Forex Fundamental News Facts for 10th July, 2024

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[Quick Facts]
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1. Powell’s Subtle Shift Hints at Fed Rate Cut.
2. WSJ: Powell Nudges Fed Closer to Rate Reduction.
3. Retailers Ramp Up Restocking for Holiday Season.
4. Institutions Read Powell’s Speech as No Pre-November Rate Cut.
5. Putin and Modi Advocate Peaceful Ukraine Resolution in Joint Statement.
6. Why Trump 2.0 Could Benefit Investors.
7. Bank of England Rate Cut Question Accelerates Pay Discussions.
8. Global Oil Market Faces Supply Deficit Next Year.
9. Dovish RBNZ Impacts Kiwi; Fed’s Pivot May Trigger Reversal. 

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[News Details]
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1. Powell’s Subtle Shift Hints at Fed Rate Cut:

Powell delivered his semi-annual monetary policy testimony to the Senate on July 9.
Labor market conditions have returned to pre-pandemic levels, remaining strong but not overheated.
The Fed won’t cut rates until there’s more confidence that inflation is sustainably moving toward 2%.
Recent inflation readings show modest progress, strengthening confidence in this direction.
The Committee will continue assessing data and risks when considering rate adjustments.

Economic Expansion and Moderation:
Recent indicators suggest that the U.S. economy continues to grow steadily.
GDP growth has moderated in the first half of this year, but domestic private demand remains robust.
Consumer spending is increasing, albeit at a slower pace.

Balanced Conditions:
Various indicators show that economic conditions have returned to pre-pandemic levels—strong but not overheated.
The unemployment rate has risen but remains relatively low.
The jobs-to-workers gap has improved since its peak and is slightly above 2019 levels.
Nominal wage growth has eased over the past year.

Inflation and Confidence:
Despite initial challenges, recent monthly readings indicate progress in disinflation.
Longer-term inflation expectations remain stable.
Powell emphasizes caution in cutting rates until there is greater confidence that inflation will sustainably move toward the 2% target.

Monetary Policy Approach:
The Federal Reserve continues to make decisions meeting by meeting.
The Committee carefully assesses incoming data, considering the evolving outlook, risks, and appropriate monetary policy path.

Market Implications:
Powell’s current statement appears official but lacks specific details.
Investors should pay attention to his responses during the Q&A session with Congress members.
If his tone remains calm and steady, the market may react neutrally. However, any deviation could lead to increased volatility.

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2. WSJ: Powell Nudges Fed Closer to Rate Reduction:

Powell’s remarks signal a subtle but important shift.
The trade-offs between inflation and a solid labor market are changing.
The labor market cooling isn’t the main source of inflationary pressures.
Previously, an overheated labor market was seen as the main risk to disinflation.

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3. Retailers Ramp Up Restocking for Holiday Season:

U.S. importers are accelerating restocking.
In July, they’ll import 2.21 million containers (20-foot equivalent units), up 15% from last year.
June saw a 14% increase, and August is expected to be over 13%.
Year-on-year growth in imports by retailers will slow down in September and October but remain above 2 million containers.

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4. Institutions Read Powell’s Speech as No Pre-November Rate Cut:

Powell’s testimony doesn’t provide clear signals on rate cuts.
The decision will be made “meeting by meeting.”
This suggests rate cuts may not happen as quickly as the market expects.
Some analysts predict the first rate cut in November.

Cooling Labor Market: Recent government data revealed a third consecutive month of rising unemployment, signaling a cooling job market. Labor-market conditions have significantly changed over the past two years, prompting Powell’s cautious assessment.

Inflation and Policy: Powell acknowledged that elevated inflation is not the sole risk faced by the economy. While the Federal Reserve has maintained its benchmark rate at a more than two-decade high to combat inflation, the slowdown in jobs data has increased pressure on policymakers to consider easing monetary policy.

Balancing Act: Powell’s focus remains squarely on the labor market. He emphasized that any rate cuts must strike a delicate balance. Cutting rates too soon or too aggressively could hinder progress on inflation, which has declined from a peak of 7.1% in June 2022 to 2.6% as of May.

Data-Driven Approach: The Federal Open Market Committee (FOMC) is unlikely to reduce rates during its next meeting in July. Fed officials are closely monitoring inflation trends and need more confidence that the deceleration will continue before adjusting borrowing costs.

Job Market Concerns: Economists warn of a potential slowdown in the job market. The number of people actively seeking employment for 15 weeks or more has risen, signaling possible challenges ahead.

Political Perspectives: Democrats have cautioned against delaying rate cuts, citing rising unemployment, housing costs, and manufacturing sector slowdown. Republicans have largely refrained from opposing these arguments.

Bank Capital Requirements: Powell also addressed plans to boost capital requirements for major banks. The Fed and other regulators are finalizing changes to a proposal released in July 2023. These changes could require the largest US banks to hold approximately 19% more capital as a buffer against financial shocks.

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5. Putin and Modi Advocate Peaceful Ukraine Resolution in Joint Statement:

Russian President Vladimir Putin and Indian Prime Minister Narendra Modi emphasized peaceful resolution through talks.
Nine cooperation documents related to bilateral economic cooperation were signed.
The goal is to increase Russian-Indian trade to $100 billion by 2030.
They discussed joint production in the defense sector and bilateral settlement using national currencies

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6. Why Trump 2.0 Could Benefit Investors:

Predicting Political Outcomes and Financial Markets:
Predicting US political outcomes is more challenging than forecasting the stock market.
We’ll focus on the next four years if Donald Trump secures a second term.
Initial market reaction to this possibility was relatively muted, with bond yields adjusting.
Trump’s likely renewal and expansion of 2017 tax cuts could impact the economy and inflation.
Despite trade tensions with China, bullish expectations persist.

Economic Performance Under Trump:
During Trump’s first term, real GDP rose significantly, and inflation remained subdued.
The 10-year Treasury bond yield fluctuated around 2%, and the S&P 500 surged.
Could a similar outcome occur under “Trump 2.0”? It’s possible.

Congressional Impact on Policies:
Policies enacted by the White House often face adjustments during the legislative process.
If Republicans win both the White House and Congress, Trump’s policies may face less dilution.
Political uncertainties affect predictions, especially regarding Democratic donors’ funding choices.

Beyond Washington’s Influence:
The US economy is increasingly technology-driven and diversified.
Capital spending focuses on technology, software, and research and development.
Favorable conditions for corporate earnings may drive the stock market higher.
Trump’s potential re-election could lead to less government intervention and deregulation.

Risks Under Trump 2.0:
While history shows the US economy and stock market thrive regardless of leadership, risks remain.
Potential risks include a trade war impacting global growth and inflation.
Mounting federal deficits could lead to a debt crisis.
The US system of checks and balances helps moderate extreme policy pursuits

Mexico: A Complex Scenario:
Historically, Mexico has been a bellwether for U.S. policy in emerging markets. However, this time, domestic factors add complexity.
The peso has already declined 6% this year due to concerns about constitutional changes and reduced checks and balances.
Trade relations between the U.S. and Mexico will be a focal point. The revamped U.S.-Mexico-Canada (USMCA) trade deal, spearheaded by Trump, will undergo a scheduled review in two years. The next U.S. president will decide whether to maintain it.
Trump may use threats of exiting the USMCA to negotiate higher tariffs and increased U.S. manufacturing investment. However, this could impact remittances and long-term growth in Mexico.

Personal Relationships and IMF Support:
El Salvador’s President Nayib Bukele and Argentina’s President Javier Milei, both right-wing populists, were featured alongside Trump at a conservative conference.
Both countries seek financial support from the International Monetary Fund (IMF).
In 2018, Trump supported Argentina’s push for IMF funds, resulting in a massive $44 billion program. Milei, a Trump supporter, may request fresh cash once the current program ends.
El Salvador’s Bukele aims to engage with the IMF post-U.S. election. An April bond offer reflects confidence in Trump’s potential White House win and his influence at the IMF.

Venezuela’s Prospects and Debt Restructuring:
Venezuela’s July 28 presidential election outcome will impact its reintegration into the international community.
Under Trump, sanctions against Venezuela escalated. Biden seeks fair elections.
The next U.S. president will determine whether Venezuela’s massive debt restructuring—owing at least $60 billion in sovereign bonds—can proceed. Current U.S. sanctions prohibit new bond issuance.
Investors eye deeply distressed Venezuelan bonds, hoping for a detente between Washington and Caracas.

Cuba, Nicaragua, and Authoritarian Governments:
Relationships with Cuba and Nicaragua, both led by authoritarian regimes, may further strain under a second Trump administration.

China Trade War Escalation:
Biden maintained trade hurdles imposed during Trump’s tenure and intensified pressure on Beijing.
If the U.S.-China trade war intensifies, China might devalue its currency to boost exports.
Latin American commodity exporters (Brazil, Argentina, Mexico, and Chile) could feel the impact.

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7. Bank of England Rate Cut Question Accelerates Pay Discussions:

In the latest monthly labour market survey, permanent pay has experienced the fastest rise in eight months, as reported by the KPMG/REC Report on Jobs. This development has implications for the Bank of England’s Monetary Policy Committee (MPC) and their decision on interest rates. 

Permanent Pay Growth: The recent survey highlights a notable increase in permanent pay, which could influence the MPC’s stance on interest rates. Permanent wages are a crucial factor in domestic inflation dynamics.

Cautionary Approach: The Bank must proceed cautiously, considering the uncertainty surrounding the labour market’s strength and persistently high services inflation. Analysts, such as Kristina Clifton from Commonwealth Bank, advocate for delaying rate cuts until September.

MPC Member’s View: Jonathan Haskel, an MPC member, expressed reservations about an interest rate cut this summer. He emphasized the tightness of the jobs market, which could lead to wage growth and potential inflationary pressures.

Labour Market Trends: Despite the wage uptick, signs suggest that the labour market is still easing. Permanent staff appointments declined in June, with reports of reduced demand for staff. The recent general election also introduced uncertainty and impacted recruitment activity.

Interest Rate Debate: Advocates for maintaining steady interest rates may argue that waiting for post-election economic activity to pick up would be prudent. However, the market is likely to ease, given the continued availability of candidates for job roles.

Supply of Staff: Both permanent and temporary staff availability increased, albeit to a lesser extent than in May. Recruitment consultants attribute this rise to redundancies, slow decision-making, and fewer job openings.

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8. Global Oil Market Faces Supply Deficit Next Year:

Global Oil Supply and Demand Dynamics:
The U.S. Energy Information Administration (EIA) predicts that global oil demand will surpass supply next year, reversing a prior forecast for a surplus.
OPEC+ (OPEC and its allies) extended oil output cuts into next year to stabilize markets amid weakening demand growth, high interest rates, and record U.S. production.
If the market faces a deficit, refiners will need to draw from inventories to meet demand.

Projected Figures:
Next year, global oil demand is expected to average around 104.7 million barrels per day (bpd), while supply will be approximately 104.6 million bpd.
The EIA previously estimated global demand at 104.5 million bpd and supply at 104.7 million bpd.
Lower OPEC+ output will deepen the supply deficit throughout this year, with world oil demand exceeding output by about 750,000 barrels per day in the second half of 2024.

Impact on Oil Prices:
Depleting global inventories will drive oil prices higher.
The benchmark Brent crude prices are projected to average $89 per barrel in the second half of this year, up from $84 per barrel in the first half.

Potential Surplus and Future Outlook:
If OPEC+ unwinds production cuts, the market could return to a surplus from the third quarter of next year.
The EIA anticipates gradual inventory builds in 2025 after voluntary OPEC+ supply cuts expire in Q4 2024.
U.S. oil output is set to reach a record 13.25 million bpd this year, slightly higher than the previous forecast of 13.24 million bpd.

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9. Dovish RBNZ Impacts Kiwi; Fed’s Pivot May Trigger Reversal:

The Reserve Bank of New Zealand (RBNZ) is poised to make interest rate cuts, provided domestic inflationary pressures allow.

Inflation and Policy Tone:
The RBNZ’s recent policy statement signaled a dovish shift. It emphasized “Inflation Approaching Target Range” rather than maintaining a “Restrictive Official Cash Rate (OCR)” stance.
The RBNZ acknowledged that restrictive monetary policy had significantly curbed consumer price inflation. This departure from previous language indicates a step toward rate cuts.
The committee highlighted government spending constraints and signs of easing inflation persistence due to reduced capacity pressures and business pricing intentions.

Rate Cut Prospects:
The RBNZ aims for price stability, which means it will ease restrictions when evidence aligns with its mandate.
Next month’s June quarter consumer price inflation report could trigger rate cuts. Interest rate markets now consider an August 14 cut more likely than not.
Two-year interest rate swaps, influenced by RBNZ rate expectations, have dropped significantly, signaling anticipation of rate reductions.

Market Impact:
The NZD/USD currency pair reacted sharply to the dovish RBNZ shift, falling up to 0.8%.
The 200-day moving average at .60728 acted as a support level, but further downside could see .6050 as the next layer of support.
Resistance levels are at .6105, .6150, and .6218.

US Inflation Report and Fed’s Role:
The upcoming US consumer price inflation report for June will be crucial.
If the report shows soft underlying inflation (0.2% or less), the Fed may also shift toward a less restrictive stance.
A dovish Fed could impact NZD/USD trading dynamics.

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🔥Important News releases on This WEEK :

09/07 Tue 8:00pm USD Fed Chair Powell Testifies & Treasury Sec Yellen Speaks

10/07 Wed 8:00am NZD Official Cash Rate & RBNZ Rate Statement

10/07 Wed 8:00pm USD Fed Chair Powell Testifies

10/07 Wed 8:30pm USD Crude Oil Inventories

10/07 Wed 11:01pm USD 10-y Bond Auction

11/07 Thu 12:00pm GBP GDP m/m

11/07 Thu 6:30pm USD CPI m/m,y/y & Unemployment Claims

11/07 Thu 11:01pm USD 30-y Bond Auction

12/07 Fri 12:00am USD Federal Budget Balance

12/07 Fri 6:30pm CAD Building Permits m/m

12/07 Fri 6:30pm USD PPI m/m & Core PPI m/m

12/07 Fri 8:00pm USD Prelim 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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