• Trump vows to ‘respond’ after Iran ‘shot down’ a US helicopter
• SpaceX IPO demand is approaching 4x oversubscribed, sources say
• Keir Starmer to tell ministers to quit if they back Andy Burnham
• Tech volatility weighs on S&P 500, Nasdaq as selling resumes

Forex

USD was choppy as the index slid as risk sentiment improved through the day until Trump’s comments about needing to reply to Iran’s helicopter strike saw a reversal of this move.  Crude oil followed a similar pattern but didn’t rebound that much. Prices have consolidated under a long-term cycle high at 100.25. CPI data is expected to confirm elevated price pressures of 4% on the headline and near 3% on the core. This might further reinforce hike bets and potentially more support for the greenback.

EUR rose to a high of 1.1577 before paring gains. Dollar drift was the main driver of the euro recovery, with markets likely to remain somewhat cautious on prospects ahead of Thursday’s ECB policy decision. A hike is baked in but ECB watchers are concerned that the central bank may be leaning into a policy error in tightening rates prematurely amid stagnant growth.

GBP got close to the 200-day SMA at 1.3415 as the pound outperformed most of its peers. A strong BRC retail sales showed consumer spending had steadied from a weak April figure with food and non-food sales accelerating sharply in May. On the flip side, the CBI estimated that unemployment is forecast to rise to 5.5% this year, while it cut UK GDP growth forecasts to 1.1% in 2026 and 0.9% in 2027 from the prior 1.3% and 1.5%, respectively.

JPY was quiet with the major edging up modestly. The BoJ is reportedly prepared to raise rates by 25bps at its June meeting next Tuesday, the Nikkei reported. The hike is to prepare for the risk of an upward revision of inflation. The late April top after which the MoF intervened was at 160.72.

Stocks

US stocks: The S&P 500 lost 0.26% to close at 7,387, the Nasdaq closed down 1.12% at 29,084 and the Dow Jones settled higher by 0.17% at 50,877. Only two sectors were in the red, Tech (-1.82%) and Energy (-1.6%), while Real Estate and Materials were the main gainers. The Nasdaq closed off its lows, having been down over 3% at worst as tech megcaps dragged on the wider indices. The VIX spiked up above 23 after the European close before retracing back below 20. A Bloomberg report that highlighted Crusoe, a data centre developer, had paused its development activities on its Wyoming site, may have added to recent AI valuation fears. This comes in the wake of the Broadcom earnings report last week, which led to sharp declines in tech on Thursday and Friday.  

Asian Stocks: Futures are mixed. APAC traded mixed but mostly in the green after Iran and Israel halted military strikes and better than expected China trade data. The ASX 200 slid as traders caught up with the return from a long weekend.  The Nikkei 225 rebounded eventually after volatility after the open. The Shanghai Composite and Hang Seng were mixed with stronger trade data offset by military companies being listed by the US Pentagon.

Gold

Gold fell to fresh lows at $4,236, a level last seen when prices spiked down to $4,098 in late March. Precious metals were sold, likely on risk, as traders awaited any further action from Trump given his threat. Attention also turns to today’s CPI report, which will provide a key test of the market’s increasingly hawkish Fed outlook following Friday’s strong nonfarm payrolls report. 

Day Ahead – US CPI, Bank of Canada Meeting

The change in odds of a Fed rate hike has been driving some markets after Friday’s strong NFP report. We get the other side of the other side of the FOMC’s mandate today, with the latest CPI data. May headline inflation is forecast to rise 0.5% m/m and 4.2% y/y from 0.6% and 3.8% respectively. Core, which strips out volatile food and energy prices, is predicted to print one-tenth lower than prior at 0.3% m/m and a tenth higher at 2.9% y/y. Higher gasoline prices will drive the headline metrics but shelter inflation and core goods may drag.

The market seems positioned for firm figures and a less dovish Fed meeting in a week’s time. Elevated and persistent energy and oil prices are the chief concern for policymakers who have voiced increasing worries about their impact on inflation and activity going forward. Money market price in roughly 30bps of policy tightening by year-end. Hot data will see bets rise on more rate hikes and should support the dollar and hurt risky assets.

USD/CAD posted a fifth straight day of gains ahead of the Bank of Canada rate decision, as lower oil prices act as a headwind on GDP growth from energy exports. The BoC is widely expected to leave its policy rate unchanged at 2.25% for a fifth consecutive meeting as it balances trade and geopolitical uncertainty against lingering inflation risks.

Chart of the Day – Nasdaq volatile

We wrote yesterday in the Day Ahead about how in strong bull markets, sharp selloffs happen, while in the strongest bear markets, we also get days with very powerful rallies. That is the kind of environment evident now and we wrote that we should expect this to happen again.

The Nasdaq had risen 35% from its lows in late March, initially with a 13-day win streak which beat the run back in March 2010. Prices closed at the minor Fib level of the March to June move higher at 28,896 and then fell sharply yesterday to 28,196 before eventually closing above. The record high sits at 30,762, a 10% correction from here is just over 3,000 points lower and the 50-day SMA resides below at the major Fib (38.2%) at 27,742.