Forex Fundamental News Facts for 15th July, 2024

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[Quick Facts]
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1. Campaign Trail Incident; Trump Faces Violent Attack.
2. Japanese Yen Strengthens Further;What It Means for Investors.
3. Earnings Season Outlook; Can U.S. Stocks Sustain Their Rise?
4. Impact of Trump Shooting on Election and Market Dynamics
5. U.S. Consumer Sentiment Declines for Fourth Consecutive Month.
6. OPEC Remains Optimistic About Oil Demand.
7. UK Services Inflation Persists, Puts BOE in Delicate Position.
8. Trump’s Odds Impact Emerging-Market Currencies.

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[News Details]
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1. Campaign Trail Incident; Trump Faces Violent Attack:

Former U.S. President Donald Trump was shot in the ear during a campaign rally in Pennsylvania. Fortunately, he is safe.
This incident, the first since the 1981 assassination attempt on President Reagan, could affect the competition between Trump and Biden in the upcoming presidential election.
Before the shooting, the market reacted by pushing the U.S. dollar higher due to expectations that a Trump presidency would adopt hawkish trade policies, reduce regulations, and ease climate change regulations. Investors also anticipate tax cuts, fueling concerns about rising budget deficits under Trump’s leadership.

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2. Japanese Yen Strengthens Further;What It Means for Investors:

The Japanese yen may gain further strength due to speculation that Japanese authorities want to boost the local currency.
A weak yen raises political concerns, as high inflation resulting from the yen’s decline contributes to Prime Minister Fumio Kishida’s low approval ratings.
Survey data shows that more respondents view the weak yen as an action error, indicating potential upward pressure on the currency.

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3. Earnings Season Outlook; Can U.S. Stocks Sustain Their Rise?:

The S&P 500 has reached new highs, driven by the “Big Seven” and AI-related stocks.
Expectations are high, especially for mega tech companies. However, earnings growth is expected to slow down.
Analysts estimate a 9.3% rise in second-quarter profits for S&P 500 component companies, the largest increase since late 2021.

Federal Reserve Chair Jerome Powell is initiating a crucial week of commentary from U.S. central bank officials, assessing the impact of slowed inflation and contemplating whether to signal interest rate cuts. The upcoming Fed meeting on July 30-31 restricts policymakers from discussing monetary policy until after July 20. As inflation approaches the 2% target, concerns arise about the job market’s resilience with the Fed’s economic brake. Recent data may prompt the Fed to either indicate imminent rate cuts or explain why they are unwarranted.

The prevailing sentiment leans toward rate cuts, especially after last year’s false pivot. Analysts expect a strong signal in July, with potential cuts beginning in September if the economy evolves as anticipated. Policymakers are unlikely to lower the benchmark interest rate during the upcoming meeting, but weak inflation reports may prompt adjustments to the policy statement, signaling a possible rate cut in September.

The Consumer Price Index declined in June, and wholesale prices showed easing pressures. Powell emphasizes the need for “good data” on inflation to justify lower borrowing costs. However, the recent Producer Price Index reports suggest that the Personal Consumption Expenditures price index fell below 2.5% in June. The Fed aims to cut rates before inflation reaches 2%, fearing that delaying action could hinder economic recovery.

This week’s speakers include Fed Governor Adriana Kugler, Fed Governor Chris Waller, New York Fed President John Williams, and Richmond Fed President Thomas Barkin. Waller’s remarks are particularly significant, given his research on the job market. Despite cooling job openings, the unemployment rate has risen. Waller’s stance on inflation data will influence the Fed’s decision. If subsequent data supports easing price pressures, the Fed may alter language in its statement, potentially opening the door to rate cuts.

Inflation vs. Unemployment:
Inflation has been a persistent danger, but now unemployment is also on the horizon.
The Federal Reserve’s primary focus has been on taming inflation through interest rate adjustments.
However, the risk calculus is shifting, and the balance of risks is tilting toward higher unemployment.

Fed’s Dilemma:
Economists, including Joe Brusuelas from RSM, argue that it’s time for the Fed to cut rates.
Inflation is no longer the sole concern; the labor market’s cooling trend demands attention.
Mark Zandi of Moody’s Analytics warns against a policy mistake: keeping rates too high for too long.

Labor Market Signals:
While the jobs market isn’t collapsing, subtle cracks are appearing.
The historically low unemployment rate has edged higher for three consecutive months.
Hiring in leisure and hospitality has slowed, and workers are quitting jobs at a reduced rate.

Fed’s Historic Mission:
The Fed’s historic rate-hiking campaign aimed to prevent an overheated economy.
In 2022, fears centered on an excessively hot job market fueling inflation.
Now, the landscape has shifted, and both inflation and abundant job opportunities are less pressing concerns.

The Risk of Waiting:
The current risk lies in the Fed’s timing. Injecting inflation-fighting measures into an economy no longer needing them could backfire.
A cooling job market could freeze, leading to job losses.
The Fed must strike a delicate balance to prevent a premature recession.

Balancing Act:
The job market added 206,000 positions in June, maintaining a balanced state.
However, a labor market with overly restrictive rates won’t remain balanced for long.
While skyrocketing unemployment isn’t imminent, waiting too long to cut rates risks unintended consequences.

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4. Impact of Trump Shooting on Election and Market Dynamics:

The attack on Trump increases his election odds and the chances of a big Republican win.
If Republicans gain control of the White House and Congress, tax cuts may increase the deficit, leading to bond sell-offs and inflation fears.
The Fed may need to maintain higher interest rates for longer.
The U.S. dollar could benefit from high yields and a risk-averse environment.
Gold and U.S. stocks may fall, while the dollar strengthens.

The recent attempted assassination of former President Donald Trump has heightened political tension in the United States, with potential repercussions for global markets. Asian assets are already responding, and analysts speculate on ‘Trump-victory trades,’ including a stronger dollar and a steeper U.S. Treasury yield curve. Meanwhile, Bitcoin has surged to $60,000.
Even before this incident, investors in Asia faced significant issues. These range from U.S. rate cut expectations to suspected Japanese foreign exchange intervention and China’s second-quarter GDP data. While last week’s soft U.S. inflation may sustain a ‘risk-on’ sentiment, caution prevails due to concerns about weakening growth and a softer labor market during the Q2 U.S. earnings season.
China, grappling with a prolonged property crisis, has seen curtailed investment, dampened consumer confidence, and lingering deflation fears. The country’s central bank is expected to maintain its one-year medium-term lending facility loan interest rate at 2.50%.
Japanese markets are closed for a holiday, but the yen remains strong against the U.S. dollar. Analysts suspect official intervention, given the yen’s recent rally. Hedge funds hold their largest net short yen position in 17 years, potentially impacting Japanese stocks.
In India, wholesale price inflation is surging to a 3.5% annual rate in June.

Market Reactions:
The dollar strengthened against most peers, driven by expectations of loose fiscal policy and elevated bond yields.
Bitcoin rose, possibly reflecting Trump’s crypto-friendly stance.
S&P 500 futures showed a modest increase.

Trump’s Frontrunner Status:
Mark McCormick, global head of foreign-exchange and emerging-market strategy at Toronto Dominion Bank, sees Trump as the frontrunner.
The news reinforces this view, making some investors bullish on the US dollar for the second half of 2024 and early 2025.

Political Uncertainty and Volatility:
With four months left in the US election campaign, there’s room for surprises.
Political violence could deepen concerns about instability, pushing investors toward safe-haven assets.
Early gains may prompt some investors to be cautious due to crowded positions.

Impact on Bond Market:
Trump’s fiscal and trade policies are expected to fan inflation pressures.
While 10-year Treasury notes showed declines in early Asia trading, long-term bonds tend to rally when investors seek safety.
The “steepener trade” (buying shorter-maturity notes and selling longer-term ones) has been paying off.

Fed’s Response:
Trump’s inflationary policies may influence the Federal Reserve’s decisions.
If Trump’s election odds rise significantly, the Fed could delay interest rate reductions to accumulate “dry power.”

Stock Market Trajectory:
Trump’s assassination attempt is unlikely to derail the stock market in the long run.
Near-term price swings may increase, given speculation about stretched valuations and political uncertainty.
Bank, health-care, and oil-industry stocks are anticipated to benefit from a Trump victory.

Investment Strategies:
Investors may seek temporary safety in defensive stocks (e.g., mega-cap companies).
Stocks performing well in a steepening yield curve, especially financials, could find support.

Historical Echoes:
Similar reactions occurred after the first presidential debate in June, where Biden’s weak performance fueled Trump’s election odds.
The “steepener trade” gained traction during that time.

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5. U.S. Consumer Sentiment Declines for Fourth Consecutive Month:

The U.S. University of Michigan Consumer Sentiment Index fell for the fourth consecutive month, reaching its lowest level since December 2023.
Despite lower inflation expectations, consumers remain frustrated by persistently high prices, impacting their standard of living.

Current Economic Landscape:
The COVID-19 pandemic continues to impact global economic activity and labor markets.
While fiscal and monetary stimulus supported a rapid U.S. labor market rebound last summer, the pace of gains has slowed, and employment remains below pre-pandemic levels.
Weak aggregate demand and low oil prices have kept consumer price inflation in check.

Federal Open Market Committee (FOMC) Actions:
The FOMC has maintained its policy rate near zero and continued purchasing Treasury securities and mortgage-backed securities to support economic recovery.
The FOMC may signal imminent rate cuts in July, likely effective in September, based on recent data and market expectations.
Policymakers are not expected to lower the benchmark interest rate during the upcoming meeting but may adjust their policy statement to indicate a possible rate cut in September.

Inflation and Data Trends:
The Consumer Price Index fell in June, while wholesale prices showed slowing price pressures.
Fed Chairman Jerome Powell emphasizes the need for “more good data” on inflation to justify lower borrowing costs.
The Personal Consumption Expenditures price index, used by the Fed, likely fell below 2.5% in June.

Key Speakers and Their Views:
Fed Governor Chris Waller’s remarks are significant. He acknowledges the job market’s vulnerability and the potential impact on the unemployment rate.
Cooling job market conditions have been partly offset by a decline in job openings.
The unemployment rate breached 4% for the first time in over two years in June.

Path Forward:
The Fed aims to act before inflation reaches 2%, considering the time lag for monetary policy effects.
If data continues to show easing price pressures, the Fed may alter its language on inflation, signaling openness to rate cuts.

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6. OPEC Remains Optimistic About Oil Demand:

Market Sentiment:
OPEC remains optimistic about oil demand, while U.S. drillers are less positive.
U.S. demand remains uncertain, making accurate gauging challenging.

Price Movements:
West Texas Intermediate (WTI) and Brent prices were weak last week.
WTI fell by 0.5% on Friday and 1.5% for the week, while Brent showed a slight gain in late trading but still lost 1.8% for the week.

Rig Count and Production:
U.S. energy firms reduced the number of oil and natural gas rigs operating for the fifth time in six weeks.
Oil rigs declined to their lowest count since December 2021, while gas rigs also fell.
Total rig count is down 13% compared to last year due to factors like declining prices and higher costs.
Despite challenges, higher oil prices may encourage drillers to boost U.S. crude output.

Government Data and OPEC’s Forecast:
U.S. commercial crude stockpiles fell last week, defying earlier forecasts.
OPEC maintained its 2024 and 2025 global oil demand growth forecasts, but traders remain skeptical.

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7. UK Services Inflation Persists, Puts BOE in Delicate Position:

The British services sector and job market are displaying lingering signs of strong inflation, potentially influencing the Bank of England’s decision on interest rates. 

Inflation Trends:
Services inflation is expected to decrease slightly to 5.6% in June from the previous month’s 5.7%.
Regular pay growth is predicted to fall below 6% for the first time in 20 months.
Despite this, the headline rate of inflation remains close to the BOE’s 2% target for a second consecutive month.

Underlying Measures and Concerns:
The central bank is examining underlying indicators to assess how long price pressures will persist.
Officials are cautious about cutting rates too soon due to concerns related to inflation and wage growth.

BOE Decision and Market Expectations:
The upcoming data releases are crucial before the BOE decides whether to ease off on its fight against inflation.
Investors currently place a 45% chance of a rate cut in August, down from 60% earlier this month.
The pound has strengthened against the dollar, reflecting expectations of sustained elevated rates in the UK.

Services Inflation and Economic Recovery:
Services inflation, closely monitored by the BOE, has not slowed as much as anticipated.
Taylor Swift’s Eras tour in the UK may impact services inflation.
Pay growth (excluding bonuses) is expected to decline from 6% to 5.7%.

Jobs Market Resilience:
Active job postings fell slightly in June but remain above pre-pandemic levels.
Recruiters report hesitancy among businesses about hiring, yet the jobs market remains resilient.

Economic Recovery and BOE’s Dilemma:
The UK economy grew 0.4% in May, double economists’ expectations.
If GDP remains flat in June, the first-half growth would exceed BOE’s projections.

In summary, while inflation and economic recovery pose challenges, the BOE faces a delicate decision on interest rates, balancing the need for stability with the desire to support growth.

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8. Trump’s Odds Impact Emerging-Market Currencies:

As the possibility of Donald Trump’s return to the US presidency looms, investors and financial markets are bracing for potential repercussions. 

Currency Volatility:
The prospect of Trump’s protectionist policies has rattled emerging-market currencies.
The South Korean won led declines in Asia, fueled by an assassination attempt on Trump that boosted his odds of winning the presidency.
Indonesia’s rupiah and Thailand’s baht reversed gains, while Malaysia’s ringgit retreated from its January peak.

Inflation and Tariffs:
Investors fear that Trump’s proposed tax cuts and tariff hikes could stoke inflation.
The Federal Reserve may need to maintain restrictive monetary policy for longer.
Protectionist measures could also strain external finances for emerging-market nations.

Caution in the Market:
Fiona Lim, senior currency strategist, highlights market caution.
Trump’s inflationary policies and a potential US economic resurgence could harm emerging-market (EM) currencies.
EMs benefited from global monetary easing, but risks persist.

Dollar Dominance:
During Trump’s tenure, the dollar dominated global markets.
Currencies like the Chinese yuan and Mexican peso faced pressure due to higher tariffs.
Jeff Ng, head of Asia macro strategy, warns of protectionism’s impact on exporters and current-account balances.

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🔥Important News releases on This WEEK :

15/07 Mon 6:30pm USD Empire State Manufacturing Index

15/07 Mon 10:00pm USD Fed Chair Powell Speaks

16/07 Tue 6:30pm CAD CPI m/m & Core+Retail Sales m/m

17/07 Wed 4:45am NZD CPI q/q

17/07 Wed 12:00pm GBP CPI y/y

17/07 Wed 6:30pm USD Building Permits

17/07 Wed 7:15pm USD Industrial Production m/m

17/07 Wed 7:35pm USD FOMC Member Waller Speaks

18/07 Thu 7:30am AUD Employment Change & Unemployment Rate

18/07 Thu 12:00pm GBP Claimant Count Change

18/07 Thu 6:15pm EUR Main Refinancing Rate & Monetary Policy Statement

18/07 Thu 6:30pm USD Unemployment Claims & Philly Fed Manufacturing Index

18/07 Thu 6:45pm EUR ECB Press Conference

19/07 Fri 12:00pm GBP Retail Sales m/m

19/07 Fri 6:30pm CAD Core+Retail Sales m/m

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

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Sources :
– #CNBC, #Bloomberg, #Reuters, #Yahoo Finance, CNN etc

Prepared to you by “Akif Matin“

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