• Trump offers Iran economic relief for concrete nuclear concessions
• Mediators working to broker US-Iran deal even after Trump rejection
• Measured ECB hikes to quell inflation remain appropriate, Lagarde says
• Wall Street declines as oi prices, Treasury yields remain elevated

FX Analysis

USD moved modestly higher as it consolidated in bullish fashion just below the recent high at 101.39. The move is extended but it doesn’t of course mean it can’t go higher. The 2026 top from June sits at 101.80. We had a lot of hawkish Fedspeak last week, with notably strong PMI data on top. With Brent staying elevated and above $100, October Fed rate hike expectations have risen to 73%. NFP is this week’s key release, as the US 10-year Treasury yield posted fresh cycle highs at 5.26%. We have 5.25% as a big psychological and technical level, which potentially impacts stocks market negatively. Meantime, today we get JOLTs figures, ahead of Wednesday’s PCE data.

EUR slid to a fresh cycle low at 1.1353 before mildly paring losses. The 2026 low is 1.1324 with little major support below. ECB President Lagarde stated that the current inflation surge hasn’t yet produced second round effects and higher wages. She said a moderate policy response was still appropriate. Bets on another ECB hike at its meeting at the end of next month eased. On point, we get countrywide inflation data today with the region’s numbers released on Friday. The key core number is expected to rise one-tenth to 2.5%.

GBP outperformed all of its peers (except the kiwi), rising against the greenback. Deputy BoE Governor Ramsden said he would be prepared to raise rates if upside pressures in inflation persist. That raised November rate hikes bets to around 80%, with over four moves by July 2027. Chancellor Healey spoke at the Labor Party conference. He stressed the need for fiscal discipline ahead of his Budget in a few week’s time.

JPY closed virtually unchanged on the day, printing a doji type candle. This came after Friday’s sharp sell-off in the major, when it hit resistance around its 50-day and 200-day SMAs, now at 158.49 and 158.45. Japan’s top currency diplomat urged markets to heed a very clear warning on the yen from both Tokyo and Washington. Last week saw the two countries reaffirm their intention to strengthen cooperation to address yen weakness.

Stock Market Analysis

US stocks: The S&P 500 was down 0.77% at 7,638. The Nasdaq closed lower by 1% at 30,300. The Dow Jones settled off by 0.67% at 5`1,481.  Only three sectors were in the green – Consumer Staples, Health and Energy. Communication Services, Consumer Discretionary and Financials were the biggest losing sectors. Nvidia was the standout megacap as it climbed 1.7% after boosting its share buyback by a record $150 billion. That beat Apple’s previous $110 billion record in 2024. Surging AI demand for AI training and inference has fuelled cash generation.  Meta gave back some Muse gains, dropping 4.6% as it retraced to January levels. Micron and Nike are the standout companies releasing their latest results this week on Wednesday and Thursday respectively. The latter climbed off multi-year lows. The former has been a big beneficiary of the spending splurge on AI data centres, pushing its shares up over 280% year-to-date.

Asian Stocks: Futures are mixed. APAC stocks were mixed on mixed geopolitical headlines and rising bond yields. The ASX 200 saw gains led by financials though focus was also on the imminent RBA rate hike. The Nikkei 225 gave back early gains with rising oil/yields capping the upside. The Hang Seng and Shanghai Comp were mixed at the start of a holiday-shortened trading week.

Gold & Silver Analysis

Gold fell sharply by 3.6% as bugs really woke up to higher yields. As we have said many times, higher yields make non-yielding precious metals less attractive. Last week, we also wrote that weak close below $4,234 likely sees more downside unless yields steady. There is a huge support zone around $4,000. Silver plunged by 5.1% and lost the support around $62.31. It looks to be heading towards around $56.

Day Ahead – RBA Meeting

A fourth 25bps RBA hike this year is virtually fully priced in, taking the policy rate to a 15-year high at 4.6%. This reflects an economy that continues to run hot across multiple areas. Persistent inflation pressure is the big issue with the trimmed mean rate still above the RBA’s 2-3% target range at 3.6% for a third straight month. Resilient labour demand and higher energy costs strengthen the case for keeping policy restrictive. Recent RBA rhetoric has escalated with Governor Bullock highlighting upside inflation risks. Her commentary is likely to determine how the aussie behaves.

Chart of the Day – AUD holds onto support

There’s around 42bps of rate hikes to come after today’s move. Much depends on if and by how much Governor Bullock leaves the door open for more policy tightening. Inflation risks remain tilted to the upside with trimmed mean still too high. The combination of strong employment growth and elevated participation also points to ongoing labour market resilience. That risks potential wage inflation further down the road. This should all support AUD, but poor risk sentiment and the strong USD has seen the major hit seven-week lows. Prices have found a support zone which includes the 200-day SMA at 0.7023 plus a major Fib level of the May to June move at 0.7022. Lose this and the minor retracement level sits at 0.6962. A rebound sees the midpoint of this move at 0.7071.