Good morning,
After 14 years of legal turmoil, Julian Assange finally landed back in Australia, greeted by tearful family and emotional lawyers. The Wikileaks founder, whose explosive leaks on US military actions reverberated globally, struck a plea deal allowing him to walk free from a London prison. His wife, Stella, emphasised the need for family time, while his lawyer decried the deal as a threat to journalism. Australian PM Albanese, who played a key role in securing Assange’s release, hailed the end of Assange’s “considerable ordeal” but assured that US-Australia relations remain solid.
Last Week
Election season is heating up, becoming a key market driver. Last week’s first US presidential debate saw Joe Biden stumbling, raising concerns about his candidacy and boosting Donald Trump’s odds in the betting markets. Meanwhile, the Euro is under pressure as France heads to the polls, with the National Rally leading the race. ECB officials, including Fabio Panetta, warn that political uncertainty could lead to capital outflows and currency depreciation, impacting economic recovery. Investors are cautious, watching how new governments might influence policies in major economies like the US and France. This should in our view should keep risk assets bid.
The Japanese yen has plummeted to its weakest level against the US dollar since 1986, sparking concerns of potential intervention by Japanese officials. The yen fell 0.4% to ¥160.3 on Wednesday, surpassing previous lows despite a record ¥9.8tn ($62bn) intervention earlier this year. Analysts at MUFG suggest that the Bank of Japan (BOJ) may need to time their interventions more strategically due to the high cost and temporary impact of past efforts. Key events like the upcoming French elections and the US Non-Farm payrolls report could prompt the BOJ to deploy foreign exchange reserves to prop up and strengthen the yen.
Concerns are reigniting down under as inflation proves stubbornly persistent. Australia’s consumer price index rose for the third consecutive month, now sitting at 4%—double the Reserve Bank of Australia’s (RBA) 2% target. This complicates the RBA’s plans to begin cutting rates, with a hike now looking more likely. The Aussie dollar strengthened 0.5% against the US dollar and will be eyeing yearly highs in the coming weeks in our view. Cash futures indicate a nearly 60% chance of an RBA rate hike by September, a significant jump from less than 15% before the latest inflation report.
This Week
Political risks are unsettling the euro as France’s legislative elections approach, with Marine Le Pen’s National Rally poised for strong results. Macron’s snap election gamble seems likely to backfire, with the left-wing coalition overtaking his Ensemble party in polls. Markets are anxious about potential political paralysis or a left-wing government triggering reckless spending and debt issues. Meanwhile, across the Channel, the UK faces less uncertainty in its upcoming general election. Despite Rishi Sunak’s efforts, Labour is leading in the polls, potentially securing a supermajority. However, a strong Labour victory or a resurgent Reform UK could significantly impact sterling and UK assets in the coming weeks.
With the euro and pound entangled in domestic politics, US monetary policy remains the focal point for the dollar. Encouraging inflation data and signs of slowing consumer spending and housing have fuelled hopes for a Fed rate cut in September, though policymakers remain cautious. The tight labour market is a key factor, and Friday’s nonfarm payrolls (NFP) report is unlikely to shift the Fed’s hawkish stance. NFPs are projected to rise by 180k in June, down from 272k, while the unemployment rate is expected to stay at 4.0%. Attention will also be on the ISM PMIs, with manufacturing and services data due, as markets seek signs of decelerating factory gate inflation.
Key Events
Monday 1st July
All Day German Prelim CPI
15:00 US Manufacturing PMI
Tuesday 2nd July
10:00 EUR CPI Flash Estimate
14:30 Fed Chair Powell Speaks
15:00 US Job Openings
Wednesday 3rd July
13:15 ADP Non-Farm Employment Change
13:30 Unemployment Change
15:00 US Services PMI
19:00 FOMC Meeting Minutes
Thursday 4th July
All Day UK Elections
07:30 Swiss CPI
Friday 5th July
13:30 Canadian & US Unemployment Rate
Have a great week,
The Garton Team.