Forex Fundamental News Facts for 08th July, 2024
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[Quick Facts]
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1. Japan’s real wages fall for the 26th month in a row in May.
2. French vote gives leftists most seats over far right, but leaves hung parliament and deadlock.
3. Over 100 billionaires ask Biden to drop out.
4. Britain’s new PM announces a new cabinet list.
5. U.S. inflation slows, with the job market tight but not overheated.
6. U.S. labor market cools, with “recession” possible.
7. Round two of French elections, Powell testimony and US CPI.
8. PBoC Refrains From Gold Purchases For Second Month.
9. Crude Oil Prices At Two-month Highs.
10. Political Unrest Worldwide Is Fueled by High Prices and Huge Debts.
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[News Details]
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Japan’s real wages declined by 1.4% in May due to a weak yen and rising commodity prices.
This prolonged decline highlights the impact of inflation on household spending and complicates the central bank’s monetary policy normalization efforts.
However, base pay rose by 2.5% in May, reflecting a significant increase agreed upon during annual pay talks.
Japanese companies also raised monthly pay by 5.1% on average, marking the highest increase in 33 years.
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France’s recent elections resulted in a hung parliament, with a leftist alliance unexpectedly taking the lead over the far right.
The parliament is now divided into three major camps: left-wing, centrist, and far-right.
Cooperation among these factions remains uncertain, and the key issue is whether the leftist alliance can maintain unity and consensus.
Election Outcome: The first round of the French parliamentary election took place, with the far-right National Rally party gaining a strong lead. President Emmanuel Macron’s centrist alliance and the New Popular Front (NPF) coalition, which includes center-left, green, and hard-left forces, are the other major political blocs. The outcome remains uncertain, but the NPF’s rise has implications for financial stability.
NPF’s Plans: Jean-Luc Melenchon, a leader within the NPF, has vowed not to compromise on the group’s plans. These include a significant increase in public spending, a move that could clash with the European Union’s fiscal policies. Investors should closely monitor how these policy proposals unfold.
Market Impact: While Melenchon’s far-left agenda may unsettle some investors, Evercore ISI strategist Krishna Guha suggests that the overall outcome is broadly market-friendly. National Rally-related risks have diminished, and the NPF is unlikely to secure a majority to enact its alliance agenda. French government bond futures underperformed their German counterparts.
Global Context: Beyond France, other global events are influencing financial markets. Federal Reserve Chair Jerome Powell’s testimony and US inflation data are awaited, with expectations of policy easing. President Joe Biden faces challenges within his own party, and US Election Day volatility has decreased. Traders are also monitoring rate decisions in New Zealand and South Korea, along with earnings reports from major US banks.
Commodities and Geopolitics: Oil prices ticked up ahead of reports from OPEC and the International Energy Agency. Gold eased after reaching a six-week high. Additionally, Tropical Storm Beryl’s path toward Texas is being tracked.
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A coalition of business leaders, including billionaires, has penned a letter urging President Joe Biden not to seek re-election.
They believe U.S. democracy faces a significant test in the upcoming November elections.
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British Prime Minister Keir Starmer appointed Angela Rayner as Deputy Prime Minister, Rachel Reeves as Chancellor of the Exchequer (the first female in this role), David Lammy as Foreign Secretary, and John Healey as Secretary of State for Defense.
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Inflation is easing, and the job market has returned to a “tight but not overheated” situation.
Labor demand has eased, job openings declined, and labor supply increased.
Nominal wage growth continues to slow.
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Non-farm payrolls grew in June, but unemployment rates rose to 4.1%.
The Sahm Rule, a recession indicator, suggests a potential recession based on labor market conditions.
Further observation is needed to determine if a recession has officially started.
Market Performance:
The S&P 500 and Nasdaq reached fresh record highs last week.
Cooler labor market data increased expectations of the Fed’s first rate cut in September.
Weekly gains: Nasdaq +3.60%, S&P 500 +1.95%, Dow Jones +0.66%.
Labor Market Insights:
June non-farm payrolls added 206,000 jobs (as expected).
Revised lower numbers for April and May (combined 111,000 jobs).
Unemployment rate increased to 4.1% despite higher participation rate.
Average hourly earnings rose 3.9% YoY (lowest since June 2021).
Upcoming Key Events:
Consumer Price Index (CPI) and Producer Price Index (PPI) data for June.
Fed Chair Powell’s testimony on monetary policy.
Start of US Q2 2024 earnings season.
US rates market pricing in 19 basis points of Fed rate cuts in September.
US Inflation Expectations:
May inflation unexpectedly slowed to 3.3% YoY (below forecasts).
Core inflation eased to 3.4% YoY (lowest in three years).
Hawkish FOMC meeting suggests one 25 bp cut expected in 2024.
S&P 500 Technical Analysis:
S&P 500 surged above weekly trend channel resistance at 5500.
Potential rally extension towards 5750 if above 5500.
Nasdaq 100 surpassed recent highs, parabolic rally towards 22,000 possible.
Daily close below 20,050/20,000 signals corrective pullback.
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The recent French parliamentary elections delivered unexpected results, catching markets off guard. While centrist President Emmanuel Macron faced challenges, the far-right party led by Marine Le Pen secured only the third spot. The leftist New Popular Front alliance claimed the top position, but no party achieved an absolute majority. For investors, the absence of a far-right government in France is a relief, but the resulting hung parliament may lead to political gridlock. Macron’s snap elections strategy did not yield the desired outcome, leaving his party in a precarious position.
As France’s political scene unfolds, attention shifts to the US. Investors eagerly await Fed Chair Jerome Powell’s testimony, seeking insights into the Fed’s readiness for monetary easing. The US CPI report due on Thursday is crucial. Meanwhile, the RBNZ rate decision and UK GDP data are other highlights of the week.
Election Outcome and Uncertainty: The first round of the French parliamentary election took place, with the far-right National Rally (RN) leading, closely followed by the left-wing New Popular Front (NFP). RN and its allies secured first place in 296 out of 577 constituencies, potentially translating to an absolute majority in the second round. However, an alliance of left-wing and centrist parties aims to stop RN from forming the government. The outcome remains uncertain, and high voter turnout adds to the intrigue.
Market Impact: The rise of Eurosceptic parties, as seen in the European Parliament election, is viewed negatively for the euro. Efforts to halt RN’s momentum are seen as positive. Even if the left-wing alliance wins, investors remain cautious about stability in the government.
Hung Parliament Possibility: A hung parliament, where a minority government struggles to pass legislation, is a potential outcome. If RN leads the minority government, it may not be detrimental for the euro, as other parties would likely block their Eurosceptic agenda.
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The gold price (XAU/USD) recently faced some selling pressure around $2,385, breaking its three-day winning streak. This decline is attributed to the modest rebound of the US dollar (Greenback) and the Chinese central bank’s pause in gold buying for the second consecutive month. However, amidst political uncertainty, safe-haven flows may still support the precious metal.
Here are the key points:
US Nonfarm Payrolls (NFP) Report:
In June, NFP employment increased by 206K, surpassing expectations (190K).
Despite growth, it was lower than the previous reading of 218K.
The unemployment rate ticked up slightly from 4.0% in May to 4.1% in June.
Average hourly earnings rose 0.3% month-on-month (MoM), in line with expectations.
Market Expectations and Fed Rate Cuts:
The market currently prices in a 77% probability of a September rate cut by the US Federal Reserve (Fed), up from 70% last Friday.
FOMC minutes indicate policymakers recognize easing price pressures, fueling expectations of Fed rate cuts this year.
A potential rate cut could weaken the US dollar and boost USD-denominated gold.
Political Uncertainty and Geopolitical Tensions:
In Europe, particularly France, exit polls suggest the left-wing New Popular Front (NFP) is likely to win the most seats in the second round of French parliamentary elections.
Investors are concerned about uncertainty as the final round points to a hung parliament.
Geopolitical tensions in the Middle East may also drive safe-haven flows, benefiting precious metals.
China’s Gold Purchases:
The People’s Bank of China (PBoC) refrained from gold purchases for a second consecutive month.
Analysts speculate that gold prices remain high, and the PBoC awaits a further pullback before resuming its gold purchasing program.
China, as the world’s largest gold consumer, plays a significant role in influencing gold prices.
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Crude oil prices surged over 6% in June due to OPEC+ extending its production cuts and expectations of increased summer fuel demand in the US. Additional factors, such as Middle East tensions and hurricane risks, contributed to the positive momentum. However, a recent energy agency report predicts a slowdown in global oil demand in the coming years.
Price Movements: Both US WTI and Asian Brent contracts experienced significant gains. US WTI rebounded from early losses, settling above $82 per barrel, while Asian Brent oil rose from $77 to $87 following the OPEC decision. Domestic MCX futures mirrored this trend.
OPEC+ Decision: OPEC+ (including Russia) agreed to extend deep oil production cuts until 2025. The combined output cut now stands at 5.86 million barrels per day, about 5.7% of global demand. This move aimed to stabilize the market amidst tepid demand growth, high interest rates, and rising US output.
Asian Demand: Asian oil demand plays a crucial role in global prices. Agencies like OPEC and IEA predict China’s oil demand will grow in 2024. However, China’s oil imports declined in H1 2024. India, on the other hand, saw an increase in crude imports during the same period.
Geopolitical Risks: The ongoing Israel-Hamas conflict adds instability to the region and poses risks to oil markets. Attempts to ease tensions have previously impacted global oil prices.
Summer Transport Demand and Hurricanes: Positive price outlook stems from solid summer transport demand and uncertainty around hurricane impacts on US oil production and consumption. Hurricane Beryl marked the start of the Atlantic hurricane season.
Energy Transition Challenges: The latest US IEA report forecasts slower oil demand due to energy transition advances. Despite this, global oil production is expected to increase in the next few years, with a well-supplied market until 2030.
Supply-Demand Dynamics: The ongoing balance between supply and demand remains uncertain. While seasonal US demand and extended OPEC+ cuts may provide short-term momentum, long-term supply may outpace demand. Traders should closely monitor geopolitical crises, global growth trends, the US dollar’s performance, and the Fed’s rate decisions to navigate the commodity market
Economic anxieties are sweeping across nations, leaving a trail of political turmoil and violence. From Kenya to Bolivia, France to the United States, citizens are expressing discontent over rising inequality, diminished purchasing power, and fears that the next generation will fare worse. These economic woes have fueled protests, sometimes turning violent, in both high-income and debt-stricken countries.
Global Economic Challenges:
The Covid-19 pandemic disrupted commerce, erased incomes, and caused supply chain chaos.
Shortages of goods, rising prices, and inflation have affected countries worldwide.
Russia’s invasion of Ukraine further escalated oil, gas, and food prices.
Impact on Vulnerable Countries:
The poorest nations, already burdened by unaffordable debt, suffered the most.
In Africa, interest payments often exceed health and education spending.
Specific Country Cases:
Kenya: Proposed tax increases led to deadly protests and forced the withdrawal of the bill.
Sri Lanka: Debt-stricken citizens face hunger, unaffordable utilities, and social unrest.
Pakistan: Rising costs triggered widespread demonstrations.
Argentina: Economic mismanagement and inflation prompted political upheaval.
France: Farmers’ road blockades and far-right party support signal discontent.
Global Impact and Political Consequences:
Economic malaise feeds political malaise, leading to populist movements.
Protests challenge liberal democracy and democratic capitalism.
Even stable economies like Poland and Belgium face unrest.
The Dollar’s Role and Challenges:
Payment systems, not just trade finance, indicate a currency’s future position.
Countries are improving financial infrastructure, reducing reliance on Western systems.
The US must actively participate in developing cross-border payment solutions.
The Fed’s role is crucial in preserving the dollar’s global dominance.
Preserving the Dollar’s Reserve Currency Status:
The Fed should support innovation and coordination with other central banks.
Initiatives like FedNow and Project Agorá are promising but need faster implementation.
Reviving the spirit of Bretton Woods is essential to ensure the dollar’s future.
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🔥Important News releases on This WEEK :
02/07 Tue 7:30am AUD Monetary Policy Meeting Minutes
02/07 Tue Tentative NZD GDT Price Index
02/07 Tue 3:00pm EUR Core CPI Flash Estimate y/y
02/07 Tue 7:30pm CAD Manufacturing PMI
02/07 Tue 7:30pm EUR ECB President Lagarde Speaks
02/07 Tue 7:30pm USD Fed Chair Powell Speaks
02/07 Tue 8:00pm USD JOLTS Job Openings
03/07 Wed 7:30am AUD Retail Sales m/m
03/07 Wed 6:15pm USD ADP Non-Farm Employment Change
03/07 Wed 6:30pm CAD Trade Balance
03/07 Wed 6:30pm USD Unemployment Claims
03/07 Wed 6:30pm USD Trade Balance
03/07 Wed 7:45pm USD Final Services PMI
03/07 Wed 8:00pm USD ISM Services PMI
03/07 Wed 8:15pm EUR ECB President Lagarde Speaks
03/07 Wed 8:30pm USD Crude Oil Inventories
03/07 Wed 10:00pm USD Natural Gas Storage
04/07 Thu 12:00am USD FOMC Meeting Minutes
04/07 Thu 12:30pm CHF CPI m/m
04/07 Thu All Day GBP Parliamentary Elections
04/07 Thu 2:30pm GBP Construction PMI
04/07 Thu All Day USD Bank Holiday
05/07 Fri 3:40pm USD FOMC Member Williams Speaks
05/07 Fri 6:30pm CAD Employment Change & Unemployment Rate
05/07 Fri 6:30pm USD Average Hourly Earnings m/m & Non-Farm Employment Change & Unemployment Rate
05/07 Fri 8:00pm CAD Ivey PMI
05/07 Fri 11:15pm EUR ECB President Lagarde 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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