unexpected headlines, derail proceedings.

In the equity complex, this path clearly continues to lead to the upside. That said, the recent gains did run out of steam a touch yesterday, with spoos going nowhere especially quickly. Still, progress towards trade deals, and calmer rhetoric on that front, coupled with solid macro data, and strong earnings growth, should propel us to new highs before too long.

Meanwhile, for Treasuries, it proved a mixed day, though we largely continued to meander across the curve, despite a soft 5-year sale. For now, it seems that benchmarks are to be stuck in a relatively tight trading band. Dip buying interest continues to be seen on any downside, with 4.50% in 10s and 5.00% in 30s remaining the key levels on that front, though rallies beyond 4.25% and 4.75% respectively seem unlikely, given ongoing jitters over the fragile fiscal backdrop Stateside.

Most G10s also meandered along in relatively directionless fashion yesterday, with it being a day of consolidation in the FX space, though modest USD selling pressure persisted, seeing both the GBP and the EUR linger around fresh YTD highs. I’d expect that USD softness to continue, as slow but steady capital outflows persist amid a continued erosion of the dollar’s institutional credibility, a fact not at all helped by yet another round of attacks from Trump, and other Admin officials, on Fed Chair Powell.

Incidentally, the second day of Powell’s Congressional testimony was a total snoozefest, as it tends to be, with the Chair’s remarks having been a near-perfect carbon copy of those made a day prior. Certainly, J-Pow isn’t leaning into the idea of a July cut as some of his colleagues on the Board have touted, continuing to – rightly – prefer a ‘wait and see’ approach amid huge economic uncertainty. The USD OIS curve discounting about a 1-in-4 chance of a cut being delivered at the end of next month feels far, far too aggressive to me.

In any case, ‘snoozefest’ pretty accurately described action in the commodity complex as well on Wednesday. Gold spent the bulk of the day moving sideways, though did keep its head above the psychologically important $3,300/oz mark. I still view dips as buying opportunities here, especially amid the aforementioned USD outflows, from which bullion stands to benefit considerably.

Crude also chopped about in an indecisive manner for most of the day, though both Brent and WTI have now unwound pretty much all of the geopolitical risk premium that was priced a week or so ago. That said, in a market that remains over-supplied, and where the demand backdrop remains on the shaky side, the path of least resistance probably points to further downside to come here.

LOOK AHEAD – A busy-ish docket lies ahead, though it’s hard to imagine any of this moving markets especially much.

While there are no notable releases due during the European session, this afternoon brings a deluge of US prints – including, final Q1 GDP; May durable goods orders; May pending home sales; and, the weekly jobless claims figures. This last print is, arguably, of most interest, especially with the continuing claims print pertaining to the June NFP survey week.

Besides that, another busy slate of central bank speakers awaits, including five FOMC members, as well as ECB President Lagarde, and BoE Governor Bailey.