In terms of the size of the rate hikes, it’s still a surprising hawkish one all things considered. The remainder of the year is going to be more interesting but if anything else, it is likely to see major central banks grow less hawkish over time. Some food for thought:
This article was written by Justin Low at www.forexlive.com.
This puts him in line as the next PBOC governor and is likely a directive for Yi Gang to step down from the post. Yi has been in charge of China’s central bank since 2018. As for Pan, he replaces Guo Shuqing as party secretary for the central bank with Guo now officially removed from his post as PBOC vice governor as well.
So, what does this tell us?
The reshuffle comes amid a time where the post-Covid recovery in China has pretty much come to a complete halt. It also comes as the yuan exchange rate is coming under pressure and also as Beijing are introducing a host of measures to try and tighten its grip on the financial sector.
According to Reuters sources, Pan’s appointment points to growing concerns within the country’s leadership over systemic risks in the financial sector. The way I see it, this is pretty much Beijing consolidating its power and policy direction as it looks to ensure a continuity of the ongoing monetary policy stance.
This article was written by Justin Low at www.forexlive.com.
The RBA decided to keep its
cash rate unchanged today accompanied by the usual hawkish comments and the
promise of doing more if the data suggests so. They repeated their
determination of bringing the inflation rate to target and will do what is
necessary to achieve that.
AUDUSD Technical Analysis –
Daily Timeframe
On the daily chart, we can see that since the tap
into the 0.69 handle, AUDUSD sold off pretty heavily with almost no pullbacks
into the 0.66 handle where we got a bounce. The price is now probably pulling
back as the selloff overstretched. We should start to see sellers piling back
in shortly as the price is approaching resistances like the moving averages and previous
swing points.
AUDUSD Technical Analysis –
4 hour Timeframe
On the 4 hour chart, we can see that the divergence with the
MACD was
already signalling a loss of bearish momentum and what follows is generally a
pullback or a reversal. In this case, the price broke out of the trendline,
consolidated a bit and now we are likely to see an extension to the 0.67 handle
where we can find the previous swing high level and the 38.2% Fibonacci retracement level of
the entire selloff since 0.69.
AUDUSD Technical Analysis –
1 hour Timeframe
On the 1 hour chart, we can see that the
price found a strong support at the
0.6640 level and bounced from it after the downward spike after the RBA’s
decision. We should now see a rally towards the 0.6710 resistance. The sellers
are likely to step in there with a defined risk above the resistance zone and
target the 0.6563 support. Alternatively, if the price breaks the 0.6640
support without getting first to the 0.6710 resistance, the sellers should pile
in anyway and ride the bearish wave after the breakout. The buyers, on the
other hand, should pile in even more aggressively if the price breaks above the
0.6720 level.
Upcoming Events
Today the US is on
holiday for Independence Day, so the we see a choppy price action or nothing at
all as liquidity is thinner. Nonetheless, we’ll have some important economic
releases in the following days like the US Jobless Claims and the ISM Services
PMI on Thursday and the main event of the week: the US NFP on Friday.
This article was written by FL Contributors at www.forexlive.com.
In the second quarter, Tesla reported record vehicle deliveries of 466,140, an 83% increase from the same period last year and beating expectations of 448,350. This strong performance is believed to be a result of price cuts implemented earlier in the year to stimulate demand. Tesla’s shares rose by over 6% in pre-market trading.
As the second half of 2023 begins, U.S. stock futures remained mixed ahead of a shortened trading week due to the Independence Day holiday. The Nasdaq Composite was the standout performer in the first half of the year, experiencing its best first half since 1983. The gains were largely influenced by artificial intelligence flows into shares like Nvidia, Microsoft, Alphabet. Apple shares also surged and reached the $3 trillion market in capitalization level
Having said that, Apple is reportedly cutting its production targets for the mixed reality Vision Pro headset due to the product’s complexity. Despite its potential to be as influential as the iPhone, concerns remain about the headset’s $3,500 price tag and potential demand impact. Apple shares are trading down marginally by 0.43% in premarket trading
The future of Microsoft’s proposed $75 billion deal to acquire Activision Blizzard is expected to be decided by a San Francisco court this week, on a Federal Trade Commission request to temporarily block the merger due to potential anti-competitive impacts.
Finally, oil prices fluctuated as traders weighed the potential impact of additional Federal Reserve interest rate hikes on global economic activity and oil demand. Other analysts have suggested that oil supplies will likely tighten later this year following Saudi Arabia’s commitment to reduce output in July.
Overnight, several significant economic releases were reported. In China, the Caixin Manufacturing Purchasing Managers‘ Index (PMI) registered at 50.5, slightly below the previous figure of 50.9 but above the anticipated 50.0. This indicates a marginal expansion in China’s manufacturing sector. Meanwhile, Switzerland’s Consumer Price Index (CPI) saw a 0.1% month-over-month increase, falling short of the expected 0.2% rise and underperforming the prior rate of 0.3%. This result signifies a lesser-than-expected inflation rate in Switzerland’s economy. In Spain, the Manufacturing PMI was recorded at 48.0, aligning with expectations but showing a decline from the earlier 48.4, suggesting a contraction in Spain’s manufacturing sector.
For the upcoming economic releases:
Before the ISM, the S&P global manufacturing PMI for June will be released. Last month’s final came in at 48.4. The flash estimate came at 46.3 on June 23.
A snapshot of the markets currently shows:
In the premarket for US stocks, the major indices are trading mixed in premarket trading. The NASDAQ is higher while the S&P and Dow are trading down in early premarket trading.
In the European equity markets, the major indices are trading mostly higher with the exception of the German DAX
In the Asian Pacific market today, markets closed higher
In the US debt market yields are continuing it’s run higher
In the European debt market, benchmark 10-year yields are higher as well:
This article was written by Greg Michalowski at www.forexlive.com.
It is a sort of long weekend in the US with the 4th of July holiday coming up tomorrow. Adding to that, markets will close early today so appetite might be a bit sapped. But the encouraging part for investors is that we did see stocks brush aside the selling that took place two weeks ago, which prompted this question.
It could still be a bit too early to dismiss growth worries but at the end of it all, June was a stellar month for equities. We’ll see if that can continue into July. For now, it’s waiting on the next big data again and that will be the US non-farm payrolls on Friday.
This article was written by Justin Low at www.forexlive.com.
Markets:
It is a brand new week, month, quarter, and half-year for markets. But things are starting off with a calmer mood for the most part.
Instead, the notable headline came from the oil market as Saudi Arabia says that it will extend output cuts for one more month while Russia is also pulling back on oil exports by 500k bpd. That resulted in a spike in oil prices, with WTI crude running up from $70.30 to a high of $71.72 before keeping around $71.31 currently.
Meanwhile, the dollar is steady across the board, holding light gains as it covers back some losses from Friday. USD/JPY continues to tip toe towards the 145.00 mark but traders are still cautious of intervention risks by Japan.
EUR/USD is sitting just below 1.0900 while GBP/USD did drop to a low of 1.2660 before holding around 1.2675 currently, down 0.2% on the day.
There wasn’t much for major currencies to work with, as equities are lightly changed as well. US futures are holding flattish mostly while European indices are seeing just very minor gains, hoping to build on the optimism from the latter stages of last week.
In the bond market, Treasury yields are also up against a key technical test so there is that to watch out for.
This article was written by Justin Low at www.forexlive.com.
Dow Jones Technical
Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones
found support at the
red 21 moving average as the
US Consumer Confidence report surprised to the upside and the buyers started to
lean on the moving average to position for another rally. The price has broken
above the key 34477 resistance again and it will now probably look towards the
35289 high.
Dow Jones Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price
couldn’t pull back all the way to the 34448 support where we had also the 61.8%
Fibonacci retracement level.
Instead, the Dow Jones started to bottom out on a previous swing high level and
jumped higher after the consumer confidence release. The moving averages have
crossed to the upside again as the trend turned bullish, and now the buyers
will target the 35289 resistance.
Dow Jones Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that from
a risk management perspective, a good support zone for the buyers would be the
34477 level where we can also find the 38.2% Fibonacci retracement level. The
sellers, on the other hand, will want to see the price breaking below the
support zone to pile in and target the 33448 level.
Upcoming Events
It’s
a full week on the data front
beginning with the US ISM Manufacturing PMI today, the US Jobless Claims and
ISM Services PMI on Thursday and concluding the week with the main event: the
US NFP.
This article was written by FL Contributors at www.forexlive.com.
To be more specific, how does this play out on the outlook for 10-year Treasury yields? Here’s a look at the chart at the moment.
At the start of the year, the narrative was that this was supposed to be where the dollar and yields peak as major central banks – especially the Fed – will start to look for a policy pivot. That hasn’t quite been the case as inflation is still rather sticky and the economy is holding up well, making it easier to navigate a soft landing.
During the banking crisis in March through to April, there was a strong bid in bonds amid safety flows but even that didn’t really take 10-year yields in the US below 3.30%. Since then, we’ve gotten a decent bounce as markets reprice in Fed odds but we are now hitting another critical juncture on the charts.
The 3.85% mark is where the upside stalled in May and June, and we are back up against that level now with the added technical level from the key trendline resistance (solid white line) from the October and March highs.
That is posing a major technical test for traders as a break of that will open up the path towards 4% rates next.
The question is how convinced is markets that the Fed will continue to keep tightening after the pause in June? There seems to be an air in markets that they are somewhat certain that it is just a „skip“. However, if the data in the next few weeks points to softer price pressures again, will we see just another „skip“ in July?
I would argue that the next move in the bond market is going to highly depend on the data. And that will make this week’s US non-farm payrolls a critical one to watch just in case. Of course, the US CPI data on 12 July warrants more attention and will be a more decisive one. But as seen in the chart above, traders are already getting angsty.
A break of the key levels highlighted above opens up space to 4% with the March high near 4.09% also a potential marker next.
And that will in turn have an effect on Japanese yen pairs, so just be mindful of that considering USD/JPY is already sitting near intervention territory.
This article was written by Justin Low at www.forexlive.com.
Week Ahead July 3-7th
NOTE: Previews are listed in day-order
BoJ Tankan Survey (Mon): According to a recent Reuters poll, Japan’s factory sentiment is predicted to have improved in Q2 for the first time since mid-2021, largely due to a relaxation in the automotive chip supply crisis. Despite a global softening in demand affecting manufacturers, the services sector is anticipated to attain growth above pre-pandemic levels, driven by an increase in tourism. The confidence index of large manufacturers is seen increasing to 3 in June from 1 in March, according to the median estimate, and marking the first growth in seven quarters. Meanwhile, the mood among non-manufacturers boosted by robust inbound tourism and the reclassification of COVID-19 is expected to have risen for a fifth consecutive quarter. The manufacturers‘ sentiment is projected to further improve over the next quarter, while the services sector may experience a slight decrease due to high consumer inflation. The survey is also expected to show that large firms are planning to increase capital expenditure by 10.1% during this fiscal year, significantly above the 3.2% increase anticipated in the March survey.
US ISM Manufacturing PMI (Mon): The manufacturing gauge is expected to rise to 47.2 in June from the 46.9 level in May. However, looking at the S&P Global PMI series for a comparison, manufacturing companies experienced a contraction in production in the month, with output declining at the steepest rate since January. New orders for manufacturers also saw a sharp drop, reflecting weak customer confidence and destocking by clients, S&P said. The outlook for manufacturers is clouded by concerns over inflation and lower sales, reflected in confidence falling to a six-month low within the S&P PMI data.
RBA Announcement (Tue): The RBA will hold its policy meeting next week and analyst forecasts suggest a coin-flip as 16 out of 31 economists surveyed by Reuters expect another 25bps and 15 predict a pause at the current 4.10% level, while money markets are more decisive and are pricing in just a 37% probability for 25bps rate increase and a 63% chance for rates to be kept unchanged. As a reminder, the RBA defied the consensus for a pause in rates at the prior two consecutive meetings and instead opted to continue with its 25bps rate hike increments, while it noted at the June meeting that its actions were in response to the elevated inflationary environment and that data indicated that upside risks to the inflation outlook have increased. The statement remained hawkish and largely reiterated the prior month’s rhetoric with the Board remaining resolute in its determination to return inflation to target and some further tightening of monetary policy may be required, while it also repeated that inflation in Australia has passed its peak, but is still too high at 7% and it will be some time yet before it is back within the target range. The meeting and subsequent comments by officials initially spurred some hawkish adjustments to rate forecasts, including Goldman Sachs which raised its view for rates to peak at 4.85% in September from a prior view of 4.35% in July, while NAB adjusted its call for rates to peak at 4.60% from 4.35% through back-to-back hikes in July and August. Nonetheless, this hawkish impetus eventually unwound a couple of weeks later after the Minutes from the meeting revealed that the Board considered a rate rise of 25bps or holding steady and that the arguments were finely balanced, while softer-than-expected monthly inflation data from Australia which slowed to 5.60% vs. Exp. 6.10% (Prev. 6.80%) adds to the case for the RBA to stand pat. However, another surprise hike cannot be ruled out as inflation remains a distance from the central bank’s 2-3% target range and considering that the central bank has gone against the consensus for a pause at the last two meetings.
FOMC Minutes (Wed): The Federal Reserve held rates steady in June, as expected, but surprised markets by raising its rate projections for 2023 and beyond. The forecasted rates for 2023 were increased by 50bps, indicating two further 25bps rate rises ahead. The more hawkish forecasts were driven by an improved view of GDP growth, higher inflation expectations, and a lower projected unemployment rate. Despite the upward revisions, the long-term „neutral“ rate remained unchanged. Fed Chair Powell acknowledged the progress made, but emphasised that the impact of tightening policy was yet to be fully realized. While most policymakers anticipate further rate hikes, they expect subdued growth to persist. Powell noted signs of improvement in the labour market’s supply and demand balance, although demand still exceeded the available workforce. Inflation remains above the 2% target, but has moderated; Powell cautioned that reducing inflation may require below-trend growth and labour market adjustments. During his Q&A, he made a reference to the decision not to hike rates as a „skip,“ hinting at a possible rate increase in July. He emphasised the need for a more moderate pace of tightening. Powell said that a rate cut was unlikely and expressed limited concerns about the banking turmoil’s impact. He discussed potential challenges in commercial real estate and projected a fall in the RRP and reserves during the TGA rebuild. Since the meeting, Chair Powell has reiterated that it would be appropriate to lift rates at least a couple of times (in keeping with the Fed’s forecasts), stating that incoming data will be the influencing factor; he also has said that a majority of Fed officials support a couple of further rate hikes.
US ISM Services PMI (Thu): The services gauge is seen improving only slightly in June, with the consensus looking for a rise to 50.5 from 50.3 in May. The outlook for the services sector seems brighter than its manufacturing counterpart. S&P Global’s PMI data said service sector firms continued to show robust growth, contributing to an overall expansion in the private sector. While the rate of expansion in the services sector cooled from the previous month’s high, new business from abroad remained strong. „The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes,“ S&P Global said, adding that „any further rate hikes will of course have a further dampening effect on this sector which is especially susceptible to changes in borrowing costs.“
US Jobs Report (Fri): JOLTS data for May and the timelier weekly initial jobless claims series will help shape sentiment on the labour market going into the more definitive BLS employment situation report. For the JOLTS series, although it is a stale release (we will get June’s NFP data, though the JOLTS data is for May), it can still be influential; last month’s data for April, for instance, saw an upside surprise, generating a hawkish market reaction. Meanwhile, for the initial jobless claims data, Moody’s notes that it receded in the latest week, although the four-week average remains close to the break-even level (Moody’s estimates this to be around 265k), adding that it will be important to note any sustained increase in the level of claims as it would likely signal a deceleration in monthly job gains. In terms of the BLS employment situation report itself, the consensus currently looks for 200k payrolls to be added (vs 339k previously), with the unemployment rate seen unchanged at 3.7%. Average hourly earnings are seen rising 0.3% M/M, matching the rise seen in May. Moody’s says that while it expects to see continued signs of labour market cooling from the data, it likely will not be enough to keep the FOMC from restarting rate hikes in July. The market currently expects the central bank to lift rates 25bps in July – Fed Chair Powell himself has alluded to at least a couple more rate hikes ahead, a view he says is shared by a strong majority on the Committee.
Canadian Jobs Report (Fri): Currently, there are no expectations for next week’s jobs report but it will help dictate expectations for the July BoC meeting. The BoC resumed its hiking cycle in June after keeping rates on hold since January, as the board decided that policy was not sufficiently restrictive enough to bring supply and demand back into balance and return inflation to the 2% target. Since the June BoC meeting, the May Canadian jobs report heavily missed expectations with jobs declining by 17k, led by a 33k drop in full-time jobs. Meanwhile, inflation came in cooler than expected on the core metrics at 3.7% while the average of the three BoC core measures cooled to 4.3% from 4.7%, but still above the BoC’s 2% target. Markets currently look for a 60% probability of another 25bp hike in July, and this report may help cement the expectations with market pricing easing somewhat after the cool inflation report. Nonetheless, analysts at ING note that decent growth, a tight jobs market, that is set to be confirmed by the upcoming jobs data, and sticky inflation mean they expect another BoC hike in July.
This article originally appeared on Newsquawk
This article was written by Newsquawk Analysis at www.forexlive.com.
However, at some stage, if the yen falls too far for comfort, there will be actual intervention, in the form of selling USD/JPY. There may be some cross-selling but the bulk of intervention will be in USD/JPY.
In October 2022 the Ministry of Finance instructed the Bank of Japan to sell USD/JPY, actual intervention. In the weeks leading up to this there were warnings from authorities. These have gradations. I posted back in early June a guide to how these warnings escalate:
I’m adding a little more now, as we are getting closer to levels of concern.
Watch for words like „undesirable“, „rapid“, and „not reflecting fundamentals“. For example:
As an escalation of statements, watch for „one-sided“, „excessive“, and „speculative moves“. For example:
Further escalation is indicated by the warning of action to come, and is the time to be prepared for actual intervention:
The next step is what is referred to as a „rate check“. This is when the Bank of Japan contacts FX dealers at banks and asks for a dealing level in USD/JPY. Dealers quote the Bank a two-way price, a bid, and an offer. This is a bit of a charade as everyone knows what’s going on, the BOJ is intervening by making a threat of intervention. While this is going on dealers will contact other banks and sell USD/JPY heavily, in effect ‚front running‘ the BOJ. This is what the BOJ wants to happen, it’s a form of intervention without buying any yen and selling USD (from reserves).
The next step is actual BOJ USD/JPY selling. This follows a rate check, maybe by weeks, maybe by days, maybe by only hours. Instead of just asking for a two-way price, i.e. checking the rate, the BOJ will get the price and then deal on it, selling USD/JPY to the dealer. the banks dealer will then get out of that position as best he or she can, all the while trying to sell extra because the BOJ is in the market slamming USD/JPY lower and there is money to be made. the effect is cascade of USD/JPY selling, driving it lower. Intervention.
Japan’s Finance Ministry’s Vice Finance Minister for International Affairs Kanda. It’s the MoF that will instruct the Bank of Japan to intervene. And Kanda is the official responsible for doing so. You’ll often see me referring to Kanda in posts as „yen intervention guy“. Other references to him include Japan’s ‚top currency diplomat‘.
This article was written by Eamonn Sheridan at www.forexlive.com.