Forex Fundamental News Facts for 14th May, 2024

Forex Fundamental News Facts for 14th May, 2024

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[Quick Facts]
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1. Israel launches another offensive, with talks possibly resuming.
2. U.S. inflation and home price expectations pick up in NY Fed survey.
3. Fed’s Jefferson says interest rates should stay until inflation eases.
4. U.S. individual investors take aim at short sellers.
5.China to Kick Off 1 Trillion Yuan Stimulus Bond Issues This Week.
6. Will UK Jobs Data Give Any Meaningful Signal?
7. Yen Decline Persists.
8. Oil Steady as Investors Await US Inflation Data, OPEC Report, Commodity Market on eyes.
9. Everybody is Fed-Dependent.

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[News Details]
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Israel Intensifies Military Actions, Potential for Talks Resumption:

On May 13, Israel’s military operations in Rafah, Gaza Strip, persisted. IDF spokesperson Hagari, in a video message the previous day, stated that the Israeli forces were consistently executing targeted attacks against Hamas, the Palestinian Islamist resistance group, in Rafah. He stressed Israel’s commitment to defeating Hamas and securing the release of all Israeli prisoners. Presently, the operations are primarily focused in Rafah’s eastern region, with plans for gradual expansion.

The escalation of Israel’s military activities in Rafah has led to mounting pressure domestically and internationally. On May 10, the UN General Assembly passed a resolution, with a significant majority, urging the Security Council to consider the Palestinian request for UN membership. Gilad Erdan, Israel’s UN Ambassador, symbolically destroyed the UN Charter with a portable shredder, underlining the current Israeli-Palestinian conflict’s hostility.

Despite the recent collapse of the Gaza ceasefire talks in Cairo, Egypt, efforts to restart the negotiations persist. Egyptian sources anticipate the resumption of talks in Doha in the coming days. An Israeli official, well-versed with the negotiation details, quoted by Israeli media, stated that the talks have not reached an impasse yet.

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U.S. Inflation and Home Price Expectations Rise, According to NY Fed Survey:

The latest Survey of Consumer Expectations by the New York Fed indicates that consumers anticipate a 3.3% annual increase in prices next year, the highest level since the previous November, after remaining around 3% for the past four months.

Home prices are projected to increase at a similar rate, the quickest since July 2022. Consumers also foresee an acceleration in the price growth of gasoline, food, healthcare, college education, and rents. However, their labor market outlook has deteriorated. They predict a decline in income growth and a higher unemployment probability. If they were to lose their current job, respondents’ confidence in securing a new one has dropped to a three-year low, impacting household finances. The percentage of consumers who anticipate being unable to meet their minimum debt payments in the next three months is at its highest since the onset of the pandemic.

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Fed’s Jefferson Advocates for Steady Interest Rates Until Inflation Subsides:

Federal Reserve Vice Chairman Jefferson, at a Cleveland Fed meeting on Monday, suggested that due to the disinflation progress slowdown, it would be suitable to maintain the policy rate in a restrictive range to reduce inflation to the target level. He advocated for steady rates until there is more evidence of inflation returning to the 2% target.

Jefferson warned that officials’ economic and monetary policy outlooks are risky and can be misconstrued by the public as a rigid outlook. This risk is particularly high when multiple policymakers express divergent views simultaneously. In such scenarios, increased communication may heighten, rather than alleviate, policy uncertainty.

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U.S. Individual Investors Target Short Sellers:

Keith Gill, also known as “RoaringKitty” on YouTube, hinted at his comeback with a post on X, breaking his three-year silence. Three years ago, he was an active participant in the Reddit forum Wallstreetbet, where he encouraged numerous retail investors to invest in GME shares. His optimistic analyses of GameStop led to a short squeeze.

Following his return, GameStop’s stock price soared by 74% on Monday. AMC, a target three years ago, skyrocketed by 79.73%, and Reddit’s stock price increased by 8.78% on Monday.

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China to Kick Off 1 Trillion Yuan Stimulus Bond Issues This Week:

China’s Ministry of Finance is initiating a significant economic stimulus by issuing 1 trillion yuan ($138 billion) in special treasury bonds with maturities ranging from 20 to 50 years. The bond issuance, starting on May 17, is a strategic move to bolster sectors of the economy that are currently underperforming.

The breakdown of the bonds is as follows:

300 billion yuan in 20-year bonds

600 billion yuan in 30-year bonds

100 billion yuan in 50-year bonds

Premier Li Qiang has emphasized the importance of these bonds in supporting national strategies and enhancing security in crucial areas. The issuance is part of a broader plan to synchronize government investment with social capital, ensuring a cohesive approach to China’s economic challenges.

Market anticipation for the bond details has slightly influenced bond yields, with a minor decrease observed. However, the market has already accounted for this supply, and there is an expectation of further liquidity support from the central bank, including potential interest rate cuts and adjustments to reserve requirements.

The sale of these bonds will be staggered across several tranches throughout the year, with the 30-year bonds being distributed in 12 parts, the 20-year bonds in seven, and the 50-year bonds in three.

This financial strategy comes at a time when China is experiencing a slowdown in new bank lending and a record low in total social financing growth. Despite a better-than-expected economic growth rate of 5.3% in the first quarter, domestic demand remains weak, posing a challenge to the country’s economic momentum.

In summary, China’s long-term bond issuance is a calculated effort to stimulate the economy, with careful coordination expected between government spending and private investment to navigate the current economic headwinds.

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Will UK Jobs Data Give Any Meaningful Signal?:

The Bank of England (BoE) held its interest rates at a 16-year peak of 5.25% last week, hinting at a potential rate cut in the summer. While most board members voted to maintain the rates, Deputy Governor Dave Ramsden and Shati Dhingra proposed an immediate quarter-point decrease.

The BoE’s inflation forecast was adjusted downwards to 1.9% over two years and 1.6% over three years, suggesting a possible shift towards a more dovish stance. However, this does not necessarily indicate an immediate rate cut in the upcoming June policy meeting. The decision remains data-dependent, with a focus on the labor market, wage trends, and price pressures in the services sector.

Upcoming jobs data is a key event to watch. Analysts predict a decline in employment for the third consecutive month and a slight increase in the unemployment rate. Despite a potential decrease in average hourly earnings, they are expected to remain above the headline inflation rate.

Market reactions may be subdued due to concerns about data accuracy and upcoming inflation reports. However, any unexpected wage changes will be closely monitored, especially as UK employers are projected to raise wages by 4.0% in the next year.

In terms of GBP/USD levels, if wage growth surpasses expectations, delaying the rate cut to August, GBPUSD could potentially rise above key resistance levels. Conversely, if the data falls short of forecasts, analysts may anticipate a quicker or more significant loosening of monetary policy, leading to a potential drop in GBPUSD.

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Yen Decline Persists:

The Japanese Yen has continued its downward trend in the Asian markets, reversing the significant gains it made earlier. Market sentiment suggests that intervention by Japan is unlikely unless the Yen breaches the 160 mark against the Dollar. The current trading range is expected to hold in the short term.

Japan’s Finance Minister, Shunichi Suzuki, has expressed a cautious stance, pledging vigilant oversight of the currency markets to counteract any undue speculative activities. He stressed the necessity for ongoing dialogue and cooperation with the Bank of Japan (BoJ).

Market indices across Asia showed mixed results, with minor fluctuations. Notably, the yield on Japan’s 10-year government bonds saw a slight increase. In contrast, U.S. markets experienced a marginal dip, except for the NASDAQ, which posted gains. The yield on the 10-year U.S. Treasury note also declined.

From the Federal Reserve’s perspective, Vice Chair Philip Jefferson highlighted the importance of maintaining higher policy rates due to the sluggish pace of disinflation. He emphasized the Fed’s commitment to achieving the 2% inflation target and indicated that rates would remain high until there is substantial evidence of inflation reduction.

The International Monetary Fund (IMF) has advised a cautious and incremental approach to any future rate hikes by the BoJ. The IMF’s forecast for Japan’s economy predicts a slowdown in growth to 0.9% in 2024, with a rebound in consumer spending expected later in the year and into 2025. This uptick is attributed to higher nominal wages and a decrease in inflation, which should improve real wages.

The IMF expects a gradual decline in core inflation, although it will likely stay above the BoJ’s 2% target until late 2025. Given these projections, the IMF recommends that the BoJ’s rate adjustments be gradual and data-driven, taking into account the complex economic indicators.

The IMF also underscores the significance of Japan maintaining a flexible exchange rate regime, which is deemed essential for managing economic fluctuations and aiding the central bank in its pursuit of price stability.

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Oil Steady as Investors Await US Inflation Data, OPEC Report, Commodity Market on eyes:

In the recent week, petroleum futures and options have been sold at the fastest rate in a year as the war risk premium dissipates and the expected recovery in consumption slows. Over the past seven days, hedge funds and other money managers have sold 143 million barrels equivalent in the six key petroleum-related derivatives contracts.

Over the past four weeks, fund managers have consistently sold petroleum derivatives, reducing their combined position by 265 million barrels since April 9. The combined position has dropped from 685 million barrels to 420 million barrels, indicating a shift from a moderately bullish to a strongly bearish stance.

In the most recent week, there were significant sales of Brent, NYMEX and ICE WTI, U.S. gasoline, and European gas oil. The only purchases were in U.S. diesel. The market positioning has become extremely bearish towards WTI, while Brent remains neutral.

The persistent growth in U.S. crude production has kept inventories near the long-term average, ensuring a well-supplied regional market. The less bearish positioning on Brent likely reflects the residual conflict risk in the Middle East and the North Sea marker’s smaller exposure to over-production in the United States.

The fund community has become mildly bearish about the outlook for both European gas oil and U.S. diesel due to the slowing recovery in manufacturing and freight activity. Biodiesel and other renewable fuel oils are also capturing a small but rapidly increasing share of the freight markets formerly dominated by petroleum-derived diesel.

The expected cyclical depletion of inventories has not occurred this year; the market remains comfortably supplied with few signs prices will move higher in the short term. Previous bullishness about U.S. gasoline has also disappeared, with funds selling a total of 36 million barrels over the last four weeks.

Regarding U.S. natural gas, investors have become progressively less bearish about the outlook for U.S. gas prices despite the large inventories carried after an exceptionally warm winter in 2023/24. Hedge funds and other money managers purchased the equivalent of 490 billion cubic feet (bcf) in futures and options linked to gas prices at Henry Hub in Louisiana over the seven days ending on May 7. This boosted the overall position to a net long of 314 bcf, the highest for almost four months. Inventories remain 667 bcf above the prior ten-year seasonal average, but the surplus has been stable for the last two months.

Oil markets have shown stability with minor price changes as investors anticipate key economic reports. Brent crude and West Texas Intermediate crude experienced slight increases, reflecting a positive demand outlook in the U.S. and China. Market strategist Yeap Jun Rong notes a cautious holding pattern in oil prices due to upcoming U.S. inflation data, which could influence Federal Reserve interest rate decisions and, consequently, oil demand.

The forthcoming OPEC monthly oil report is expected to provide insights into global oil demand and the potential continuation of optimistic summer travel season projections. Meanwhile, wildfires in Canada’s oil sands region pose a risk to oil supply, with no immediate operational disruptions reported but potential impacts on the country’s production capacity.

Oil prices are also affected by uncertainties surrounding OPEC+ supply cuts, with mixed messages from Iraq’s oil minister causing market confusion. Speculative activity has seen a significant reduction in net long positions in ICE Brent and NYMEX WTI, indicating a bearish sentiment towards oil and middle distillates.

The energy sector anticipates the release of OPEC’s monthly oil report, the IEA’s monthly oil market report, and China’s industrial output data, including crude oil output and refinery activity. U.S. CPI data for April is expected to be a major influence on oil markets, providing clarity on the Federal Reserve’s monetary policy direction.

In the metals market, LME aluminium inventories surged, particularly at Port Klang in Malaysia, with speculation around Trafigura’s involvement. China’s primary aluminium output increased, driven by improved electricity supply and higher prices. Chile’s copper production showed a slight year-on-year decrease but an overall increase in the first quarter of 2024.

In agriculture, the USDA’s WASDE report forecasts a decrease in U.S. corn production for 2024/25, with global corn output and ending stocks also projected to decline. U.S. soybean production is expected to rise, with global soybean production and demand projected to increase. U.S. wheat ending stocks are predicted to reach a four-year high, with global wheat ending stocks forecasted to decrease slightly.

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Everybody is Fed-Dependent:

Major indices in Europe and the US have been trading near their all-time high levels, with the US dollar index slightly above 105, as markets anticipate inflation updates from the US and Europe.

The highlight of Monday was a resurgence in Gamestop and AMC shares, sparked by Keith Gill’s first post on X since 2021. However, the revival of meme stocks is unlikely to reach its previous heights due to several factors: higher interest rates and tighter monetary policies, reduced savings post-pandemic, and significantly lower trading volumes compared to 2021.

Turning to inflation, the US is set to release its Producer Price Index (PPI) figures for April. If these figures meet or fall below expectations, it could ease concerns among Federal Reserve doves, soften the US dollar against major currencies, and boost risk appetite. Conversely, figures exceeding expectations could dampen expectations for a Fed rate cut, strengthen the US dollar, and put pressure on stock and bond valuations.

In the Eurozone, headline inflation is expected to have stabilized near 2.4%, with core inflation potentially dropping to 2.7% from 2.9%. This week’s inflation updates are likely to underscore the narrative of diverging inflation dynamics, with US inflation heating up and Eurozone and UK inflation trending downwards towards the central banks’ 2% target. This divergence could delay the Fed’s rate cut plans while keeping the European Central Bank (ECB) and the Bank of England (BoE) on track for rate cuts this summer.

Both the ECB and the BoE assert their data dependency, not Fed dependency. However, this holds true only if the euro and sterling do not depreciate significantly against the US dollar. So far, both currencies have held up well against the divergence between a hawkish Fed and dovish ECB and BoE.

The tempered appreciation of the US dollar can be partly attributed to a slight improvement in Eurozone growth numbers versus a significant decline in the latest growth data. The expectation that the Fed’s next move will be a rate cut, albeit potentially later than initially hoped, has kept USD bulls at bay.

However, it’s important to note that the US dollar index has risen up to 5% since the start of the year, and the risks are tilted to the upside unless US inflation returns to a downward trajectory. The reality is that we are all dependent on the Fed. Regardless of what the ECB and the BoE say, they cannot operate independently if the US dollar appreciates due to a reversal in US inflation. A significant dollar appreciation would increase inflation in the Eurozone and the UK, prompting the ECB and the BoE to reconsider their rate cutting plans beyond summer.

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🔥News releases on THIS WEEK :

14/05 Tue 12:00pm GBP Claimant Count Change

14/05 Tue All Day EUR ECOFIN Meetings

14/05 Tue 6:30pm USD PPI m/m & Core PPI

14/05 Tue 8:00pm USD Fed Chair Powell Speaks

15/05 Wed 7:30am AUD Wage Price Index q/q

15/05 Wed 6:30pm USD CPI+Retails Sales m/m & Core CPI+Retail Sales

15/05 Wed 8:00pm USD Business Inventories m/m

15/05 Wed 8:30pm USD Crude Oil Inventories

16/05 Thu 5:50am JPY Prelim GDP q/q

16/05 Thu 7:30am AUD Employment Change

16/05 Thu 6:30pm USD Unemployment Claims & Building Permits & Philly Fed Manufacturing Index

16/05 Thu 7:15pm USD Industrial Production m/m

16/05 Thu 8:00pm USD FOMC Member Barr Speaks

16/05 Thu 8:30pm USD Natural Gas Storage

17/05 Fri 8:00am CNY Industrial Production y/y & Retail Sales y/y

17/05 Fri 8:15pm USD FOMC Member Waller Speaks

N.B. Time mentioned here is on Gmt +6

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Sources :
– CNBC, Bloomberg, Reuters, Fastbull, Yahoo Finance, CNN, ForexFactory News, Myfxbook News etc

Prepared to you by “Akif Matin“

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