Oil Traders Update

Forex Fundamental News Facts for 19th June, 2024

Forex Fundamental News Facts for 19th June, 2024

[Quick Facts]

1. Stocks, U.S. Yields Gain as Data, Fed Comments Eyed.
2. Rich Countries Plan To Buy More Gold Despite Record Price.
3. Euro Political Risk Premium Abates, For Now.
4. Oil Prices Stable as Demand Uncertainty Persists.
5. Why Indians Aren’t Happy With 8% Economic Growth.

[News Details]

  1. Stocks, U.S. Yields Gain as Data, Fed Comments Eyed:

Global Stock Performance and U.S. Market Rally: Global stocks saw an uptick after a period of decline, with U.S. equities leading the charge. The Nasdaq Composite and S&P 500 hit new highs, thanks to tech and consumer discretionary sectors. Despite a contraction in New York’s manufacturing activity, investors are optimistic, looking forward to retail sales data for further economic health indicators.

Market Analyst Insights: Analysts like Daniela Hathorn from Capital.com suggest that the market’s momentum is expected to continue, although concerns about the rally being driven by a few stocks hint at potential deeper pullbacks.

Key Index Movements: The Dow Jones, S&P 500, and Nasdaq Composite all experienced gains. Goldman Sachs and Evercore ISI have raised their S&P 500 year-end targets, reflecting confidence in the market’s trajectory.

Inflation and Federal Reserve Actions: Recent inflation data suggests easing price pressures, leading to expectations of fewer rate cuts by the Federal Reserve. European markets also showed modest gains amidst political uncertainties.

Treasury Yields and Fed Officials’ Remarks: U.S. Treasury yields rebounded after a significant drop, with markets anticipating a possible rate cut in September. Fed officials’ upcoming comments are highly anticipated for further direction.

Currency and Commodity Markets: The dollar index saw a slight decline, while the euro and sterling showed strength. Crude oil prices increased, signaling positive demand growth expectations.


  1. Rich Countries Plan To Buy More Gold Despite Record Price:

Gold’s Attraction Grows for Central Banks: Central banks in advanced economies are increasingly looking to gold as a reserve asset, with expectations that its global reserve share will rise, potentially at the US dollar’s expense. This shift aligns with trends in emerging markets, which have been actively purchasing gold since 2008. The sentiment towards the dollar is changing, with many central banks foreseeing a decrease in its reserve share over the next five years.

Diversification Amidst Geopolitical Tensions: The move towards gold reflects a broader strategy to diversify reserves away from the dollar, especially after sanctions against Russia showcased the US currency’s power as a financial weapon. This year has seen a significant alignment between advanced and emerging markets’ views on gold’s increasing role in global reserves.

Record Gold Buying Spree: Central banks have added substantial amounts of gold to their reserves in recent years, with over 1,000 tonnes each in 2022 and 2023. This buying spree has been partly driven by non-western institutions reacting to US sanctions on Russia and has contributed to gold’s price surge.

The Dollar’s Declining Dominance: The dollar’s proportion of global foreign exchange reserves has been steadily decreasing since 2000. When accounting for gold, its share has dropped below half. While the Chinese renminbi has seen some growth as a reserve currency, uncertainties around China’s economy have tempered expectations for its rise.

Key Takeaways for Investors:

– Central banks value gold for its enduring worth, crisis performance, and diversification benefits.
– The trend towards gold may continue to influence its price positively.
– The dollar’s dominance is waning, which could impact global financial strategies.


  1. Euro Political Risk Premium Abates, For Now:

USD: Policy versus Politics:

The U.S. dollar began the week with moderate weakness due to concerns about EU political developments. However, relief for investors is unlikely before the 30 June first round parliamentary vote in France.
A key theme this summer is the dichotomy between macroeconomic factors in the U.S. and political turmoil in the EU. We’ll focus on local stories rather than clear-cut trends.
The Australian and New Zealand dollars are well-positioned to benefit from disinflation news in the U.S., thanks to hawkish domestic central banks and their distance from EU political issues.
Market attention is on the May U.S. retail sales data and speeches by Federal Reserve officials. Unless retail sales disappoint, the U.S. Dollar Index (DXY) is expected to hold above 105.0 this week.

EUR: French Bonds Stabilizing:

The euro stabilized as French bond markets calmed down. The 10-year OAT-Bund spread widened slightly but didn’t exceed a critical benchmark level.
FX market concerns about French politics may have peaked, but the euro is likely to remain weak against the USD until after the French parliamentary vote.
Data-wise, focus remains on French bond market stability and the EUR/USD exchange rate.

AUD: RBA’s Hawkish Stance:

The Reserve Bank of Australia (RBA) kept rates unchanged at 4.35% but emphasized its determination to achieve inflation targets.
The RBA discussed rate hikes, and the Aussie dollar (AUD) is performing well in the G10. AUD and NZD benefit from hawkish central banks and distance from EU political turmoil.
We anticipate a potential move to 0.68 in AUD/USD this summer, but U.S. election risks may impact China-exposed currencies later.

HUF: Hungary’s Rate Cut Decision:

The National Bank of Hungary is slowing down rate cuts, likely reducing rates by 25bp to 7.00%.
Surprises in Hungarian inflation are driven by non-core elements, while wage growth limits services inflation decline.
The central bank’s hawkish message is crucial to prevent further HUF weakness. We don’t expect more rate cuts, but downside inflation risks may open the door for easing.
The global relief for emerging markets supports HUF, and we may test 400 EUR/HUF if a larger cut occurs. Our base case scenario sees HUF strengthening to levels around 392-393

Context and Political Landscape:
Far-right and leftist parties are gaining momentum ahead of France’s surprise parliamentary election.
Marine Le Pen’s National Rally (RN) party leads in opinion polls, although an absolute majority is unlikely.
The RN’s economic goals include lowering the retirement age, tax cuts, and increased spending.

Market Reaction and Risk:
Investors are concerned about fiscal sustainability in France due to its high deficit and credit rating cut.
The risk premium demanded for French government bonds over German benchmark bonds rose significantly.
The focus is on the potential for a near-term crisis similar to the UK’s mini-budget impact.

Financial Implications:
Finance Minister Bruno Le Maire warns of a financial crisis if either the far right or the left wins the election.
The cost of insuring France’s debt against default has surged.
Major French banks (BNP Paribas, Credit Agricole, Societe Generale) struggled after losing value.

European Central Bank (ECB) Response:
ECB Chief Economist Philip Lane downplays the need for ECB intervention, citing orderly market moves.
The ECB’s backstop tool requires compliance with EU fiscal rules to limit budget deficits.

Potential Scenarios:
The RN’s program could increase France’s budget deficit significantly.
Concerns extend to Italy, where the risk premium over Germany rose.
The euro weakened against the dollar, and euro zone bank stocks declined.

Market Influence and Prudent Fiscal Stance:
Analysts compare the situation to stress tests in the UK and US.
The RN’s actions in office will be closely monitored.
The market will play a role in keeping the National Rally in check.


  1. Oil Prices Stable as Demand Uncertainty Persists:

Stability in Oil Prices Amid Supply and Demand Dynamics: Oil prices remained stable as the market anticipates a summer demand surge. Brent crude hovered around $84 per barrel, with U.S. West Texas Intermediate close behind at $80.36 per barrel, both maintaining gains from Monday.

Market Fundamentals and Inventory Levels: Analysts like Francisco Blanch from BoFA note that despite recent softness in fundamentals, global crude inventories and refined product storage are higher than usual. U.S. crude inventories are expected to have decreased, which could signal the beginning of increased demand with the summer driving season.

OPEC+ Supply Cuts and Demand Outlook: OPEC+ has maintained its supply cuts, which some analysts believe could limit supply growth in the coming years. Rystad Energy’s Patricio Valdivieso highlights a potential stagnation in oil supply growth for 2024 and risks to production in 2025.

China’s Refinery Output and Global Demand Concerns: China’s refinery output has declined due to maintenance and rising crude costs. The global oil demand growth appears to have slowed, adding to the market’s cautious outlook.

Interest Rates and U.S. Demand: Investors are also watching for interest rate clues and U.S. demand developments, with several Federal Reserve representatives set to speak.

Oil Demand Outlook: Goldman Sachs Research anticipates global oil demand will continue to grow until 2034, driven by rising incomes and increased energy consumption, particularly in Asia’s emerging markets. The growth is also fueled by the petrochemical industry, which uses oil products for a wide range of consumer goods.

Gasoline vs. Petrochemicals: While gasoline demand for automobiles is expected to peak around 2028, the robust demand for petrochemicals could offset this decline through 2040. Specialized oil products like jet fuel are also projected to see increased demand.

EV Adoption and Impact: Slower-than-expected electric vehicle (EV) adoption, due to reduced subsidies, technical challenges, and policy uncertainties, is contributing to the prolonged demand for oil. However, EVs are expected to significantly reduce gasoline demand by 2028 as the passenger car fleet grows.

Heavy-Duty Vehicles and Alternatives: Diesel demand, mainly used in medium- and heavy-duty trucks, may peak around 2034 due to challenges in electrifying these vehicles. However, hydrogen is emerging as a potential competitor for large fleet vehicles in the late 2030s.

Air Travel and Jet Fuel Demand: Increased global incomes are likely to boost air travel demand, with China being a significant contributor. This trend will likely sustain jet fuel demand growth towards 2040 despite advancements in fuel efficiency and decarbonization efforts.

Petrochemicals Drive Long-Term Demand: The ongoing rise in global GDP per capita is expected to heighten consumer demand for oil-derived products like plastics, thus increasing the need for petrochemical production.

Implications for Supply: As investment in oil production slows down, there may be medium-term supply shortages, even though peak oil demand is still a decade away.


  1. Why Indians Aren’t Happy With 8% Economic Growth:

India’s Employment Challenges Under Modi’s Leadership:

Indian Prime Minister Narendra Modi has faced criticism for withholding unfavorable labor data until after his re-election.

The employment situation in India cannot be understood solely by looking at regular jobholders; the majority of the labor force is self-employed or works irregularly.

Approximately 110 million people work in 65 million small nonfarm jobs across the country, often relying on family labor.

Establishments hiring external staff pay employees an average of less than 125,000 rupees ($1,500) annually.

Informal employment has increased during the pandemic, with 27 million people engaged informally without social security.

Compensation for informal labor remains low, hindering their ability to cope with rising prices.

GDP Growth vs. Employment Creation:

Despite India’s impressive GDP growth (8% or more), it has not translated into sufficient job creation.

Surplus labor remains in rural areas, facing the challenges of high living costs and a lack of well-paying formal jobs.

Weak rural demand and distorted inflation patterns contribute to the puzzle.

The central bank should consider targeted fiscal subsidies for job creation rather than relying solely on interest rate adjustments.

The Stock Market vs. Mass Consumption:

While the stock market thrives, driven by infrastructure and private capital investments, mass spending is essential for India’s economy.

The stagnant wages of workers in small businesses matter, especially for the bottom of the economic pyramid.

Voters’ message in the recent election emphasizes the importance of addressing employment challenges for long-term economic stability and political success


🔥News releases on THIS WEEK :

19/06 Wed All Day USD Bank Holiday

19/06 Wed 8:00pm USD NAHB Housing Market Index

20/06 Thu 4:45am NZD GDP q/q

20/06 Thu 1:30pm CHF SNB Monetary Policy

20/06 Thu 5:00pm GBP Monetary Policy Rate & Summary

20/06 Thu 6:30pm USD Unemployment Claims & Building Permits

21/06 Fri 12:00pm GBP Retail Sales m/m

21/06 Fri 2:30pm GBP Flash Manufacturing & Services PMI

21/06 Fri 6:30pm CAD Core Retail Sales m/m

21/06 Fri 7:45pm USD Flash Manufacturing & Services PMI

21/06 Fri 8:00pm USD Existing Home Sales

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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