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The US dollar extended losses after breaking a long-term ascending channel base yesterday. The British pound rallied on yet another stronger than expected wages growth data released yesterday morning. The USDJPY slipped below 140 and the USDCAD is testing the 1.32 support.

The US inflation data will determine whether the US dollar should further depreciate or is it time for correction. The consumer price index in the US is expected to have fallen to 3.1% from 4% printed a month earlier. But unfortunately, it won’t be enough to prevent the Fed from further rate hikes, because the further fall in headline inflation to 3% is due to a favourable base effect on energy prices, while core inflation is expected to remain sticky at around the 5% mark - still more than twice the Federal Reserve’s (Fed) 2% policy target.

Plus, the rebound in oil prices hints that the risk of an uptick in headline inflation is building stronger for the coming months. The barrel of American crude rallied past the 100-DMA yesterday and is flirting with the $75pb level this morning.

Elsewhere, the Reserve Bank of New Zealand (RBNZ) kept its policy rate unchanged at 5.5%. Later today, the Bank of Canada (BoC) is expected to announce a final 25bp hike in this tightening cycle.

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The week started on a cautious note as European and US stocks eked out small gains, but appetite was limited appetite on news that the new capital requirements for the US banks would be tougher.

The good news is that big banks like JP Morgan and Citi didn’t react aggressively to the news, and even more reassuring news is that the smaller, regional bank stocks tempered the news quite well as well. Pacwest for example lost only around 1% and Invesco’s KBW index even closed the session slightly higher.

Other than that, it was a day of digesting and scaling back the recent rise in hawkish Federal Reserve (Fed) expectations as used-car prices fell 4.2% in June, while NY Fed’s inflation expectations for the next 12-month fell to 3.8% in June, from 4.1% printed a month earlier.

Capital flew into treasuries yesterday, the US 2-year yield for example declined about 10bp, while the US dollar plunged below a long-term ascending channel base despite the hawkish Fed expectations. The dollar bears are now targeting the 100 level as their next destination.

The dollar-yen plunged below the 141 level. The EURUSD rallied past 1.10 mark. Crude oil was offered near its 100-DMA, while gold tested the $1930/35 resistance for further advance.

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Asia began the trading week digesting the news of a softer-than-expected NFP read, faster-than-expected wages growth in the US, combined with deflation in Chinese consumer and producer prices.

Due Wednesday, US inflation is expected to have fallen from 4% to around 3% in June, with a possibly uptick in the monthly data. But core inflation could prove stickier at around the 5% mark. In all cases, softening, and ideally softer-than-expected inflation figures carry the potential of pushing the Fed hawks back. That could give quick support to the US stocks which ended the first week of July, and the first week of H2, in the negative into the earnings season.

The earnings season kicks off this week with big US bank earnings. JP Morgan, Wells Fargo and Citigroup will be reporting earnings on Friday.

Elsewhere, Chinese regulators promise ‘normalized supervision’ to boost confidence and growth, US crude is testing the 100-DMA to the upside as tighter supply worries feed into market pricing, while the Reserve Bank of New Zealand (RBNZ) and the Bank of Canada (BoC) are preparing to announce their latest policy verdicts this week.

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Minutes from the Federal Reserve’s (Fed) latest policy meeting were more hawkish than expected. The minutes revealed that some officials preferred another 25bp hike right away instead of a pause. Almost all of them said that additional hiking would likely be appropriate, and the forecasts showed that they also expect mild recession.

The minutes came to confirm how serious the Fed is in further tightening monetary conditions, and boosted the Fed hike expectations. The US 2-year yield came very close to 5%, the stocks fell, but very slightly. The S&P500 closed the session just 0.20% lower, while Nasdaq 100 gave back only 0.03%. The US dollar gained, the EURUSD slipped below its 50-DMA, as the Eurozone services PMI fell short of expectations, the producer prices fell 1.5% y-o-y in May and the expectation for the 12-month inflation in EZ fell to 3.9% in May.

Due today, the ADP report is expected to reveal that the US economy added around 228K new private jobs in June, while the JOLTS is expected to have slipped below 10 mio job openings in May.

Elsewhere, US crude cleared the all-important 50-DMA yesterday.

And Meta gained nearly 3% as its new Threads platform, to compete Twitter at a time Twitter limits the number of posts that people can see and their access to Tweetdeck unless they pay, could amass a chunk of Twitter users looking for a reasonable alternative.

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European markets were mostly flat; the Stoxx600 remained close to its 50-DMA, while the FTSE 100 remained offered near its 200-DMA, near the 7544 level. The FTSE has been one of the biggest laggards of the year, as capital flew into the tech stocks but a rotation from tech to value could throw a floor under the FTSE100’s selloff.

The barrel of oil remains sold near the 50-DMA as OPEC meeting with industry heads is due today. Everything that involves OPEC is an upside risk to oil prices.

Also today, the Federal Reserve (Fed) will release the minutes of its latest policy meeting today, and there will clearly be a couple of hawkish sentences that will hit the headlines, given that the Fed officials paused their rate hikes in their June meeting, but their dot plot showed two more interest rate hikes before a real and a longer pause.

Interestingly, the US dollar index remains broadly unresponsive to the Fed’s hawkishness, but the Aussie, Kiwi, sterling, and the Loonie could perform better against the greenback in the second half, while long the yen will become a star trade at some point in the foreseeable future.

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Saudi Arabia and Russia couldn’t wait the next OPEC meeting to announce further production cuts. Saudi announced that it will extend the 1mbpd cut into August – and maybe further – while Russia said it will reduce its production by half a million.

China imposed restrictions on exports of two chipmaking metals, gallium and germanium, that are used in EVs, defense and displays.

Geopolitical tensions barely boosted gold, or weighed on stock valuations, though the US 2-year yield flirted with the 5% mark.

Elsewhere, the Reserve Bank of Australia (RBA) kept rates unchanged at today’s monetary policy meeting, a no action that could give a certain relief to the Fed hawks as well, only, but if only the US jobs data shows signs of loosening.

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The first half of the year ends on a positive note for equities and not so much for the bonds. This is the exact opposite of what was predicted. The S&P500 hit a fresh year high at the last trading day of the first half and gained more than 17% so far this year, while Nasdaq 100 soared more than 40%! Apple hit $194 per share, and closed last week with a valuation above $3 trillion.

Of course, this incredible performance makes many investors wonder whether the equity rally could continue in the second half.

This week, US jobs data, Reserve Bank of Australia (RBA) decision and OPEC meeting with industry executives will be in focus.

Oil prices remain mostly ranged despite OPEC’s malicious efforts to boost them artificially. This week’s meeting is not a policy meeting so there won’t be any production cuts, or any important decision from OPEC, but what we could well hear slowing demand forecasts, which would then bring traders to assess another production cut from OPEC down the road. In all cases, we have seen clearly that cutting production hasn’t been enough for a sustained price rally so far. Therefore, any rally triggered by comments could be interesting top selling opportunities for short-term traders.

In the EV space, Tesla delivered a record number of cars worldwide in Q2, while the Chinese BYD did better than Tesla, selling more than 700K cars last quarter, its best-ever quarter as well. BYD shares jumped 2.70% in Hong Kong.

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Economic data released in the US yesterday further fueled the hawkish Federal Reserve (Fed) bets. The US 2-year yield jumped more than 3% to 4.90% for the first time since the mini banking crisis. The probability of a 25bp hike from the Fed in the July meeting jumped to 87%, while the pricing in the market suggests that the Fed’s two rate hikes are now likelier than not.

And perhaps because the aggressive Fed tightening doesn’t impact economic strength as badly ass expected, stock investors saw no urgence in selling their stocks on rising hawkish Fed expectations.

Yet, a further rise in US yields could weigh on stock appetite before the weekly closing bell.

In the Eurozone, investor mood was a bit tricky because inflation data released this week in the Eurozone revealed that inflation in core and periphery diverged in favour of the latter. More importantly, the end of ECB’s cheap loans should increase the yield spread between the Eurozone’s core and periphery and weigh on the EURUSD.

In China, the latest economic data didn’t enchant investors. Chinese manufacturing PMI remained below 50, in the contraction zone, for the third consecutive month, despite recurrent policy easing from the People’s Bank of China (PBoC). The Chinese government has no choice but to regain people’s and investors’ confidence if it doesn’t want to become too old before becoming rich enough.