Forex Fundamental News Facts for 22nd April, 2024

Forex Fundamental News Facts for 22nd April, 2024

[Quick Facts]

1. BOJ’s Ueda Kazuo says it is very likely to hike rates if inflation keeps rising.
   2. U.S. House passes Ukraine, Israel aid bills and sends them to the Senate.
   3. Muller says ECB should not rush into further rate cuts after June.
   4. Fed’s Financial Stability Report cites inflation as the top financial risk.
   5.Simkus says the ECB may cut rates consecutively in summer.
   6. ECB’s Wunsch says decisions will become tougher after two cuts.
   7. Vujcic says ECB may cut rates before the Fed, but careful assessment of impact is required.
   8.Goolsbee Fed needs more time before cutting as inflation progresses stalls.
   9. Busy Week Ahead for Global Markets: US Earnings, Central Bank Decisions, and Key Economic Data in Focus
   10. Iran and Israel Tensions Rising in A Dangerous ‘Game of Bluff’
   11. Escalating Middle East Tensions a Fresh Jolt to World Markets
   12. Gold Price Forecast: Sustainable Bull Markets Need To Breathe Occasionally

[News Details]

BOJ’s Ueda Kazuo says it is very likely to hike rates if inflation keeps rising:
Governor Kazuo Ueda stated that the BOJ needs to keep a lenient monetary policy as the core inflation is slightly below the 2% target and long-term inflation expectations are near 1.5%. The BOJ will cautiously evaluate the effects of recent policy changes on the economy and inflation before considering further adjustments. If the core inflation continues to rise, the BOJ will likely increase interest rates.

U.S. House passes Ukraine, Israel aid bills and sends them to the Senate:
The House passed a $95 billion bill to provide security assistance to Ukraine and Israel, despite opposition from Republican hardliners. The bill, which will be considered by the Senate, includes $60.84 billion for the conflict in Ukraine, $26 billion for Israel, and $8.12 billion for the Indo-Pacific.

Muller says ECB should not rush into further rate cuts after June:
Governing Council member Madis Muller advised against rushing into further interest rate cuts after an expected initial step in June. He emphasised the need to wait until data confirms that inflation is sustainably returning to the target. Fellow Council member Pierre Wunsch agreed, stating that while there’s a clear case for two rate cuts, subsequent decisions will be more challenging due to uncertainty over domestic inflation pressures.

Fed’s Financial Stability Report cites inflation as the top financial risk:
The Fed’s Financial Stability Report identified persistent inflation and higher-than-expected interest rates as the biggest threats to financial stability. The report also noted that hedge fund leverage has reached historically high levels, primarily due to borrowing by large hedge funds.

ECB’s Wunsch says decisions will become tougher after two cuts:
Council members Boris Vujcic and Gediminas Simkus discussed the possibility of consecutive rate cuts in the summer. They emphasised the need for caution and prudence in cutting interest rates, especially given the potential impact of a widening gap between the ECB and the Fed, and the risk of rising oil prices due to geopolitical tensions.

Goolsbee Fed needs more time before cutting as inflation progresses stalls:
President Austan Goolsbee stated that progress on inflation has stalled, warranting a pause to allow incoming data to provide more insight into the economy’s evolution. He highlighted the need to determine whether strong economic growth and labor market data indicate an overheating economy and rising inflation.

Busy Week Ahead for Global Markets: US Earnings, Central Bank Decisions, and Key Economic Data in Focus
US Earnings Season Finale: Showcasing Tech Giants The US is set to conclude its earnings season with financial reports from over 30 large corporations, each with a market cap exceeding $100 billion. Tech giants such as Alphabet (Google’s parent), Microsoft, and Meta Platforms (formerly Facebook) will be in the spotlight. Their performance will offer insights into the state of the US corporate sector and could sway overall market sentiment.
US Economy: Decelerating Growth or Approaching Recession? The US economic calendar is filled with data releases that could reveal the country’s economic condition. The GDP growth rate for the first quarter is expected to slow down to 2.1%, a notable decrease from the strong 3.4% in Q4 2023. If the actual figure is lower than expected, it could raise concerns about the US economy’s trajectory.
US Inflation: A Key Focus The Personal Consumption Expenditures (PCE) price index, a key measure of inflation, is projected to remain at 0.3% for both headline and core figures. However, if the actual figures exceed this forecast, it could reignite inflation concerns and potentially prompt a more aggressive stance from the Federal Reserve.
US Consumer Spending: Steady or Slowing Down? While personal income is expected to grow slightly faster at 0.5%, the focus will be on consumer spending, which is predicted to slow down to 0.3% from 0.8% a month earlier. This potential slowdown could suggest that consumers are becoming more cautious due to inflationary pressures and rising interest rates.
Durable Goods Orders, Housing Data, and PMIs: Indicators of Manufacturing and Services Health Investors will closely monitor durable goods orders, a key indicator of future business investment. The flash S&P Global Manufacturing and Services PMI surveys will provide insights into these crucial sectors, indicating potential expansion or contraction trends. Additionally, data on new and pending home sales will reveal the status of the US housing market, a significant contributor to economic growth.
Central Bank Decisions: BOJ and PBOC’s Stances The Bank of Japan (BOJ) is expected to maintain its ultra-accommodative monetary policy, keeping its key interest rate unchanged at -0.1%. However, any indications of a potential shift towards a less dovish policy could impact the Japanese yen and global markets. Similarly, the People’s Bank of China (PBOC) is likely to keep its one- and five-year loan prime rates steady, reflecting its aim to maintain stability amidst a depreciating yuan and a strengthening US dollar.
Global PMI Readings: Europe, Asia, and Beyond Flash PMI readings for both manufacturing and services sectors will be released for major economies in the Eurozone, including Germany, France, and the UK. These surveys will provide a snapshot of business activity and offer valuable clues about the economic momentum in these regions.
Consumer Confidence: A Measure of Market Optimism Consumer confidence data for the Eurozone, South Korea, Italy, Germany, and the UK will be closely watched. A decline in consumer confidence could signal a potential pullback in spending and negatively impact economic growth prospects.
Australia’s Inflation Concerns and South Korea’s GDP Growth: Australia will release its first-quarter inflation figures, with investors looking for any signs of a potential peak in inflation. South Korea will release its preliminary estimate for first-quarter GDP growth, providing insights into the health of this Asian economic powerhouse.

Iran and Israel Tensions Rising in A Dangerous ‘Game of Bluff’:

A Dangerous Game of Bluff Iran and Israel are currently involved in a perilous “game of bluff,” with the world anxiously awaiting Israel’s promised retaliation to an Iranian missile and drone attack. This attack was a response to an Israeli strike on its embassy in Damascus. According to Bertrand Badie, a renowned French Middle East analyst, both Israel and Iran are acting contrary to their statements, creating a complex situation.
Unprecedented Actions Both sides have recently crossed new boundaries in their decade-long proxy war. Israel’s bombing of Iran’s embassy in Syria on April 1, which resulted in seven deaths, was unprecedented as it occurred on embassy grounds, considered equivalent to sovereign territory in diplomatic terms.
Iran’s Retaliation Iran’s counterattack on Saturday night is seen as a face-saving measure that escalated the situation but also allowed Tehran to declare it would not escalate further. This was the first-ever attack on Israeli soil, but Iran gave Israel and its allies ample time to shoot down the hundreds of drones. The few that landed in Israel caused minimal physical damage and injured one child.
Israel’s Response Israel’s military has warned of a response, and its top diplomat, Israel Katz, has capitalized on signs of Western support to advance a diplomatic offensive against Iran, advocating for additional sanctions.
Contradictory Actions According to Prof. Badie, Iran aims to demonstrate strength in a dramatic manner while ensuring they cause minimal damage that could provoke a strong Israeli response. Israel consistently condemns Iran’s attacks as life-threatening while also projecting invincibility. The US acknowledges the seriousness of Iran’s actions but warns that further escalation could worsen the situation.
The Situation in the West Bank and Gaza The situation in the West Bank and Gaza will largely determine how the situation evolves. Sources have also indicated that Iran is preparing to counter an Israeli retaliation, possibly within its border.
Israel’s Actions in Gaza More than 34,800 people have died in the enclave in Israel’s retaliatory war since the Hamas-led October 7 attacks that killed about 1,200 people. Israel withdrew from south Gaza earlier this month for tactical reasons but has stated that it is preparing a ground offensive on the southern city of Rafah, where 1.3 million people have sought refuge from the fighting.
Escalation in the Occupied West Bank The situation has steadily worsened in the occupied West Bank, where Israeli settlers protected by the army killed a teenager and injured dozens of Palestinians in a rampage on Sunday after the disappearance of an Israeli boy and the discovery of his body the following day. Israel has also increased targeted killings of Hezbollah and Hamas operatives in neighboring Lebanon.
Potential for Never-Ending Escalation Israeli decision-makers may have decided that the response to the October 7 attacks represented a good pretext to dismantle Iran and its regional allies including Hezbollah and Hamas, but that is likely to cause never-ending escalation, warned Prof. Badie.
Need for Careful Interpretation Prof. Badie emphasized the need for “careful interpretation” of the ongoing geopolitical tensions between Iran and Israel. Assistance from the US, UK, France, and Jordan, along with reports of support from other Arab countries, in destroying Iranian drones on Saturday does not imply a strategic realignment in the region or a new air-defense alliance, as media reports have claimed. Instead, it is a defensive reaction.

Escalating Middle East Tensions a Fresh Jolt to World Markets:

Reports of an Israeli attack on Iranian soil, potentially escalating Middle East conflict, have sent shockwaves through global markets. This geopolitical risk could rapidly alter everything from oil to bonds and reignite inflation risks.
Oil Prices Oil prices have risen approximately 13% this year, nearing $90 a barrel, and are expected to remain high. The International Monetary Fund (IMF) has outlined an “adverse scenario” where a Middle East escalation could lead to a 15% increase in oil prices and higher shipping costs, which would raise global inflation by about 0.7 percentage points. Morgan Stanley has raised its third-quarter Brent crude oil forecast to $94, indicating that a geopolitical risk premium seems to have been factored into the oil price.
Inflation Concerns Recent high U.S. inflation figures have made investors wary of oil. An energy price surge two years ago contributed to higher inflation and rates. High oil prices could reverse the downward trend in inflation and lead to a reassessment of bets on global rate cuts. A key market indicator of long-term eurozone inflation expectations, which generally follows oil, recently hit its highest level since December at 2.39%, remaining above the European Central Bank’s 2% inflation target.
Energy Stocks Energy stocks benefit from higher oil prices. The S&P 500 oil index and European oil and gas stocks reached record highs earlier in April before retreating. U.S. oil stocks have risen nearly 12% this year, outperforming the broader S&P 500’s 5% gain. Yardeni Research recommends an “overweight” position on energy stocks, seeing a rise in Brent crude to $100 in the coming weeks as a possibility.
Safe-Haven Demand The demand for safe-havens such as U.S. or German bonds, particularly before the weekend, outweighs the urge to sell bonds given renewed inflation risks from rising oil. U.S. 10-year Treasury yields fell as much as 15 basis points on Friday. This suggests that markets are more concerned about the need for safe havens than the immediate inflationary implications of higher energy prices.
Emerging Markets: Rising oil prices and a strong dollar also harm emerging markets, such as India and Turkey, that are net oil importers. India’s rupee hit record lows this week. Even for Nigeria and Angola, typically Africa’s largest oil exporters, weakening local currencies and rising fuel prices have impacted government coffers due to capped gasoline pump prices and a lack of local oil refining.

Gold Price Forecast: Sustainable Bull Markets Need To Breathe Occasionally:
The typical inverse relationship between bond yields and the US dollar with the gold price has ceased in 2024. This suggests that technical factors and inflation expectations are currently more significant drivers of its near-term direction. Given the current price action and inflation concerns at their highest since October 2023, it may be challenging for gold to see further gains in the near term.
Unusual Gold Behavior Gold is not behaving as expected. Rising bond yields and a stronger US dollar usually create a challenging environment for gold, affecting both relative return and currency basis. However, this year, gold has often moved in the same direction as the US dollar and benchmark 10-year US bond yields over the past month, reaching record highs despite markets reducing 2024 US rate cut expectations from seven to less than two within four months.
Inflation Hedge and Technical Breakout With traditional fundamental drivers no longer in play, traders need to look elsewhere for clues about what’s driving the gold price. The strong, positive relationship gold has had with US five and 10-year inflation breakevens over the past 20 days suggests its role as an inflation hedge may be reasserting itself. Inflation breakevens measure the average inflation rate markets expect over a specific timeframe.
Gold Rally and Potential Pullback While the longer-term trajectory for gold still appears to be higher, the unconvincing price action last week suggests gold may need to move lower before it can extend its run higher. A modest pullback should be regarded as a healthy development for bulls, should it occur. Looking at the daily, the long topside wicks either side of $2400 point to sellers gaining the upper hand, seeing the price break the minor uptrend it had been sitting in since mid-March on Friday.
Risks to the Short Gold Trade Looking ahead, the main risks to the trade would be an undeniable escalation in Middle Eastern tensions. On Friday, the Federal Reserve’s preferred underlying inflation measure, the core personal consumption expenditure (PCE) deflator, is the most obvious known risk event this week. While a softer number would likely lead to a weaker US dollar and lower US bond yields, as discussed above, that traditionally bullish outcome may not lead to upside on this occasion. Instead, should the data print hotter-than-expected, the flow-through to inflation expectations may actually help to boost bullion’s appeal.

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🔥News releases on This WEEK :

22/04 Mon 8:00pm EUR Consumer Confidence

23/04 Tue 2:00pm EUR Flash Manufacturing PMI

23/04 Tue 2:30pm GBP Flash Manufacturing PMI

23/04 Tue 7:45pm USD Flash Manufacturing PMI

23/04 Tue 8:00pm USD New Home Sales

24/04 Wed 7:30am AUD CPI q/q + y/y

24/04 Wed 6:30pm CAD Core Retail Sales m/m

24/04 Wed 6:30pm USD Core Durable Goods order

25/04 Thu AUD+NZD Bank Holiday

25/04 Thu 6:30pm USD Advance GDP q/q & Unemployment Claims

25/04 Thu 8:00pm USD Pending Home Sales m/m

26/04 Fri Tentative JPY Monetary Policy Statement

26/04 Fri 6:30pm USD Core PCE Price Index m/m

26/04 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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