Forex Fundamental News Facts for 16th May, 2024

Forex Fundamental News Facts for 16th May, 2024

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[Quick Facts]
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1. U.S. CPI boosts rate-cut expectations, sending dollar lower, driving others higher.
2. Fed’s Goolsbee is optimistic about lower housing inflation.
3. Fed’s Kashkari says rates are expected to stay high for some time.
4. WSJ’s Timiraos says the Fed may not cut rates before September.
5. Canada’s manufacturing sales fell in March.
6. Yen Rebounds as Cooling US CPI Weighs on Dollar, Treasury Yields.
7. As US Hikes China Tariffs, Imports Soar from China-Reliant Vietnam.
8. Natural Gas and Oil Forecast: US Inventories Drop, NG at $2.4, Oil at $79.
9. Gold (XAU) Daily Forecast: Weaker DXY Pushes XAU to $2392; Correction Ahead?
10. Australia April Labour Force: Gradual Softening Persists.

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[News Details]
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U.S. Inflation Report:

Fuels Rate-Cut Speculation, Impacts Currency Market The latest inflation report from the U.S. Bureau of Labor Statistics indicates a slowdown in the Consumer Price Index (CPI) growth. The report, released on Wednesday, shows a 0.3% rise in April, down from the previous month’s 0.4% increase. This marks the first time in half a year that the month-on-month growth has decelerated. The annual increase rate stands at 3.4%, slightly lower than the previous 3.5%. The core CPI, which excludes volatile items like food and energy, remained steady with a 0.3% increase from the previous month, and a year-on-year increase of 3.6%, the lowest since April 2021.

This report, indicating a general cooling of prices, bolsters market optimism for U.S. equities and bonds. Despite housing costs not decreasing as anticipated, sectors such as transportation and healthcare showed improvements. The less-than-perfect figures suggest a downward trend in inflation. Coupled with weak retail sales data and a dip in the New York Fed’s manufacturing index, the likelihood of a rate cut increases.

However, the Federal Reserve is unlikely to immediately alter its policy in response to this data. The Fed has consistently maintained that the current rates are sufficient to control inflation and that a rate cut would be the next step. However, they are not in a rush to implement this.

The Q2’s initial CPI report is viewed as positive by the FOMC, with both the headline and core CPI rising by 0.3% in April. This was slightly below expectations for the headline CPI but in line for the core CPI, indicating a slowdown from Q1. The rise in gasoline prices was offset by stable food prices and a drop in energy services prices.

The core CPI’s slowdown was due to deflation in vehicle prices and slower price growth in medical care services, motor vehicle insurance, and maintenance. Based on the CPI and PPI data from April, it’s estimated that the core PCE deflator rose by 0.25% month-over-month. If this holds, the three-month annualized and year-over-year rates would be 3.4% and 2.8%, respectively.

However, it’s believed that more than one solid CPI report will be needed to trigger the first rate cut. The FOMC would need several more benign inflation readings to feel confident enough to start lowering the fed funds rate. The expectation is for the first rate cut to occur at the FOMC’s September meeting, but any additional obstacles could delay this, unless there’s a significant downturn in the labor market.

In April, consumer price inflation was slightly softer than expected, rising by 0.3%. Food prices remained stable, while energy prices rose by 1.1%, driven by a 2.8% increase in gasoline prices. A recent dip in oil prices suggests some giveback in the next month’s CPI report.

Excluding food and energy, price growth moderated in April, with core CPI rising by 0.3%. Core goods prices continued to decline, falling by 0.1%, driven almost entirely by new and used autos. Over the past year, core goods prices have fallen by 1.2%, while total goods inflation is up a benign 0.3%.

With goods inflation returning to a pace similar to before COVID, the burden of further disinflation increasingly falls on services. Prices for services ex-energy have risen by 5.3% over the past year. In April, inflation in the service sector eased again, with core services prices rising by 0.4%.

Excluding primary shelter, services inflation cooled more significantly in April, with the “super core” up 0.4% after a 0.7% gain in March. This moderation was due to slower growth for medical services and motor vehicle insurance and maintenance. However, with vehicle prices having come off their peak, related-services price growth is expected to start cooling in the coming months.

Taking into account the CPI data and the April Producer Price Index report, it’s estimated that the core PCE deflator, the Fed’s preferred inflation gauge, rose by 0.25% in April. This would bring the core PCE index from a three-month annualized rate of 4.4% in March to 3.4% in April. The expectation is for the core PCE deflator to remain at 2.8% year-over-year.

The smaller sequential increase in core PCE in April would be a step in the right direction for the Fed to regain some confidence that inflation is subsiding. However, it’s believed that it will take at least a few more benign inflation readings for the FOMC to feel sufficiently confident to begin lowering the fed funds rate. The expectation is for the first rate cut to occur at the FOMC’s September meeting, but any additional obstacles could delay this, unless there’s a significant downturn in the labor market.

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Fed Officials Comment on Inflation and Interest Rates:

Chicago Fed President Goolsbee expressed optimism about the decline in housing inflation. He acknowledged that while inflation has improved and aligns with expectations, it remains higher than the latter half of the previous year and needs further improvement. Goolsbee remains hopeful, citing evidence that housing inflation is set to decrease significantly.

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Minneapolis Fed President Kashkari comments:

Kashkari stated that the impact of monetary policy on the economy is the biggest uncertainty. He suggested that it might take some time to determine the direction of underlying inflation. Kashkari also noted that the economy is more resilient than anticipated, which could mean that the brakes are being applied more gently than expected.

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WSJ Report and Canadian Manufacturing Sales:

A report by Nick Timiraos of The Wall Street Journal suggests that the Fed may not be ready to cut rates before September. The April inflation report indicated easing price pressures, which could allow Fed officials to maintain the current policy at the next month’s meeting. However, more reports may be needed to convince officials that the higher-than-expected inflation figures seen earlier this year were an anomaly.

In Canada, manufacturing sales fell in March due to a significant drop in oil and auto shipments. This led to the largest decline in manufacturing sales in five months. The seasonally adjusted manufacturing sales fell by 2.1% from the previous month to C$69.88 billion, equivalent to $51.19 billion. This decline suggests a softer economic environment at the end of the first quarter. The first three months of the year saw a 0.9% decline in Canadian manufacturing sales, primarily due to decreases in sales of transportation equipment and primary metals.

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Yen Rebounds as Cooling US CPI Weighs on Dollar, Treasury Yields:

For the first time since May 7, Japan’s currency has strengthened beyond the 154 level, peaking at 153.6 per dollar. This surge, which helped prevent Japanese authorities from intervening in the market to curb weakness, has seen the currency fluctuate in recent weeks. After weakening beyond 160 per dollar for the first time since 1990 in late April, the currency rebounded sharply following two suspected rounds of intervention by authorities.

Market players have increased their predictions that the Federal Reserve will reduce interest rates following the April US CPI report. Current swap pricing suggests a more than 66% likelihood of a quarter-point rate reduction by the September meeting. Concurrently, expectations for a rate hike by the Bank of Japan are on the rise.

The possibility of the world’s largest economy lowering interest rates has boosted the yen as US bond yields fell and a Bloomberg measure of the dollar dropped to its weakest level in over a month. The significant gap between Japan’s ultra-low and the higher US borrowing rates has maintained pressure on the Japanese currency, which recently hit a 34-year low.

Wednesday’s data showed that the core measure of US inflation, which excludes volatile food and energy costs, rose 0.3% from March, while the year-over-year core price growth eased to 3.6%. Over the past year, the yen has fallen more than 11%, making it the worst-performing Group-of-10 currency. Even after the Bank of Japan raised the short-term policy rate for the first time since 2007 in March, bearish bets dominated the market.

To curb losses, Japan is suspected to have purchased the yen twice, in late April and then again in early May, spending about ¥9 trillion ($58.5 billion) in total. However, the nation’s top currency official, Masato Kanda, has declined to comment on whether authorities had intervened.

Despite Japan’s recent efforts, market observers argue that the yen continues to face long-term pressures. Former US Treasury Secretary Lawrence Summers stated that currency interventions are ineffective at shifting exchange rates, even at the large magnitude that Japan is thought to have deployed.

Japan’s economy shrank at an annualized rate of 2% in Q1, more than the predicted 1.2%, marking a failure to grow since the previous spring. This contraction is attributed to several factors, including an earthquake on New Year’s Day, disruptions in auto production and sales due to a scandal at Daihatsu Motor Co., and the ongoing impact of significant inflation.

Household spending has been declining as real wages continue to fall, leading to a decrease in personal consumption for four consecutive quarters. This is the longest such decline since the global financial crisis. The Bank of Japan (BOJ) is closely monitoring these figures to determine when to next raise interest rates, following its first hike in 17 years in March.

However, economists believe that the BOJ will need to see more positive GDP figures before they can raise interest rates again. They predict an economic rebound in Q2 as auto output recovers and wage increases boost consumer sentiment. Additionally, many families will receive one-off tax cuts starting in June.

Despite the gloomy Q1 data, there were some positive developments. Companies pledged the largest wage hikes in three decades following annual negotiations with unions. However, it remains to be seen if consumer spending will increase significantly. Rising prices have dampened consumer sentiment, and the weak yen is affecting a wide range of service industries.

The BOJ expects cost-push inflation to continue to ease and transition into demand-driven price rises. The central bank may take action if foreign exchange moves significantly impact the inflation trend. Recent sharp moves in the yen suggest that finance ministry authorities intervened in the foreign exchange market to support it.

A revision to the Q1 GDP figures is due on June 10, just before the BOJ’s next policy decision. Speculation is growing that the central bank may raise interest rates again in the coming months, with the weak yen being one of the factors favoring an early move.

The weak yen has not only impacted consumers and businesses but has also symbolically diminished the size of Japan’s economy in dollar terms. This has led to Germany surpassing Japan as the world’s third-largest economy last year. The IMF’s April projections now show Japan falling to fifth behind India in 2025.

Prime Minister Fumio Kishida has sought to change the narrative for Japan’s economy, declaring the nation on the verge of reaching a turning point. However, his approval ratings have been low due to a political slush fund scandal and consumers’ frustration over rising living costs. His cabinet’s approval rating stood at 24% in a NHK poll taken this month, up 1 percentage point from April. The LDP lost a special election on April 28, which Kishida had characterized in part as a judgment on his performance. The party will hold its next leadership vote in September.

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As US Hikes China Tariffs, Imports Soar from China-Reliant Vietnam:

The U.S. has been escalating its efforts to curtail trade with China by imposing higher tariffs, leading to a significant increase in imports from Vietnam. Vietnam, in turn, heavily depends on Chinese resources for its exports. This shift in trade dynamics has led to a substantial expansion in trade imbalances, with Vietnam recording a trade surplus with the U.S. of nearly $105 billion last year, a figure 2.5 times larger than in 2018 when the U.S. first imposed heavy tariffs on Chinese goods.

Vietnam now ranks fourth in terms of trade surplus with the U.S., trailing only China, Mexico, and the European Union. This growing interdependence is evident in trade, customs, and investment data from various sources, including the United Nations, the U.S., Vietnam, and China. The World Bank’s preliminary estimates confirm this trend, indicating a 96% correlation between the inflow of imports from China to Vietnam and the value of exports from Vietnam to the U.S.

The U.S. perceives the surge in Chinese imports in Vietnam, which coincides with the increase in Vietnamese exports to the U.S., as a strategy by Chinese firms to bypass the additional tariffs imposed on their goods. This could potentially lead to the U.S. imposing tariffs on Vietnam after the U.S. elections.

The escalating trade imbalance comes as Vietnam strives to achieve market economy status in Washington, following President Joe Biden’s initiative to strengthen diplomatic ties with the country. Last year, U.S. imports of goods from Vietnam exceeded $114 billion, more than double the amount in 2018 when the Sino-American trade war began. This surge accounted for over half of the $110-billion drop in imports from Beijing since 2018.

However, Chinese resources remain vital, as a significant portion of what Vietnam exports to the U.S. is composed of parts and components manufactured in China. Imported components accounted for about 80% of the value of Vietnam’s electronics exports to the U.S. in 2022. One-third of Vietnam’s imports come from China, primarily electronics and components.

The symbiotic relationship is reflected in the latest data: In the first quarter of this year, U.S. imports from Vietnam amounted to $29 billion, while Vietnam’s imports from China totalled $30.5 billion. As inflation remains high, the White House has remained silent on Vietnam’s large trade surplus, but this may change after the November vote.

The surge in the China-Vietnam-U.S. trade reflects the rise in investments in the Southeast Asian manufacturing hub, as companies relocate some activities from China. Many of these manufacturers are Chinese firms that add value in their new factories in Northern Vietnam but still heavily rely on supply chains from their homeland. However, in some cases, the trade involves finished products labelled as “Made in Vietnam” despite no value being added in the country.

Another reason Vietnam is drawing U.S. scrutiny is its exposure to Xinjiang, the Chinese region from where the U.S. bans imports over accusations of human rights violations against minority Uyghurs. Xinjiang is China’s main source of cotton and polysilicon used in solar panels, both of which are key for Vietnam’s industry. Vietnam is the country with the highest volume of shipments by value denied entry into the U.S. over Uyghur forced labour risks. Vietnam’s import of raw cotton from China fell by 11% last year to 214,000 tons, but it was roughly twice as big as in 2018. China also exported to Vietnam at least $1.5 billion-worth of cotton apparel, up from nearly $1.3 billion in 2022. Meanwhile, U.S. imports of cotton clothes from Vietnam fell by 25% to $5.3 billion last year.

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Natural Gas and Oil Forecast: US Inventories Drop, NG at $2.4, Oil at $79:

Oil prices experienced an uptick in Asian markets, continuing the upward trend from the previous trading session. This increase was fueled by a lower-than-anticipated U.S. Consumer Price Index (CPI), which led to a depreciation of the dollar and raised expectations for a cut in interest rates, thereby propelling oil prices. A more significant reduction in U.S. inventories than initially expected also contributed to predictions of a tighter global supply.

Furthermore, the market responded positively to China’s announcement of a 1 trillion yuan ($138 billion) bond issuance plan and potential supply disruptions due to wildfires in Canada. Official data indicated a decrease of 2.5 million barrels in U.S. oil inventories for the week ending May 10, suggesting an increase in demand.

However, the International Energy Agency (IEA) reduced its demand forecast for 2024 by 140,000 barrels per day, a contrast to OPEC’s prediction of a daily demand of 2.25 million barrels.

Natural Gas (NG) is currently priced at $2.413, marking a 0.35% increase. Key price points to consider include a pivot point at $2.38. Immediate resistance levels are situated at $2.45, $2.51, and $2.56, while immediate support levels are at $2.31, $2.23, and $2.15.

Technical indicators present a mixed picture. The 50-day Exponential Moving Average (EMA) stands at $2.26, and the 200-day EMA is at $2.02, both indicating a bullish trend if prices remain above these levels. In conclusion, NG maintains a bullish outlook above the pivot point at $2.38. A drop below this level could initiate a significant selling trend.

WTI Crude Oil (USOIL) is trading at $79.04, marking a 0.21% increase. Key price points include a pivot point at $78.45. Immediate resistance levels are at $79.48, $80.67, and $81.52, while immediate support levels are at $77.65, $76.75, and $75.83.

Technical indicators present a mixed picture. The 50-day Exponential Moving Average (EMA) is at $78.99, with the price slightly above this level, indicating a bullish trend. The 200-day EMA is at $80.74, suggesting longer-term resistance. In conclusion, USOIL maintains a bullish outlook above the pivot point at $78.45.

Brent Crude Oil (UKOIL) is trading at $83.14, marking a 0.24% increase. Key price points to consider include a pivot point at $82.98. Immediate resistance levels are at $83.91, $84.49, and $85.57. On the support side, immediate levels are at $82.08, $81.04, and $80.05.

Technical indicators present a mixed outlook. The 50-day Exponential Moving Average (EMA) is at $83.43, indicating that the current price is slightly below this level, suggesting potential resistance.

The 200-day EMA stands at $85.27, highlighting a longer-term resistance level. In conclusion, UKOIL maintains a bullish stance above the pivot point at $82.98.

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Gold (XAU) Daily Forecast: Weaker DXY Pushes XAU to $2392; Correction Ahead?

On Thursday, gold (XAU/USD) experienced a rise to $2,397, influenced by a weakening US dollar (USD). However, the upward trend appears to be losing steam, hinting at a possible bearish correction. The recent slowdown in US inflation for April, as indicated by the Consumer Price Index (CPI) report, has led to increased market expectations of Federal Reserve (Fed) rate cuts this year. Lower interest rates can make gold more attractive by reducing the cost of holding the metal.

Gold traders are expected to pay attention to several US economic indicators on Thursday, including US Building Permits, Housing Starts, Initial Jobless Claims, the Philly Fed Manufacturing Index, and Industrial Production. Furthermore, speeches from Fed officials Barr, Harker, Mester, and Bostic are anticipated. Despite the possibility of hawkish commentary boosting the USD and potentially limiting gold’s upside, the overall sentiment remains supportive for gold.

In April, the US CPI increased by 3.4% year-over-year (YoY), a decrease from 3.5% in March. The monthly CPI rose by 0.3%, falling short of the expected 0.4%. Core CPI, which excludes food and energy, increased by 3.6% YoY, down from 3.8% in March. Retail sales remained unchanged in April, following a 0.6% increase in March, underperforming the predicted 0.4%.

According to the World Gold Council’s Q1 2024 report, global gold demand rose by 3% to 1,238 tonnes, marking the strongest first quarter since 2016. Central banks, including the People’s Bank of China, are increasing their gold holdings while decreasing their exposure to US Treasury securities. Julius Baer noted that this shift, driven by political motivations, supports structurally high gold prices without necessarily pushing them higher.

Gold (XAU/USD) is currently trading at $2392.795, up 0.13%. Key price levels to monitor include a pivot point at $2383.79. Immediate resistance levels are at $2398.70, $2414.06, and $2431.46. Immediate support levels are at $2372.33, $2354.71, and $2334.83.

Technical indicators present mixed signals. The 50-day Exponential Moving Average (EMA) is at $2348.56, and the 200-day EMA is at $2307.93, both suggesting a bullish trend above these levels. However, a double top pattern around the $2398 level indicates potential bearish pressure.

In conclusion, the outlook for gold is bearish below $2398. A break above this level could enhance bullish momentum, while a break below the pivot point at $2383.79 may trigger a bearish correction towards $2373.

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Australia April Labour Force: Gradual Softening Persists:

In April, employment levels saw a stronger-than-anticipated increase of +38.5k (0.3%), following a volatile first quarter. Despite fluctuations in labour demand over the past year, employment growth has only softened gradually. The employment-to-population ratio remained steady at 64.0% as growth in the working age population matched that of employment.

The Australian Bureau of Statistics (ABS) provided additional information on the recent behaviour of seasonally adjusted estimates in the Labour Force Survey. The main takeaway is that recent volatility is likely temporary, reflecting changes in the dynamics and behaviours of people and businesses within the context of a historically tight labour market.

Labour force participation was slightly stronger than expected, with the participation rate moving higher from 66.6% in March to 66.7% in April. This implies a significant increase in the size of the labour force, up +68.8k. Given the +38.5k increase in employment, this means there was a rise in the number of unemployed persons (+30.3k), which saw the unemployment rate move from 3.9% to 4.1% (4.05% to two decimal places).

The total number of hours worked has been soft over the last year, notwithstanding the increase in the number of people employed. This continued in April, with the number of hours worked remaining unchanged compared with March. In annual terms, hours worked declined by 0.1%. This was the first annual decline since the pandemic (February 2021).

The change in the number of hours worked over April differed across the states. Strong increases were recorded in Tasmania (+5.8%) and Queensland (+1.6), with declines were recorded in Western Australia (-1.8%), South Australia (-0.8%), Victoria (-0.3%) and NSW (-0.2%).

The bounce back in international students and immigrants returning to Australia when borders reopened was larger than anyone expected. As a result, the working age population grew at a record pace for most of last year. This now looks to have peaked, in the month of September 2023 when looking at the annual growth rate. Despite this, the change in the working age population continues to outpace employment. We expect this will continue to occur going forward. This is consistent with a loosening in labour market conditions – with the unemployment rate drifting higher and the employment to population ratio moving lower.

Consistent with the soft hours worked outcome some other labour market indicators also softened over the month of April. The underemployment rate, which measures the share of employed workers who are willing and able to work more hours, ticked up to 6.6% in April. Over 2023 the underemployment rate has drifted higher in trends terms, coinciding with the slowdown in economic activity.

The underutilisation rate, which combines the unemployment and underemployment rates, jumped to 10.7% – the highest rate since January. Consistent with the underemployment rate, the underutilisation rate has drifted higher in trends terms, from 9.5% in late 2022 to 10.3% in March 2024 (trend terms).

The tone of today’s survey, in relation to its implications on the outlook, is not materially different from last month. The dynamics which drove a clear softening in conditions over the second half of last year – namely the ‘correction’ in average hours from elevated levels and a slowdown in employment growth – have not been as strong recently. Looking past the considerable month-to-month volatility, the labour market has generally held in robust health with signs of emerging slack being gradual at best.

As we have emphasised before, the extent to which labour demand will continue to cool over the near-term will critically depend on the interplay between headcount and hours. We continue to anticipate that conditions will gradually soften over the course of this year, as employment growth continues to soften and the unemployment rate ticks up to a quarter-average of 4.3% by year-end.

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🔥News releases on THIS WEEK :

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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