Forex Fundamental News Facts for 23rd April, 2024

Forex Fundamental News Facts for 23rd April, 2024

[Quick Facts]

1. Japan’s manufacturing activity contracted in April, but at a slower pace.
   2. Gaza truce talks deadlock as Qatar is re-evaluating its role as mediator.
   3. Gold sees the biggest daily drop in nearly 2 years on eased Middle East tensions.
   4. ECB is prepared for a June rate cut regardless of Fed and high oil prices.
   5. BOJ’s Kazuo Ueda says the current loose monetary policy is appropriate.
   6. Oil Bulls Lack Conviction About Sustainability of Higher Prices
   7. High Global Food Prices May finally See A Bottom In 2024, Says Oxford Economics

[News Details]

Japan’s Manufacturing & Services Activity
In April, Japan’s manufacturing activity shrank, but not as quickly as before. The au Jibun Bank Japan Manufacturing PMI, a measure of manufacturing health, increased to 49.9 in April from 48.2 in March. Although it’s been below 50 (the threshold between growth and contraction) for 11 months, it’s now closer to 50 than it’s been since last June. This suggests that manufacturing is starting to recover after a period of slow performance.
Japan’s Services Activity: The au Jibun Bank Japan Services PMI, which measures the health of the services sector, increased to 54.6 in April from 54.1 in March, the highest it’s been since May of the previous year. The new business index, a part of the PMI that measures new orders, grew at its fastest rate in 10 months, contributing to overall growth. The services sector, which has been the main source of growth, expanded even more in April, showing its importance to the Japanese economy.
Manufacturing Output: While services have been driving growth, it’s good to see that the decline in manufacturing output is slowing down. Two important parts of the PMI, output and new orders, shrank at their slowest rates in six and ten months, respectively.

Gaza Truce Talks
Qatar has been an important mediator in the ongoing conflict between Israel and Palestine, which started on October 7 of the previous year. Qatar has helped negotiate several ceasefires and prisoner exchanges between Israel and Hamas. However, Qatar’s Prime Minister and Foreign Minister Sheikh Mohammed recently said that some people were using this mediation for their own political gain, leading Qatar to reconsider its role.

Gold Prices
The price of gold fell by more than 2.5% on Monday to $2,324.89 per ounce, its biggest daily drop in nearly two years. This happened because people were less worried about conflict in the Middle East and started investing in riskier assets like stocks instead of safe ones like gold. People are now waiting for the U.S. PCE price index report, which will be released on Friday, for hints about possible cuts to U.S. interest rates.

European Central Bank (ECB)
Global investors are rethinking the global trend of lowering interest rates after strong growth in U.S. prices caused the U.S. Federal Reserve (Fed) to delay its first rate cut. The Fed’s schedule for rate cuts is often used as a guide by other central banks. Despite higher U.S. inflation and high oil prices due to Middle East tensions, ECB officials are sticking to their plan to cut interest rates several times this year.
ECB Officials: ECB President Christine Lagarde strongly suggested that the central bank could still start to cut the deposit rate, but they are open to future policy. All officials said that the ECB’s decision will be based on upcoming data, especially on wages, profits, and productivity. Estonian central banker Müller said last week that “as long as the economy develops in line with our expectations, it is reasonable to expect a few more rate cuts after June and by the end of the year.” Even Klaas Knot, the hawkish governor of the Dutch central bank, has said he is “not uncomfortable” with three cuts in 2024. Lithuania’s central bank governor Gediminas Simkus said more than three moves were possible. Bank of France governor Villeroy argued that the latest developments in the Middle East and the U.S., which are widely seen as reasons for more caution, have not fundamentally changed the situation in the euro area.
Investor Doubts However, some investors are starting to doubt the ECB’s determination, with money markets no longer fully expecting three cuts by December. Traders think the ECB would ultimately be forced to follow the Fed, if for no other reason than to prevent the euro from getting weaker.

Bank of Japan (BOJ)
BOJ Governor Kazuo Ueda said in a speech on Tuesday that monetary policy will depend on the economy and inflation. If inflation moves toward the 2% level, the degree of easing will be adjusted. If trend inflation accelerates in line with our forecast, we will raise interest rates. We don’t have any preset idea about the specific timing and pace of future rate hikes. Given that underlying inflation remains below 2%, maintaining an accommodative monetary policy is appropriate at this time. We need to maintain accommodative monetary policy conditions for some time. If geopolitical risks and weak domestic demand lead to market turbulence, the BOJ will respond through flexible and agile liquidity provision.
Bank of Japan’s (BOJ) Approach: Governor Kazuo Ueda will likely emphasise that the BOJ will be careful and rely on data when deciding the next increase in interest rates. This is because it’s uncertain whether increases in wages will lead to higher prices in the services sector. Ueda said at a seminar in Washington last week that the BOJ will first see how their recent policy changes affect the economy and inflation, and then make further adjustments if needed.
BOJ’s Recent Actions: The BOJ recently stopped its extreme stimulus measures, a significant change. After a two-day meeting that ends on Friday, it’s expected that the BOJ will keep its short-term interest target the same, between 0 and 0.1%. The BOJ also plans to continue buying government bonds at the current rate of about 6 trillion yen ($38.8 billion) per month to prevent bond yields from rising too quickly.
BOJ’s Forecasts: After the meeting, the nine-member board will likely lower its economic growth forecast for the current year, which started in April, because of weak production and consumption. However, the board might slightly increase its inflation forecasts for fiscal 2024 and 2025 to around 2%, excluding the effects of fresh food and fuel costs, because they expect wages to continue increasing. The BOJ is expected to predict that inflation will stay around 2% in fiscal 2026. Currently, the BOJ expects inflation to reach 1.9% in both fiscal 2024 and 2025. It will announce its predictions for 2026 for the first time on Friday.
BOJ’s Historic Shift: Last month, the central bank stopped its policy of negative rates and other unusual measures, marking a historic shift away from its focus on boosting the economy with massive monetary stimulus.
Market Expectations: Markets are looking for hints about when the BOJ will increase rates again. Many economists think it will happen in the third or fourth quarter, after Ueda recently suggested that there might be another increase around summer or autumn this year. While the expected increase in inflation forecasts would keep market expectations of a near-term rate hike alive, the timing of such a move would be influenced more by data on whether the prospect of wage increases could push up prices, especially for services.

Oil Bulls Lack Conviction About Sustainability of Higher Prices
Investors and Brent Investors increased their investment in Brent (a type of oil) because of the growing conflict between Iran and Israel. However, they sold other types of petroleum because they were unsure if the high prices could last.
Selling of Petroleum: Hedge funds and other money managers sold 23 million barrels of the six most important petroleum futures and options contracts in the week ending on April 16. They bought more Brent (+31 million barrels), but this was offset by the sale of NYMEX and ICE WTI (-35 million), U.S. gasoline (-5 million), U.S. diesel (-5 million), and European gas oil (-9 million).
Brent and Middle East Conflict: Brent is most likely to be affected by production and shipping problems caused by conflict in the Middle East. Fund managers increased their net position to 335 million barrels. However, much of this additional exposure seems to have been moved away from WTI, where funds sold at the fastest rate for 10 weeks and the net position was reduced to just 183 million barrels.
Views on Brent and WTI: While fund managers were very positive about Brent, they were increasingly negative about the prospects for WTI. In the NYMEX WTI contract, there was evidence of a new cycle of short selling, which had started four weeks earlier when prices rose above $80 per barrel.
Outlook for Crude and Fuel Prices: The hedge fund community is generally positive about the future for both crude and fuel prices, but not with much conviction. Positive long positions outnumber negative short ones by a ratio of 3.60:1.
Risks and Conflicts: There are potential benefits from the Middle East conflict, production restraint by Saudi Arabia and its OPEC+ allies, and a cyclical economic upswing in the United States. But these are balanced by potential downsides from strong growth in non-OPEC output, persistent inflation, high interest rates for a long time, and a slow economic recovery in Europe and China. The escalating conflict between Israel and Iran has hidden a slight decrease in investor sentiment about the outlook for oil prices in recent weeks.
U.S. Natural Gas: Investors became more negative towards U.S. natural gas as the seasonal inventory surplus continued to grow and stocks climbed near to a record high for the time of year. Hedge funds and other money managers sold the equivalent of 173 billion cubic feet (bcf) in the two most important futures and options contracts linked to prices at Henry Hub in Louisiana. As a result, funds held a net short position of 483 bcf versus a net short of 310 bcf the week before.
Gas Inventories and Prices: Working gas inventories amounted to 2,333 bcf on April 12, the highest for the time of year since 2016 and before that 2012. Inventories were a huge 641 bcf above the prior ten-year average and the surplus shows no sign so far of narrowing despite prices close to multi-decade lows in real terms. In December, the latest month for which data is available, power generators paid the lowest seasonal prices for gas since 1974, after adjusting for inflation. But the warmest winter on record has reduced consumption of both gas and electricity, ensuring that inventories have remained exceptionally high and delaying any increase in prices.

High Global Food Prices May finally See A Bottom In 2024, Says Oxford Economics
Food Prices Might Drop: Food prices around the world have been going up, but they might start to go down this year. Oxford Economics, an economic advisory firm, predicts that global food prices will go down in 2024. This is good news for people who buy food.
Why Food Prices Might Drop: The main reason food prices might drop is because there is a lot of supply for many important crops, especially wheat and maize (another word for corn).
In recent months, there have been big harvests of these crops, which has caused prices to go down. For example, the price of wheat has gone down almost 10% this year, and the price of maize has gone down about 6%.
Effects of the Russia-Ukraine War: Farmers have been growing more wheat and corn because prices went up after Russia invaded Ukraine in 2022. Because of this, the amount of maize harvested this year is expected to be at record levels. The amount of wheat harvested is also expected to be high, but not as high as the record level from the previous year.
Even though there was a war between Russia and Ukraine, the supply of grains from these countries has not been affected much. Despite the Black Sea Grain initiative collapsing last year, Ukraine has still been able to export a lot of agricultural products. Russia has also been exporting a lot of wheat, which has helped keep prices low.
Impact on Consumers: Wheat, maize, and rice make up more than half of what people eat around the world. So, the prices of these foods have a big impact on how much money people spend on food. Even though the prices of wheat and corn have gone down, the price of rice has been going up. This is because India, which produces about 40% of the world’s rice, has put restrictions on exports. Also, poor harvests in India last year have pushed prices higher.
Future Predictions: Global food prices went down by 9% in 2023, according to the World Bank. The United Nations food agency’s world price index also hit a three-year low in February, but it went up a bit in March because of increases in the prices of dairy products, meat, and vegetable oils. Oxford Economics expects prices to go down by another 5.6% this year before they start to go up again next year.
However, there are still risks that could cause food prices to go up. For example, bad weather could hurt crop yields. Cocoa prices recently hit record levels because farmers in West Africa are dealing with bad weather and disease. If bad weather continues, it could hurt harvests in other key crop-growing regions.
Buyers in Africa and Asia have also been waiting to buy wheat in hopes that prices will go down even more. If they start buying again, it could cause prices to go up. Also, high rice prices could lead to more export restrictions from India.
So, while the base case is for food prices to stay low this year, there’s a risk that prices could go up more than expected. This could keep food price inflation higher than in the base case, putting pressure on consumers.

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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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