Forex Fundamental News Facts for 26th June, 2024
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[Quick Facts]
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1. Fed’s Bowman doesn’t see any rate cuts this year.
2. Traders have extreme bets on Fed rate cuts.
3. Fed’s Cook expects U.S. progress on inflation to continue.
4. U.S. consumer confidence weakens slightly in June.
5. Canada’s inflation unexpectedly accelerates in May.
6. Trump Beats Biden for ‘King of Debt’ Title as Market Braces for Crush of Federal Bonds.
7. Australia’s Faster Inflation Raises Risk of RBA Rate Hike.
8. New Zealand Treasury Eyes More Spending Cuts.
9. Hedge Funds Boost Crude Oil Positions After OPEC+ Reassurances.
10. BRICS See No Progress On De-dollarization.
11. Gold Global Rates Dip Ahead Of U.S. Economic Data Releases.
12. GDP, Fed Speakers and Other Key Things to Watch.
13. US PCE Price Data And Fed Speakers To Set Tone.
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[News Details]
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Fed Governor Michelle Bowman acknowledges elevated inflation risks. Labor supply from supply chain improvements and immigration, which drove last year’s decline in inflation, is unlikely to continue.
Regional conflicts, loose financial conditions, and fiscal stimulus measures could exacerbate inflation.
Housing demand from immigrants and tight labor markets may push prices up.
If inflation sustains movement toward the 2% target, gradual rate cuts may be appropriate.
However, modest progress has been made this year, and inflation is expected to remain elevated.
No rate cuts are expected this year according to Bowman.
Inflation Trends:
The Personal Consumption Expenditures (PCE) index is likely to decrease slightly in May based on consumer and producer price data.
Services inflation has slowed but remains higher than pre-pandemic rates. Housing services inflation has eased gradually due to landlords adjusting rents for existing tenants over time.
Outside of housing, services inflation has stalled near 3.5% this year, still above the average pace before the pandemic. Imputed prices (including portfolio management fees) contribute to recent service inflation.
Prices for hotel stays, airline tickets, and restaurant meals reflect supply and demand conditions.
Long-Term Inflation Outlook:
Disinflation is expected to continue due to interest rates affecting demand.
Anecdotal reports suggest consumers are resisting price increases, and some national retailers plan to lower prices.
Three- and six-month inflation rates will decrease unevenly, while 12-month inflation will remain stable this year. Next year, inflation will slow further, especially in housing services.
Labor Market and Economic Growth:
The labor market is tight but not overheated, similar to pre-pandemic levels.
Economic growth is expected to remain close to potential, at just over 2%.
Monetary Policy Stance:
The current policy is restrictive, putting downward pressure on aggregate demand.
Uncertainty remains, with risks such as persistently high inflation or unexpected labor market weakness.
Adjustments to policy will depend on evolving economic data and maintaining a healthy balance in the economy
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Traders in the U.S. rates options market are betting on a significant 300 basis points worth of cuts in the next nine months.
This aggressive position assumes the Fed will reduce its key rate to as low as 2.25% by Q1 2025.
Fed officials recently forecast only 25 basis points of rate cuts by year-end and 125 basis points by the end of 2025.
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Fed Governor Lisa Cook suggests lowering interest rates “at some point.”
Inflation is expected to gradually improve this year and see faster progress in 2025.
The timing of policy adjustments depends on evolving economic data and risks.
Short-term and six-month inflation rates may continue to decrease, while annual inflation remains stable.
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The U.S. Conference Board Consumer Confidence Index weakened slightly in June.
Rising living costs and high borrowing costs have curbed consumer confidence.
Only 12.5% of respondents expect business conditions to improve in the next six months.
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Canada’s CPI unexpectedly increased by 2.9% year-on-year in May, driven by rising services prices.
Core inflation rebounded after five months of decline.
This unexpected acceleration is not favorable for a July rate cut by the Bank of Canada
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The national debt, influenced by policies enacted during both Trump and Biden’s presidencies, is set to reach a record share of the economy. Here’s a comparison of their fiscal records:
Trump’s Debt: During his full term, President Trump approved $8.4 trillion in new ten-year borrowing, excluding COVID relief. His gross new borrowing was $8.8 trillion, with $443 billion in deficit reduction.
Biden’s Debt: In his first three years and five months, President Biden approved $4.3 trillion in new ten-year borrowing, excluding the American Rescue Plan. His gross new borrowing stands at $6.2 trillion, with $1.9 trillion in deficit reduction.
Debt Composition: Trump’s debt came largely from bipartisan legislation (77%), while Biden’s includes both bipartisan and partisan actions. Biden’s spending increases focus on child tax credits, pre-K education, and paid family leave.
Challenges Ahead: The next president will inherit historic budget deficits and the legacy of inflation. Biden aims to raise taxes on corporations and high earners, but experts question if this alone can solve long-term debt issues.
Market Concerns: Observers worry about the U.S. government’s extensive borrowing. High federal deficits necessitate issuing $150 billion in new debt, raising questions about who will buy Treasury bills
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Inflation Acceleration:
In May, Australia’s monthly consumer price indicator rose by 4% year-on-year, surpassing economists’ expectations of 3.8%.
The trimmed mean core measure, which accounts for volatile items, increased to 4.4%, up from 4.1% the previous month.
Market Reaction:
Traders responded by pricing in a higher likelihood of a rate hike at the Reserve Bank of Australia’s (RBA) upcoming meeting on Aug. 5-6.
Yields on three-year bonds, sensitive to policy changes, jumped 14 basis points to 4.07%, marking the largest one-day gain since April.
RBA’s Stance:
RBA Governor Michele Bullock hinted that a rate hike is not off the table, despite leaving the benchmark rate at a 12-year high of 4.35%.
Assistant Governor Christopher Kent emphasized vigilance regarding inflation risks and the need for evidence of sustained easing in core consumer prices before considering rate cuts.
Context and Global Trends:
Overnight Index Swaps suggest that a rate cut is unlikely until September 2025, with a 40% chance of a hike in August.
Similar to the U.S., the RBA is cautious, considering the job market’s strength and its goal of bringing consumer prices back within the 2%-3% target.
Long-Term Outlook:
The RBA’s patient approach aims to curb inflation without stifling economic growth.
Despite 13 rate hikes between May 2022 and November 2023, Australia’s tightening cycle remains moderate compared to global trends.
The bank’s forecasts indicate that CPI will return to target by 2025
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The New Zealand Treasury Department is actively exploring strategies to address the country’s economic challenges. As the weak economy continues to impact tax receipts, Secretary Caralee McLiesh emphasizes the need for prudent financial management. Here are the key points:
Spending and Revenue Measures:
The Treasury will conduct reviews of spending and identify options for the government to consider. This includes both revenue-enhancing and spending-reduction measures.
Recent data highlight underlying economic weakness, affecting current spending, house prices, and manufacturing and services indices. These factors pose risks to revenue.
Budget Projections:
The May budget projected a return to surplus by 2028.
Net debt is expected to rise to 43.5% of GDP next year and decline to 41.8% in 2028, still above the government’s target range of 20-40%.
Challenges Ahead:
Tough choices are necessary to achieve fiscal targets. The operating balance must be carefully managed.
The government aims to increase the levy charged to tourists entering the country and may raise fees for migrant visas.
Spending cuts of 6.5% to 7.5% have already been implemented, resulting in redundancies across government departments.
Finance Minister Nicola Willis faces significant challenges in meeting operating allowances for expanded government services.
Growing Fiscal Pressures:
McLiesh warns of fiscal pressures related to an aging population, rising healthcare costs, climate change, and geopolitical tensions.
The universal state pension system means more government transfers go to wealthier individuals as the population ages.
Tough decisions lie ahead, such as considering options like increasing the retirement age or means-testing the pension.
Foreign Direct Investment and Reforms:
The Treasury is examining ways to remove barriers to foreign direct investment, aiming to improve productivity growth.
New Zealand’s restrictive FDI regime offers scope for significant reform.
While capital gains tax and asset sales are not currently on the government’s agenda, the Treasury continues to provide advice on potential measures.
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Crude Oil Rebound: Portfolio investors have regained confidence in crude oil after reassurances from Saudi Arabia and OPEC⁺. Fund managers purchased 69 million barrels of Brent futures and options in a week, following significant buying in NYMEX and ICE WTI. These positions have now stabilized after OPEC⁺ announced future production increases contingent on market conditions.
Position Reversion: Total Brent and WTI positions reached 300 million barrels, rebounding from an immediate post-announcement low. Despite short-term price pessimism, the net position remains in the 13th percentile for all weeks since 2013.
Gas Oil Surge: European gas oil positions surged, with fund managers buying 28 million barrels in a week—a record for the last decade. This bullish trend prompted commodity trader Trafigura to load gas oil in the Persian Gulf onto a very large crude carrier (VLCC) bound for Europe.
U.S. Natural Gas: Portfolio managers continue to increase their bullish position in U.S. gas. However, stubbornly high inventories and a waning price rally have tempered the rate of increase. The net long position stands at 1,170 billion cubic feet (bcf), up from a net short position earlier this year.
Challenges Ahead: Persistently high inventories test investors’ optimism for a rapid return to normalcy after major gas producers cut drilling programs in February
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The U.S. dollar’s supremacy in global finance remains unchallenged, according to the “Dollar Dominance Monitor.” Despite economic fragmentation and efforts by BRICS countries to diversify, the dollar continues to dominate foreign reserve holdings, trade invoicing, and currency transactions. Here are the key takeaways:
Dollar Dominance and Recent Strengthening:
The robust U.S. economy, tighter monetary policy, and geopolitical risks have reinforced the dollar’s role as the primary global reserve currency.
BRICS nations (Brazil, Russia, India, China, South Africa) have sought alternatives, but the dollar’s position remains secure.
BRICS and De-Dollarization Efforts:
Western sanctions on Russia, following Moscow’s invasion of Ukraine, accelerated BRICS’ push to develop a currency union.
However, progress on de-dollarization within BRICS has been limited.
China’s Role and Challenges:
China’s Cross-Border Interbank Payment System (CIPS) has expanded significantly, adding 62 direct participants in the past year.
Intra-BRICS payment system negotiations are in early stages, but bilateral and multilateral agreements could pave the way for a currency exchange platform.
China’s renminbi (RMB) liquidity support through swap lines contrasts with a decline in RMB’s share in global foreign currency reserves (from 2.8% in 2022 to 2.3%).
Risks and Alternatives:
Reserve managers express concerns about the RMB’s geopolitical risk due to China’s economy, its stance on the Russia-Ukraine conflict, and potential actions related to Taiwan.
The euro, once a dollar competitor, is also weakening. Some investors turn to gold to reduce risk exposure.
Russian sanctions highlighted the euro’s vulnerability to geopolitical risks similar to the dollar.
Macroeconomic stability, fiscal consolidation, and the absence of a European capital markets union hinder the euro’s international role.
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Gold, that timeless and alluring metal, continues to captivate humanity. Its value is influenced by a complex interplay of factors, from fundamental supply and demand dynamics to cultural affinity and geopolitical uncertainty. As investors, understanding these drivers is crucial. Let’s explore the key elements shaping gold’s price and how they impact its volatility.
Supply and Demand Fundamentals:
Gold’s price hinges on basic supply and demand forces. Annual gold production from mining remains relatively stable, averaging around 3,000 metric tons per year. While small fluctuations occur, significant shifts are rare due to the slow pace of mine development.
Demand comes from jewelry fabrication, investment (including bars, coins, and ETFs), central bank purchases, and technology/industrial uses. Jewelry consistently accounts for 50-60% of annual demand.
Investor activity, driven by macroeconomic and market forces, often tilts the supply/demand balance. Economic uncertainty prompts investors to flock to gold, boosting demand.
Investment Demand Drivers:
Investment demand is the most variable factor. Two primary influences shape it:
Macroeconomic Uncertainty: When economic uncertainty rises, investors seek refuge in gold.
Market Forces: Positive or negative sentiment affects investor behavior. In upbeat times, jewelry demand predominates; during uncertainty, investment demand surges.
U.S. Economic Data’s Impact:
Recent U.S. business activity growth led to a 26-month high in June, supporting a stronger dollar index. Gold prices declined over 1% in response.
Key upcoming data:
First-Quarter U.S. GDP Estimates: Due on Thursday.
Personal Consumption Expenditures (PCE) Price Index Report: Due on Friday. If inflation increases, gold prices may dip below $2,300.
The Federal Reserve closely watches these indicators to gauge economic health and time interest rate cuts. Lower rates reduce the opportunity cost of holding gold.
Central Bank Insights:
San Francisco Federal Reserve Bank President Mary Daly emphasizes caution in cutting interest rates until inflation reaches 2%. Rising unemployment poses risks.
Other Fed officials, including Lisa Cook, Michelle Bowman, and Richmond Fed President Tom Barkin, will also speak this week.
Other Precious Metals:
Despite gold’s decline, the metals market showed mixed movement:
Spot Silver: Declined 0.38% to $29.52.
Platinum: Rose 0.83% to $1,002.65.
Palladium: Gained 1.25% to $991.37.
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U.S. Stock Market Overview:
The overall market had a positive week, with the S&P 500 finishing up over 0.25%.
However, Apple and Nvidia lagged, closing down 3% and 2%, respectively.
Apple overtook Nvidia as the second-largest company by market cap, but Nvidia remains above the $3 trillion threshold.
Upcoming Events:
This week is news-heavy, with Personal Consumption Expenditures (PCE) and Gross Domestic Product (GDP) data due out.
Several Federal Reserve (FED) speakers are scheduled, which could cause market volatility.
Key Points to Watch:
FOMC Speakers: Pay attention to their statements on fiscal policy and US conditions.
CB Consumer Confidence: Tuesday’s release reflects consumer spending and underlying economic strength. It has been trending down recently.
Final GDP: Due out on Thursday, this measure of economic growth could significantly impact the trading day. A beat might lead to a market rally, but it could pressure the FED to tighten rates.
Pending Home Sales: Also on Thursday, last month’s miss (-7.7% vs. -1.1% estimated) could cause market volatility. Watch for this month’s forecasted value.
Core PCE: Friday’s inflation release is crucial for the FED’s monetary policy. A lower-than-expected reading may lead to hopes of lower rates, while a beat could signal persistent inflation.
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The U.S. Federal Reserve’s preferred inflation gauge and a series of speeches by Fed officials are in the spotlight this week, impacting financial markets. Here’s a concise breakdown:
Inflation Insights:
After a decade of stability, U.S. inflation began rising in 2021 due to the COVID-19 pandemic. It peaked in mid-2022 and has since declined.
The Federal Reserve closely monitors inflation using the Personal Consumption Expenditures (PCE) price index. This broader measure reflects changing consumer spending patterns.
Policymakers expect inflation to trend toward the central bank’s 2% annual target.
Fed Speakers:
A lineup of Fed officials, including San Francisco Fed President Mary Daly, Fed Governors Lisa Cook and Michelle Bowman, and Richmond Fed President Thomas Barkin, will address the economic outlook.
Their cautious approach suggests no rush to lower interest rates. They seek sustainable progress before making any rate cuts.
Global Context:
Japan, the Eurozone, and the UK have their own economic data releases this week.
China’s industrial profits may slow, impacting global markets.
Australia’s CPI data will influence Reserve Bank of Australia rate expectations.
Canada’s inflation report and New Zealand’s sentiment data are also on the radar.
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🔥Important News releases on This WEEK :
25/06 Tue 6:30pm CAD CPI m/m & y/y
25/06 Tue 8:00pm USD CB Consumer Confidence
26/06 Wed 7:30am AUD CPI y/y
26/06 Wed 8:00pm USD New Home Sales
27/06 Thu 3:30pm GBP BOE Gov Bailey Speaks
27/06 Thu 6:30pm USD Final GDP q/q + Unemployment Claims + Durable Goods Orders m/m
27/06 Thu 8:00pm USD Pending Home Sales m/m
28/06 Fri All Day NZD Bank Holiday
28/06 5:30am JPY Tokyo Core CPI y/y
28/06 Fri 7:00am USD President Biden Speaks
28/06 Fri 6:30pm CAD GDP m/m
28/06 Fri 6:30pm USD Core PCE Price Index m/m
28/06 Fri 8:00pm USD Revised UoM Consumer Sentiment
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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