Forex Fundamental News Facts for 01st July, 2024
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[Quick Facts]
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1. Far right leads in the first round of France’s parliamentary election.
2. Poll shows almost half of Democrats say Biden should step aside.
3. ECB Sintra Forum Outlook: Lagarde is expected to respond cautiously to the French election risk.
4. ECB’s Holzmann says inflation’s stickiness is underestimated.
5. With no candidate receiving more than half of the votes, Iran’s presidential election heads to a runoff.
6. U.S. PCE data in May heated up rate-cut expectations.
7. The Commodities Feed: US Drilling Slows.
8. Middle East Heat Takes Toll on Energy Supply in Summer.
9. Why Gold Prices Could Reach New Highs Later This Year.
10. What Move Away from the Dollar Would Mean for the Global Economy.
11. China’s PMI Failed to Reassure, HS Tech Index on Watch.
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[News Details]
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- Far right leads first round of France’s parliamentary election:
The first round of France’s parliamentary election concluded on June 30, with the far-right political party National Rally achieving a historic victory. Preliminary results show National Rally winning 34% of the vote, a significant surge compared to the last election. The left-wing coalition New Popular Front secured 28.1%, while President Emmanuel Macron’s Ensemble alliance trailed at 22%.
The final results remain unknown until the second round of voting on July 7. It’s essential to consider how many candidates from each party will make it to the second round, as first-round victories don’t always predict the final outcome.
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- Poll shows almost half of Democrats say Biden should step aside:
A CBS News and YouGov poll revealed that nearly half (46%) of Democrats believe incumbent U.S. President Joe Biden should not continue running in the upcoming presidential election. This figure has risen by 10 points compared to February this year.
Despite this, 54% of Democrats still support Biden’s candidacy. The poll was conducted during June 28-29, following the first televised debate between Biden and former President Trump.
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- Lagarde is expected to respond cautiously to the French election risk:
The European Central Bank (ECB) will hold its annual forum in Sintra, Portugal, from July 1 to 3, coinciding with the French parliamentary election results.
ECB President Christine Lagarde, a former French minister, is likely to respond cautiously to any potential financial crisis triggered by the election. Her previous slip-up in 2020 highlights the importance of handling such situations carefully.
President Emmanuel Macron’s unexpected decision to call a snap election in France has sent shockwaves through the country’s bond market. The election, prompted by a significant victory for Marine Le Pen’s far-right National Rally in the European Parliament vote, has raised concerns about fiscal sustainability. Here are the key points:
Foreign Investor Influence:
Foreign investors own approximately 50% of France’s government debt, a much higher share than in other major economies.
Their volatility could prolong the settling of France’s borrowing costs.
French borrowing costs initially surged after the election announcement, and the premium over Germany remains wider due to spending plans from both far-right and left-wing parties.
Hedge Funds and Non-Bank Investors:
Hedge funds, which account for over 50% of French government bond trading volumes, have become dominant players in the euro zone government bonds market.
Non-bank investors, including asset managers and pension funds, have been significant buyers of French bonds since mid-2022.
Japanese Investors and 2017 Recurrence:
Japanese investors, with substantial European holdings in France, are a crucial focus.
In 2017, Japanese investors sold a record €26 billion of French government bonds due to concerns about Marine Le Pen’s anti-EU stance.
There is a potential risk of similar dynamics repeating after Macron’s snap election.
French Banks and Domestic Debt Holdings:
French banks own only 7.7% of the country’s debt, with low domestic government debt holdings relative to their assets.
This minimizes the risk of government debt issues affecting French banks.
Encouraging domestic banks to buy more French government bonds could be advantageous.
French Insurance Companies:
French insurance companies’ holdings of the country’s debt have decreased from 19.7% in 2014 to 9.5%.
There is room for domestic investors to increase their French debt holdings.
In summary, President Macron’s snap election has created uncertainty in France’s bond market, particularly given the strong showing of far-right and left-wing parties.
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ECB Governing Council member Holzmann emphasized that inflation’s stickiness is underestimated.
Acting too early poses more risk than acting too late. Holzmann’s hawkish remarks contrast with the ECB’s rate cut decision in June.
The United Kingdom stands out among major economies heading into elections this year due to its remarkable financial stability. Former Prime Minister Liz Truss’ contribution to fiscal steadiness has set Britain apart, even reining in other G7 countries. As weekend polls approach, even the French far right is softening its tone.
Despite a likely change of government after 14 years, the UK remains fiscally disciplined. The opposition Labour Party, relying on the incumbent conservatives’ unpopularity, offers few fiscal surprises. This stability contrasts with global uncertainties, such as the US presidential term and France’s parliamentary majority contest.
Investors welcome the change of government, and the Bank of England’s trade-weighted sterling index is near pre-Brexit levels. Volatility has decreased, and the FTSE10 index remains strong. Although ten-year gilts pose fiscal concerns, yields have subsided. Overseas investors view the change of power with cautious optimism.
The election campaign has been mercifully short, but it sidesteps deeper economic issues. Both main parties must address financing through debt or increased taxes. However, capital markets anticipate pro-growth policies with fiscal prudence. Better EU relations will buoy sterling.
Despite past challenges, the UK now offers a rare period of political calm, appealing to investors seeking stability.
UK Stability Ahead of Elections:
The UK’s financial stability sets it apart among major economies heading into elections. Former Prime Minister Liz Truss’ contribution to fiscal discipline has influenced other G7 countries. Even the French far right is adjusting its tone as polls approach.
Despite an impending change of government, the UK remains fiscally prudent. The Labour Party, relying on the incumbent conservatives’ unpopularity, avoids major fiscal changes. This stability contrasts with global uncertainties, such as the US presidential term and France’s parliamentary majority contest.
Investors welcome the change of government, and the Bank of England’s sterling index is near pre-Brexit levels. Volatility has decreased, and the FTSE10 index remains strong. Although ten-year gilts pose fiscal concerns, yields have subsided. Overseas investors view the change of power with cautious optimism.
The election campaign has been mercifully short, but it sidesteps deeper economic issues. Both main parties must address financing through debt or increased taxes. However, capital markets anticipate pro-growth policies with fiscal prudence. Better EU relations will buoy sterling.
Despite past challenges, the UK now offers a rare period of political calm, appealing to investors seeking stability
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None of the four presidential candidates in Iran received more than half the vote, leading to a runoff between the top two candidates.
Former Iranian Health Minister Masoud Pezeshkian and former chief nuclear negotiator Saeed Jalili will compete in the second round of elections on July 5.
Over 61 million eligible voters participated in the election, with polling stations set up both in Iran and overseas.
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U.S. PCE (Personal Consumption Expenditures) data for May showed a 2.6% year-on-year increase, in line with expectations.
Core PCE, excluding volatile food and energy prices, also rose 2.6% year-on-year.
Expectations for a rate cut surged after the data release, with U.S. Treasuries posting their largest one-month gain in 24 years.
However, the super-core PCE price index, which considers core services after housing, remains high due to soaring healthcare costs, potentially impacting the Federal Reserve’s rate decisions. U.S. household demand remains resilient despite higher interest rates
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Energy Market:
Speculators increased their net long positions in both ICE Brent and NYMEX WTI, reflecting bullish sentiment.
Drilling activity in the US is slowing, with oil rig counts at their lowest since December 2021.
The ICE gasoil crack has strengthened, and speculators are more constructive. Gasoil stocks in the ARA region and middle distillate stocks in Singapore have fallen.
Supply disruptions from the Pernis refinery (Netherlands) and potential disruptions from the Gravenchon refinery (France) provide additional support.
Al-Zour Refinery in Kuwait:
A fire broke out at a storage facility in the Al-Zour refinery, but operations remain unaffected.
Russia’s Gasoline Exports:
Russia will allow refineries to export gasoline in July after a temporary ban due to domestic availability concerns.
US Grain Stock Estimates:
USDA reported corn inventories at 4.99 billion bushels (up 22% YoY), soybean inventories at 970 million bushels (up 22% YoY), and wheat inventories at 702 million bushels (up 23% YoY).
Corn and wheat plantings are projected to drop, while soybean acreage will rise in 2024.
Brazilian Sugarcane Crushing:
UNICA reports sugarcane crushing in Centre-South Brazil at 49 million metric tons (mt) in the first half of June (up 13.3% YoY).
Sugar production rose to 3.1 mt (up 21.9% YoY), with 49.7% of cane allocated to sugar production.
Cumulative sugar output this season stands at 11 mt (up 14.4% YoY)
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The Middle East faces a critical challenge in its power sector due to extreme heat, electricity shortages, and environmental concerns. Here are the key points:
Heat and Electricity Demand:
The region experiences scorching temperatures, making power cuts lethal.
Egypt, despite financial support, faces gas shortages and implements power cuts during high summer.
Lebanon struggles with near-absent electricity from the national grid.
Iraq’s demand exceeds supply, with some provinces receiving only 10 hours of electricity daily.
Challenges in Wealthy Gulf Countries:
Kuwait faces political deadlock, hindering power plant construction.
Electricity is highly subsidized, affecting supply stability.
The UAE grapples with rapid electricity demand growth and greenhouse gas emissions.
Technical Solutions:
Upgrade or replace old, inefficient gas or oil-fired generation.
Build more power stations, focusing on solar and wind energy.
Use batteries for demand during hot nights.
Encourage full-scale solar projects without pilot phases.
Local Initiatives:
Taqa in the UAE aims to replace gas plants with solar power and improve water desalination.
Simplify rooftop solar panel installation and promote solar in new homes.
Remove regulatory barriers for industries to adopt solar power.
Beyond Generation:
Focus on efficiency: better cooling, insulation, and district cooling.
Restore green spaces and plan urban areas for shade and cooling.
Phase out energy and water subsidies, compensating lower-income groups.
Addressing Corruption and Politics:
Tackle generator mafias obstructing reform.
Align investment, efficiency, society, and politics to meet the challenge.
In the face of ever-hotter summers, the Middle East must balance cooling needs without straining the electricity grid, economy, or climate
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Gold, a timeless asset, is poised for a positive second half of the year. Here’s why:
Demand Drivers:
Central Banks: Robust demand from emerging markets, especially central banks, fuels gold appetite. These institutions increasingly view gold as a useful financial asset rather than a mere keepsake.
Geopolitical Tensions: Global uncertainties, such as political turmoil and regional crises, drive investors toward gold as a safe haven.
Price Trends:
Gold prices recently hit a record high of $2,449.89 but have since entered a consolidation phase.
Despite headwinds like a strong dollar and high interest rates, gold remains resilient.
Bank Predictions:
The Bank of America suggests gold could reach $3,000 an ounce within 12 to 18 months, driven by investment demand.
Central banks continue to elevate gold reserves, contributing to its rally.
Factors Supporting Gold:
Interest Rates: As the Fed’s rate tightening cycle pauses, gold benefits. Expected rate cuts will further support gold.
Risk and Uncertainty: Ongoing geopolitical turmoil and market shocks favor gold.
Inflation Hedge: Rising debt-to-GDP ratios and persistent inflation enhance gold’s appeal.
Technical Indicators:
Gold has held above key technical levels, benefiting from early speculative demand.
Low volatility compared to other metals sustains gold’s position.
Interest Rate Cuts:
Anticipated rate cuts reduce the opportunity cost of holding gold.
Lower rates often weaken the dollar, potentially boosting gold prices.
Outlook:
We maintain a positive outlook for gold, with a price target around $2,500.
Despite short-term consolidation, the fundamental backdrop remains favorable.
Potential Risks:
Geopolitical tensions (e.g., Ukraine, Gaza) could impact gold’s trajectory.
Stalling central bank gold purchases or hawkish Fed adjustments may pose challenges.
In summary, gold continues to shine as a valuable asset, offering stability and potential gains for investors and those seeking a safe harbor
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- What Move Away from Dollar Would Mean for Global Economy:
For decades, the US dollar has held unrivaled dominance in international trade and finance. The petrodollar system, established in the 1970s, solidified this position by ensuring that oil and other commodities were exclusively traded in dollars. However, recent geopolitical shifts and the emergence of alternative currencies suggest that this era may be coming to an end.
The petrodollar system originated in 1974, following the collapse of the Bretton Woods agreement. Under this system, Saudi Arabia and other OPEC countries agreed to price their oil in dollars and invest their surpluses in US debt. While this bolstered the dollar’s status as the world’s primary reserve currency, it also made the global economy heavily reliant on the dollar.
In recent years, several factors have challenged dollar dominance:
Geopolitical Tensions: Countries like China and Russia seek alternatives to reduce their exposure to US financial influence. Saudi Arabia even expressed openness to trading in other currencies, including the Chinese yuan.
Cryptocurrencies: Bitcoin, with its borderless nature and resistance to government control, offers an alternative to traditional currencies. Its finite supply provides a hedge against inflation.
Historical Precedents: Throughout history, dominant currencies have been supplanted. The decline of the pound and the rise of the dollar after World War II illustrate this trend.
The implications of dedollarization are significant:
Increased volatility in financial markets.
A more fragmented financial system with multiple reserve currencies (dollar, euro, yuan, and cryptocurrencies).
Complexity in international trade and finance.
Investors can protect their wealth by diversifying into assets like gold and cryptocurrencies. Decentralized finance platforms offer innovative solutions outside traditional banking systems. As the global financial landscape evolves, adaptability and understanding emerging technologies will be crucial for navigating this transformative shift.
The escalating trade tensions between the West and China have significant implications for global markets. Here are the key points:
U.S. Dollar as the “Winner”:
In an all-out trade war, the U.S. dollar is likely to emerge as the primary beneficiary.
Uncertainty around global trade policy is currently high, reminiscent of the 2018-2019 clashes between the U.S. and China.
Further tariffs on Chinese imports and potential retaliation are expected, with Europe also considering joining the tariff train.
U.S. Advantages:
The U.S. economy has layers of protection: a relatively closed economy, global importance of U.S. equity and bond markets, and the dollar’s ubiquity in international reserves.
While the U.S. won’t be immune to the impact, its growth would slow, and inflation might rise. However, Europe and Asia would be more vulnerable.
Impact on Other Currencies:
Other currencies lack the dollar’s safe-haven status.
Goldman Sachs economists estimate that trade policy uncertainty would hit euro zone growth three times harder than U.S. growth.
Aggressive monetary easing from the European Central Bank could follow.
U.S. Trade Deficit and Dollar Strength:
The U.S. trade deficit has decreased, and onshoring efforts and energy self-sufficiency reduce its drag on the dollar.
Tariff escalation could further shrink U.S. imports.
China and Euro Zone:
Foreign direct investment into China is declining amid trade tensions.
Chinese stocks are underperforming, and the yuan is at a seven-month low against the dollar.
European stocks and the euro are affected by tariffs on Chinese imports due to close trade ties.
The euro’s fate is inversely correlated with the dollar, and a more belligerent U.S. trade stance could push the euro down.
Dollar’s Strength and Risks:
Deutsche Bank analysts predict the dollar will remain strong, but momentum may fade.
A trade-focused White House could further boost the dollar.
In this complex landscape, the U.S. dollar’s resilience and relative safety position it as a key player in the unfolding trade dynamics
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In the Asian session, market movements respond to China’s official Purchasing Managers’ Index (PMI) data. While manufacturing data met expectations, its second consecutive month of contraction raises concerns about the country’s recovery. Weak new orders, slowed production, and ongoing employment decline indicate a fragile economic bounce from the festive season.
Non-manufacturing activities also disappoint, with a four-month low suggesting fading growth momentum. As we approach the third plenary session from July 15 to 18, mixed economic data complicates matters. Market expectations for supportive stimulus may arise, but the risk of disappointment remains high. Authorities face constraints due to a weakening yuan and capital outflows.
Looking ahead, the Caixin Manufacturing PMI provides further insights into China’s manufacturing sector. Unlike the official PMI, this survey covers small and medium-sized enterprises. Recent outperformance hints at resilience, but today’s release is expected to ease to 51.2, down from the previous 51.7.
Meanwhile, the Hang Seng Tech Index has retraced 16% from its May 2024 peak due to Chinese economic risks and tech sector unwinding. The daily relative strength index (RSI) attempted to cross above the mid-line but fell short. Watch the 3,480 level—a crucial trendline support. Defending it could signal a near-term bounce, while breaching it may bring the 3,280 level into focus
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🔥Important News releases on This WEEK :
01/07 Mon All Day CAD Bank Holiday
01/07 Mon 7:45pm USD Final Manufacturing PMI
01/07 Mon 8:00pm USD ISM Manufacturing PMI
02/07 Tue 1:00am EUR ECB President Lagarde Speaks
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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