Forex Fundamental Facts

Forex Fundamental News Facts for 05th June, 2024

Forex Fundamental News Facts for 05th June, 2024

[Quick Facts]

1. Japan’s base pay rises the most since 1994.
2. Hamas wants Israel to commit to permanent ceasefire, full withdrawal from Gaza.
3. U.S. labor market cools.
4. U.S. factory orders rise for third straight month in April.
5. Historic ECB Rate Cut May Cement Bull Case for Europe’s Stocks.
6. Pound Sterling “At Risk of Summer Correction” against Euro and Dollar.
7. BoC to Announce First Rate Cut.
8. Saudi Aramco’s $12 Billion Share Sale Quickly Sells Out, But Who is Buying?
9. Chinese Move Billions to Hong Kong Banks, Seeking Higher Yields.
10. Narendra Modi Set To Lose Parliamentary Majority In Shock Indian Election Result.

[News Details]

  1. Japan’s base pay rises the most since 1994:

In April, Japan saw a significant 2.3% increase in base pay, the largest since 1994, leading to a 2.1% rise in nominal wages. This suggests that companies are beginning to fulfill their promises of substantial wage hikes. The Bank of Japan views this as a positive sign of a beneficial cycle between wages and demand-driven prices.


  1. Hamas wants Israel to commit to permanent ceasefire, full withdrawal from Gaza:

Hamas, the Palestinian militant group, insists on a definitive commitment from Israel for a permanent ceasefire and total withdrawal from the Gaza Strip. They demand a comprehensive agreement that ensures these conditions and a serious exchange deal. U.S. President Joe Biden has proposed a three-phase plan, including a six-week ceasefire and negotiations for a permanent ceasefire.


  1. U.S. labor market cools:

The U.S. labor market saw a dip in April with JOLTs job openings dropping to 8.059 million, the lowest since March 2021. The job openings to unemployed ratio also fell to 1.2:1. Despite a decrease in job openings across most sectors, a few industries saw an increase. The report indicates a potential slowdown in the labor market.

On Tuesday evening, U.S. stock index futures saw a rise due to a series of weak U.S. economic indicators, which increased expectations of a potential interest rate cut by the Federal Reserve to bolster growth. This speculation led to a decrease in Treasury yields and a shift of investors towards riskier assets, although concerns about a slowing U.S. economy curtailed broader risk appetite.

The S&P 500 Futures, Nasdaq 100 Futures, and Dow Jones Futures all experienced a 0.1% increase, reaching 5,309.50 points, 18,725.75 points, and 38,840.0 points respectively. Wall Street indexes also saw a slight increase following the release of data showing a three-year low in job openings in April.

This data, along with weak purchasing managers index data and a downgraded GDP figure from the previous week, comes just before the release of key nonfarm payrolls data. The strength of the labor market, alongside persistent inflation, is a significant factor for the Federal Reserve when considering interest rate cuts.

Market traders have increased their expectations of a 25 basis point cut in September to a 55% chance, up from 52.6% the previous day. There has also been a slight increase in bets on a potential rate cut in July, although the general consensus remains that rates will be held. The Federal Reserve is due to meet the following week and is expected to maintain current rates.

Despite the cooling U.S. economy, the prospect of future interest rate cuts provided some support to Wall Street. The S&P 500 and the NASDAQ Composite both rose by 0.2%, reaching 5,291.34 points and 16,853.74 points respectively. The Dow Jones Industrial Average, sensitive to economic changes, outperformed, rising nearly 0.4 to 16,853.74 points.

In terms of individual company performance, software consultancy Hewlett Packard Enterprise Co saw a surge of nearly 18% following strong quarterly earnings and a positive outlook driven by artificial intelligence demand. Cybersecurity firm CrowdStrike Holdings Inc also rose by nearly 7% after it increased its annual guidance following better-than-expected quarterly earnings.


  1. U.S. factory orders rise for third straight month in April:

U.S. factory orders increased for the third consecutive month in April, driven by demand for transportation equipment. Despite this, the manufacturing sector, which makes up 10.4% of the U.S. economy, continues to face challenges due to the Federal Reserve’s interest rate hikes.


  1. Historic ECB Rate Cut May Cement Bull Case for Europe’s Stocks:

Soeren Radde, Head of European Economic Research at Point72, suggests that ECB President Lagarde might dampen expectations for continued rate cuts at the upcoming ECB policy meeting. While a key interest rate cut is likely, any further easing will depend on additional data and new forecasts.

The upcoming European Central Bank (ECB) meeting could potentially propel regional equities to new heights. The ECB is anticipated to initiate an interest-rate reduction cycle before the Federal Reserve, a first in history, as the euro area’s inflation rate decreases more rapidly than in the US. This, coupled with a positive outlook for corporate earnings and resilient economic growth in Europe, suggests potential for the Stoxx Europe 600 Index to extend its record-breaking rally this year.

Goldman Sachs portfolio strategist, Lilia Peytavin, highlights the importance of the ECB’s new growth and inflation outlook, expecting a rebound in the euro zone’s growth in the upcoming quarters. Historical data shows that relaxed monetary policies have generally been favorable for equities. European stocks have seen a 2% increase in the month following a Fed rate cut since the 1980s, a performance roughly double that of equities in any given month.

The 8% gains this year reflect some optimism, with the euro zone having emerged from recession and its four major economies driving faster-than-expected growth. Traders have fully accounted for at least two rate cuts from the ECB in 2024. While this may limit the chances of a significant surge if the central bank does cut rates on Thursday, Pictet Asset Management’s chief strategist, Luca Paolini, believes the move will still be significant due to its psychological impact.

Citigroup Inc. strategists suggest that rates may eventually stabilize around 2%, lower than the current level but higher than the zero-rate era of the past decade. This could benefit investors choosing Europe, as the region’s cyclical stocks were more likely to outperform the US prior to the global financial crisis. The impact is likely to be most noticeable in debt-heavy sectors such as real estate and automakers, which stand to benefit from lower rates making car financing more affordable.

However, banks may suffer, having been the top-performing Stoxx 600 sector so far in 2024. JPMorgan Chase & Co. strategists express caution towards lenders as the phase of earnings outperformance might be ending. A potential risk is higher-than-expected inflation, which could disrupt further rate cuts. Despite this, some market participants remain optimistic. Oddo BHF SCA strategist Thomas Zlowodzki believes that the first rate cut, easing political uncertainty following the European Parliament elections, and a rebound in economic growth are all reasons to remain positive on regional stocks.


  1. Pound Sterling “At Risk of Summer Correction” against Euro and Dollar:

In the recent leadership debate, Prime Minister Rish Sunak demonstrated his competitive edge over his opponent, Keir Starmer. A YouGov poll conducted post-debate showed a slight preference for Sunak, who effectively communicated the Conservatives’ strategic plan to the voters. Starmer, on the other hand, appeared less comfortable with the debate format and seemed unsettled by Sunak’s demand for detailed solutions to the country’s issues.

The ongoing election has not significantly impacted the Pound, thanks to Labour’s strong lead and the anticipated policy consistency from the next government, considering the similar economic strategies of both parties. However, analysts warn of potential market volatility if the election results become less predictable.

Jeremy Stretch from CIBC Capital Markets suggests that if the polls narrow during the campaign, leading to a smaller Labour majority than currently projected, there could be an increase in Sterling volatility and a decrease in Sterling valuations. Similarly, George Vessey, Lead FX Strategist at Convera, notes that while the election news hasn’t negatively affected sterling so far, increased uncertainty could arise if the polls indicate a closing gap between the incumbent Conservatives and Labour.


  1. BoC to Announce First Rate Cut:

The U.S. job market is under scrutiny as the Job Openings and Labor Turnover Survey (JOLTS) data revealed a drop to approximately 8 million job openings in April. This lower-than-anticipated figure has increased the likelihood of the Federal Reserve’s first rate cut in September, pushing the probability to around 65%. This has led to a consolidation in the U.S. dollar index and modest gains in equities, with the S&P 500 closing 0.15% higher and Nasdaq gaining nearly 0.30%.

The ADP report, due to be released, is predicted to show around 173,000 new private job additions to the U.S. economy last month. If the report aligns with these expectations or is softer, it could lead to a rise in dovish sentiment within the Federal Reserve and a further easing of U.S. yields. However, a significantly negative surprise could stoke fears of a recession and hinder equity investors from fully capitalizing on potentially rising dovish Fed expectations.

In the energy sector, U.S. crude is consolidating losses near four-month lows. The sharp decline in oil prices has prompted commodity trading advisors (CTAs) to significantly increase their short positions. As CTAs typically amplify market moves, the recent sell-off may be overdone, and a correction could be supported by CTAs as we approach a critical support zone.

In the coming hours, two major central banks, the Bank of Canada (BoC) and the European Central Bank (ECB), are expected to announce a 25 basis point cut to their rates. The BoC’s cut could provide support to the recent pullback in Canadian stocks, while the impact of the ECB’s cut will depend on the sentiments expressed by Chief Christine Lagarde at her press conference regarding the bank’s stance on further cuts. The EURUSD is facing significant resistance near 1.0930, a major Fibonacci resistance on its year-to-date decline. The ECB will need to sound sufficiently dovish, or the U.S. data will need to be sufficiently negative, to clear this resistance.


  1. Saudi Aramco’s $12 Billion Share Sale Quickly Sells Out, But Who is Buying?:

Saudi Aramco, Saudi Arabia’s state-owned oil company, recently confirmed its plans to sell shares to fund the kingdom’s economic diversification efforts. The sale, which took place last Sunday, was a success, with the $12 billion share sale selling out shortly after the deal opened. The shares were offered within a price range of 26.70 to 29 riyals, and buyers are expected to cash in on an upcoming $124 billion annual payout, estimated to give the shares a dividend yield of 6.6%.

The details of the split between local and foreign shareholders are yet to be released, but industry experts are keen to gauge foreign interest in Aramco’s assets. Foreign investors largely sat out the company’s 2019 initial public offering (IPO), with concerns about the steep valuation of the shares. Despite a 14% plunge in ARMCO stock this year, the company is valued at $1.8 trillion, with daily production estimated at 9.3 million barrels of oil equivalent (boe).

The share sale comes at a time when oil prices remain low due to concerns about weak global demand. This is a significant blow to Saudi Arabia, as the IMF estimates that Riyadh requires an average oil price of $96.20 a barrel to balance its budget, assuming it maintains crude output near 9.3 million barrels a day this year.

However, Saudi Arabia’s economy is less affected by low oil prices than it was a decade ago, thanks to efforts to diversify and cushion against oil price volatility. Three years ago, Crown Prince Mohammed bin Salman unveiled Saudi Vision 2030, a roadmap for economic diversification, global engagement, and enhanced quality of life. The plan aims to diversify Saudi Arabia’s economy and create dynamic job opportunities for its citizens through privatization of state-owned assets, unlocking underdeveloped industries such as renewable energy, manufacturing and tourism, and modernizing the curriculum and standards of Saudi educational institutions.

Saudi Vision 2030 appears to be bearing fruit already: non-oil revenues hit 50% of the Kingdom’s GDP in 2023, the highest level ever. Last year, Saudi Arabia’s non-oil economy was valued at 1.7 trillion Saudi Riyals (approximately 453 billion U.S. dollars) at constant prices, driven by steady growth in exports, investment, and consumer spending.

In the economic plan, Saudi Arabia has set a target to develop ~60 GW of renewable energy capacity by 2030, a significant increase from the current capacity of 2.8 GW. However, Saudi Arabia has no plans to abandon its legacy fossil fuel business. Saudi Aramco has unveiled plans to reach net-zero by 2050 without sacrificing oil and gas production. The company believes its tech breakthroughs have the potential to cut carbon emissions from each barrel of oil it produces by 15% by 2035, equivalent to 51.1 million tons of carbon a year. Aramco now spends about $800 million a year on R&D, 60% of which is focused on “sustainability”.


  1. Chinese Move Billions to Hong Kong Banks, Seeking Higher Yields:

In the first quarter, HSBC Holdings Plc saw an influx of over 130,000 new bank customers in Hong Kong. Similarly, Bank of China (Hong Kong) and Hang Seng Bank experienced a surge in new cross-border clients and non-resident account openings respectively. This trend is largely driven by mainland Chinese investors seeking a broader range of investment options, higher interest rates, and an escape from China’s stagnant markets.

Standard Chartered Plc has been offering high short-term deposit rates to attract Chinese customers, especially as Beijing regulators have tightened controls on high-yielding wealth management products and falling real estate prices have impacted savings across China. As a result, there has been a significant growth in assets under management moving from mainland to offshore markets.

However, capital controls pose a challenge as they limit the amount of cash that can be moved from the mainland to Hong Kong annually. Despite this, many investors, like a Shanghai housewife identified as Hu, are gradually moving money to Hong Kong. She plans to help her daughter buy an apartment in the city and has primarily invested her money into fixed deposits and equities.

The first quarter also saw a 62.6% increase in insurance sales to mainland visitors, benefiting insurers like AIA Group Ltd. and Prudential Plc. Net inflows for Hong Kong retail funds reached a three-year high of $3.8 billion. HSBC’s Maggie Ng noted that a portion of the attracted money is being placed into fixed deposits to secure higher rates.

Hong Kong’s government is actively attracting wealthy individuals by offering residency to those who invest about HK$30 million into stocks, debt, and funds. The top talent program has also drawn mainlanders to the city. Richard Harris, CEO of Port Shelter Investment Management, believes that people are exploring different options post-Covid lockdowns as part of the diversification process.

Standard Chartered’s wealth solutions business saw a 21% rise in operating income during the first quarter, thanks to affluent new-to-bank customers and a doubling of net new money year-on-year to $11 billion. Andrew Haslip, head of content for Asia Pacific at research firm GlobalData, noted a “distinct trend” of increasing offshore investment from wealthy mainland investors.

Concerns about a potential yuan devaluation are also driving money offshore. Supporters of a sharp currency depreciation argue that it would enable Beijing to boost exports and provide the central bank with room to cut interest rates. However, tighter standards resulting from a money laundering scandal in Singapore have made visas for mainland professionals harder to obtain.


  1. Narendra Modi Set To Lose Parliamentary Majority In Shock Indian Election Result:

Contrary to exit poll predictions, Narendra Modi’s Bharatiya Janata Party (BJP) did not secure a landslide victory in the recent Indian elections. The party’s focus on transforming India into a Hindu nation did not resonate with non-Hindu ethnic groups, and the growing inequality in the country was cited as a reason for the BJP’s decline.

Despite the setback, Modi is likely to retain his position as Prime Minister. However, the BJP will need to form a coalition to pass reforms in Parliament, which could hinder the party’s ability to implement its business-friendly policies and ambitious labour and land reforms. This could slow down economic growth, which reached 8% this year.

The election results were a shock to the market, with the Nifty 50 falling nearly 6% from a record high and the Indian rupee depreciating rapidly. The BJP and its National Democratic Alliance allies performed much worse than expected, with the BJP projected to win about 240 seats out of the 543 in India’s lower house. This is short of the outright majority the party won in the previous two general elections.

The opposition INDIA alliance, led by the Indian National Congress, performed better than expected, winning 233 seats. Analysts suggest that the election result is a blow to Modi, who has dominated India’s political scene for the past decade. The failure to win a majority could make it more difficult for the BJP to implement economic policy and could make Modi more reliant on his smaller allies.

Shares in companies owned by billionaire Gautam Adani, who has a close relationship with Modi, plunged. The overall index closed 6% down on the day after having surged to a record high on Monday following exit polls that indicated Modi would win the election comfortably.

Many Indians had expected a clear Modi victory in an election seen as a referendum on his decade in office. A victory would make him India’s first PM to serve three consecutive terms since independence leader Jawaharlal Nehru. However, job creation has failed to keep pace with new entrants to the workforce.

The partial results showed the BJP losing seats in its northern Hindi-speaking political strongholds, including the most populous state of Uttar Pradesh (UP). The phrase “Shame on UP” trended in comments below the broadcast on Modi’s YouTube channel, which has almost 24mn subscribers.

Final results from the staggered six-week election process that began in April were expected by Wednesday morning. The Election Commission of India said 642mn of almost 1bn registered voters had cast their ballots. The result will boost the Congress party, which had been widely seen as a waning political force after losing seats in India’s previous two general elections. However, some commentators said Tuesday’s result showed Indian voters were still free to exercise their will.


🔥News releases on THIS WEEK :

05/06 Wed 7:30am AUD GDP q/q

05/06 Wed 7:45am CNY Caixin Services PMI

05/06 Wed 2:30pm GBP Final Services PMI

05/06 Wed 6:15pm USD ADP Non-Farm Employment Change

05/06 Wed 7:45pm CAD BOC Rate Statement

05/06 Wed 7:45pm USD Final Services PMI

05/06 Wed 8:00pm USD ISM Services PMI

05/06 Wed 8:30pm CAD BOC Press Conference

06/06 Thu 2:30pm GBP Construction PMI

06/06 Thu 6:15pm EUR Main Refinancing Rate & Monetary Policy Statement

06/06 Thu 6:30pm CAD Trade Balance

06/06 Thu 6:30pm USD Unemployment Claims & Trade Balance

06/06 Thu 6:45pm EUR ECB Press Conference

07/06 Fri Day 2 EUR European Parliamentary Elections

07/06 Fri 6:30pm CAD Employment Change & Unemployment Rate

07/06 Fri 6:30pm USD Average Hourly Earnings m/m & Non-Farm Employment Change & Unemployment Rate

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


Sources :
– CNBC, Bloomberg, Reuters, Fastbull, Yahoo Finance, CNN, ForexFactory News, Myfxbook News etc

Prepared to you by “Akif Matin

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