Forex Fundamental News

Forex Fundamental News Facts for 9th May, 2024

Forex Fundamental News Facts for 9th May, 2024

[Quick Facts]
1. Hamas says it will not compromise further to win Gaza ceasefire.
2. Russia launches the biggest airstrike in weeks.
3. NY Fed’s Perli offers guideposts to measure market liquidity levels.
4. Fed’s Collins says reaching the 2% inflation goal may take longer.
5. ECB’s Holzmann says the ECB cannot ignore the Fed when setting policy.
6. ECB’s Wunsch warns of risks to inflation outlook and expects two cuts.
7. US Gas Surplus Will Be Eliminated Before End of Winter 2024/25.
8. Bank of England Likely to Move Closer to First Rate Cut Since 2020.
9. Crude Oil Gains As Official Data Show Inventory Decline in US.
10. Japan’s Reserves Tally Likely Too Early to Reflect Intervention.
11. Hong Kong Woos Saudi Money in Attempt to Revive Stock Market.
12. China’s Exports and Imports Return to Growth, Signalling Demand Recovery.


[News Details]

Hamas Stands Firm on Gaza Ceasefire Terms:

Hamas has declared that it will not make further concessions to secure a ceasefire in Gaza. Israel, which entered Gaza through the Rafah border crossing with Egypt, has severed a crucial aid route and the only evacuation path for the injured. Despite ongoing tank and air strikes against Rafah, a city in southern Gaza, Israel has not responded to Hamas’s refusal to compromise on the ceasefire proposal accepted on Monday. This proposal included the release of several Israeli hostages in Gaza and Palestinian women and children detained in Israel. The U.S. has urged both sides to strive for an agreement, stating that they are not far from reaching a deal.


Russia Executes Largest Airstrike in Recent Weeks:

Russian forces have carried out a significant airstrike on Ukrainian energy facilities, causing damage in six states across central, western, and southern Ukraine, as well as western gas storage facilities. Ukraine’s air defense intercepted most of the 55 missiles and 21 attack drones launched by Russia. The Russian Defense Ministry stated that the strike was a response to Ukrainian attacks on Russian energy facilities and has significantly reduced Ukraine’s ability to produce military-industrial products and mobilize Western weapons and military equipment to the battlefield.


NY Fed’s Perli Provides Market Liquidity Indicators:

Roberto Perli, manager of the System Open Market Account (SOMA) at the New York Fed, has described the Fed’s decision to slow down the reduction of its balance sheet as a cautious and important step. He has also provided indicators to monitor market liquidity levels, including domestic bank activity in federal funds, the timing of interbank payments, the amount of daylight overdrafts, and the share of repo volume trading at or above the interest on reserve balances rate.


Fed’s Collins Predicts Longer Time to Achieve 2% Inflation Goal:

Boston Fed President Susan Collins has suggested that achieving the Fed’s 2% inflation target may take longer than expected due to the recent unexpected increase in economic activity and inflation. She believes that policy may need to remain at current levels until there is more confidence that inflation is moving sustainably toward 2%.


ECB’s Holzmann Highlights Influence of Fed on ECB Policy:

Robert Holzmann, a member of the European Central Bank (ECB) Governing Council, has stated that the Federal Reserve’s influence over the U.S. dollar cannot be ignored by the ECB when setting policy. He has cautioned against cutting key rates too quickly and emphasized that every step is dependent on the data available at that time.


ECB’s Wunsch Cautions on Inflation Outlook and Anticipates Rate Cuts:

ECB Governing Council member and Belgian central banker Wunsch has warned of significant risks around the trajectory of wage growth and inflation in wage-intensive services. He sees a path for initiating rate cuts this year, with room to cut by 50 basis points, but the exact timing will depend on the data.


US Gas Surplus Will Be Eliminated Before End of Winter 2024/25:

The U.S. gas inventories have reached near-record highs due to the mild winter temperatures of 2023/24, attributed to the El Nino weather phenomenon. This led to a significant reduction in gas and electricity consumption for heating. However, the ultra-low gas prices are promoting maximum gas combustion by power generators and compelling producers to reduce drilling, which is expected to balance out the surplus by the end of winter 2024/25.

The gas inventories were at 2,484 billion cubic feet (bcf) on April 26, the highest since 2016, and 37% above the 10-year seasonal average. The surplus increased from 2% at the start of winter to 37% by the end of winter, primarily due to the warm weather caused by strong El Nino conditions.

The winter of 2023/24 saw the strongest El Nino conditions since 2015/16, leading to North America experiencing its warmest winter on record. Consequently, the population-weighted heating demand was 11% below the 1980-2010 average. This low consumption and excess inventories pushed gas prices to some of the lowest levels for decades.

However, these ultra-low prices are already helping restore balance by arresting the accumulation of excess inventories. The surplus inventories have been flat over the last seven weeks since mid-March, after consistently rising since October. The winter of 2024/25 is likely to be significantly colder than the winter of 2023/24, leading to more heating demand and gas consumption.

The low gas prices are encouraging maximum use of gas-fired electricity generating units at the expense of coal. Gas-fired combined-cycle generators operated at a seasonal record of almost 63% of their maximum capacity during January 2024, up from 57% in January 2023. As a result, electricity generators consumed record volumes of gas despite the mild weather.

Although prices have risen slightly from their trough in the first quarter, they remain close to multi-decade lows, ensuring gas-fired generators will continue to supply an enhanced share of electricity in the summer of 2024. If there are any extended periods of very hot weather, the resulting air-conditioning demand is likely to draw down gas inventories rapidly, helping narrow the surplus.

Gas exports have become increasingly critical in determining domestic inventories and prices and will help reduce some of the excess stocks. By February 2025, the EIA forecasts exports will have risen further to 23 bcf/d and absorb 22% of all domestic dry gas production.

Finally, the ultra-low prices have already forced some major domestic gas producers to announce cuts to their drilling and production programmes. The average number of rigs drilling primarily for gas had fallen to 108 in April, down from 115 in March and 120 in February. This is likely to result in slower growth or even an outright decline in production before the end of 2024. The combination of higher consumption and exports and lower production is likely to eliminate the surplus and push prices higher before the winter of 2024/25 is over.


Bank of England Likely to Move Closer to First Rate Cut Since 2020:

The Bank of England (BoE) is anticipated to move closer to its first interest rate reduction in four years due to declining inflation. However, it is likely to be circumspect about indicating an immediate cut. The BoE is predicted to maintain its benchmark Bank Rate at 5.25% for the sixth consecutive meeting, the highest level since 2008.

Investors are keen to know if the BoE will hint at a rate cut in June, similar to the European Central Bank, or delay like the U.S. Federal Reserve. Paula Bejarano Carbo, an economist at the National Institute of Economic and Social Research, advocates for continued caution due to robust wage growth in the UK’s tight job market and Middle East conflict uncertainties.

Financial markets are fully pricing in the first quarter-point BoE rate cut only in August, with another cut in November or December, bringing the Bank Rate to 4.75%, followed by more cuts in 2025. However, investors are increasingly betting on an earlier move, with rate futures markets indicating a nearly even chance of a cut in June.

Matthew Swannell, a UK economist at BNP Paribas, suggests that the BoE may want to cut rates sooner as headline inflation is likely to fall below its 2% target soon. However, he does not expect the BoE to provide explicit guidance on the timing of the first cut. He forecasts that the Bank Rate will be reduced three times to 4.5% by the end of 2024, starting in June.

An early rate cut would be beneficial for Prime Minister Rishi Sunak, who is struggling to maintain his lead in the polls despite telling voters that the economy is improving. If the BoE signals a faster rate cut, it could be reflected in the vote tally on Thursday. Most economists polled by Reuters expect the BoE’s Monetary Policy Committee to vote 8-1 to keep the Bank Rate on hold, but some speculate that Deputy Governor Dave Ramsden might join Swati Dhingra in voting for a cut.

Despite slower economic growth in Britain, wage growth and services price inflation remain higher than in the United States or the euro zone. If the BoE significantly lowers its two- and three-year inflation forecasts, investors may interpret it as a signal that they are pricing in too few interest rate cuts. The BoE’s inflation forecasts are based on market pricing leading up to its MPC meetings. The rate decision, along with the minutes of May’s meeting and the latest forecasts, will be announced at a press conference held by Bailey and other officials at 1130 GMT.


Crude Oil Gains As Official Data Show Inventory Decline in US:

On Thursday morning, crude oil futures experienced a surge as the U.S. reported a decrease in crude oil inventories for the week ending May 3. As of 9.51 am, Brent oil futures for July were priced at $83.92, marking a 0.41% increase, while June crude oil futures on WTI stood at $79.42, up by 0.54%.

In the initial trading hours on Thursday, May crude oil futures on the Multi Commodity Exchange (MCX) were trading at ₹6,631, a 0.67% increase from the previous close of ₹6,587. June futures were trading at ₹6617, up by 0.62% from the previous close of ₹6576.

The U.S. Energy Information Administration’s (EIA) petroleum status report for the week ending May 3 indicated a tightening of supplies in the U.S. market. U.S. commercial crude oil inventories decreased by 1.4 million barrels from the previous week. At 459.5 million barrels, U.S. crude oil inventories were about 3% below the five-year average for this time of year.

Total motor gasoline inventories in the U.S. increased by 0.9 million barrels for the week ending May 3, and were about 2% below the five-year average for this time of year. Over the past four weeks, total products supplied in the U.S. averaged 19.9 million barrels a day, slightly below the same period last year. Motor gasoline product supplied averaged 8.6 million barrels a day, down by 4% from the same period last year.

The market is now awaiting the release of the official trade balance data from China later in the day. This data is significant as it would provide more information on China’s export and import figures. China’s oil import figures would give an indication about the demand prospects for the commodity in one of the major crude oil markets in the world.

In commodity trading, May zinc futures were trading at ₹257.45 on MCX, down by 0.29% from the previous close of ₹258.20. On the National Commodities and Derivatives Exchange (NCDEX), May jeera contracts were trading at ₹26,600, up by 0.38% from the previous close of ₹26500. June turmeric (farmer polished) futures were trading at ₹18,718 on NCDEX in the initial hour of trading on Thursday morning, down by 0.85% from the previous close of ₹18,878.


Japan’s Reserves Tally Likely Too Early to Reflect Intervention:

In April, the country’s forex reserves fell to $1.14 trillion, primarily due to a decrease in foreign securities holdings from $995 billion to $978 billion, as reported by the finance ministry. This drop was anticipated due to a decline in the market value of overseas assets, including Treasuries, as yields increased.

Evidence suggests that Japan intervened twice recently in the currency market to support the yen. The first intervention likely occurred at the end of April when the yen reached 160 against the dollar, a level not seen since 1990. However, this intervention may not be reflected in the April foreign reserves data as the settlement day would be May 1, according to Tsuyoshi Ueno, a senior economist at NLI Research Institute.

A Ministry of Finance official refrained from commenting on individual transactions made in April. Meanwhile, a Bloomberg analysis of the central bank’s current account indicates that Japan probably intervened twice last week, purchasing approximately ¥6.2 trillion ($40 billion) of yen in the first instance and ¥3.2 trillion in the second.

Japanese officials have maintained their policy of not disclosing their market actions, leading investors to speculate about market movements. Finance Minister Shunichi Suzuki did not confirm whether the interventions occurred when questioned in parliament. Similarly, Japan’s currency chief, Masato Kanda, denied that government officials discussed market intervention.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities Co., suggests that the Bank of Japan’s current account data is more useful for estimating intervention size than analyzing forex reserves. He notes that forex reserves have been receiving less attention lately due to their susceptibility to various factors, including non-dollar currency rate fluctuations and changes in securities holdings’ market value.


Hong Kong Woos Saudi Money in Attempt to Revive Stock Market:

The Saudi Tadawul Group and Hong Kong Exchanges & Clearing Ltd. are joining forces to host a conference aimed at attracting fresh stock listings and fund inflows to bolster Hong Kong’s status as a financial hub. This event will also provide Saudi companies with an opportunity to increase their visibility among Asian investors.

Edmond Christou, an analyst at Bloomberg Intelligence in Dubai, noted a strong political drive to foster relationships between China and Gulf countries. He observed a keen interest among Chinese businesses to invest in the Middle East.

The conference highlights Hong Kong’s latest strategy to attract new investors, particularly as geopolitical tensions may deter U.S. and European investors from doing business in China. The city’s securities regulator is also encouraging more firms to hold initial public offerings (IPOs) in the city.

However, Hong Kong Exchanges & Clearing has faced challenges in recent years due to the slowing Chinese economy and escalating tensions between Beijing and Washington. These factors have dampened investor interest in China-linked shares. The funds raised by IPOs in the city fell to $610 million in the first quarter, the lowest since 2009, and the bourse operator’s shares have dropped over 50% from their 2021 highs.

Despite these challenges, CEO Bonnie Chan is optimistic about the return of major IPOs to the city, with 100 applications currently in the pipeline.

On the Saudi side, Crown Prince Mohammed bin Salman is working to increase foreign ownership and liquidity in publicly-traded stocks under the kingdom’s Vision 2030 agenda. The Saudi stock market has been performing well, with the market capitalization of the bourse climbing 11% over the past three years. The main equities gauge in Riyadh has risen in seven of the last eight years, boosted by an influx of foreign investors since 2019.

The Saudi stock exchange is also experiencing a surge in IPO activity, with more than 10 applications for listings approved recently. Since November, investors in Hong Kong have been able to gain exposure to the Saudi market through the CSOP Saudi Arabia ETF, the first exchange-traded fund of its kind in Asia.

CSOP Asset Management Ltd. is seeking regulatory approval for a cross-listing of the ETF in Shanghai, expected to occur in the second half of this year. Meanwhile, Hong Kong is collaborating with Saudi Arabia to launch an ETF in Riyadh that tracks Hong Kong’s stock indexes.

Hong Kong Chief Executive John Lee has expressed his desire for Saudi Aramco, the world’s top oil producer, to seek a dual-listing in the Asian financial center. While there are no immediate plans for this, it would be a significant endorsement of the city’s exchange if it were to happen.


China’s Exports and Imports Return to Growth, Signalling Demand Recovery:

In April, China’s exports and imports rebounded, indicating a promising increase in domestic and international demand as Beijing strives to bolster its unstable economy. This recovery suggests that recent policy measures may be stabilising investor and consumer confidence, although the sustainability of this trade resurgence remains uncertain.

Customs data revealed a 1.5% year-on-year growth in China’s shipments last month, aligning with economists’ predictions. This follows a 7.5% contraction in March, the first since November. April’s imports also rose by 8.4%, surpassing the anticipated 4.8% increase and reversing March’s 1.9% decline.

Despite the return to growth, export values were primarily influenced by a lower comparison base. Adjusting for changes in export prices and seasonality, export volumes remained largely unchanged from March. The first quarter saw a 1.5% year-on-year rise in both imports and exports, driven by favourable trade data in the January-February period. However, weaker figures in March raised concerns about a potential loss of momentum.

Exports have been a highlight of China’s economy this year, with weak domestic demand leading to deflationary pressure, thereby enhancing China’s export competitiveness. However, challenges persist, including consumer inflation, producer prices, and bank lending, revealing vulnerabilities in the world’s second-largest economy. Additionally, an ongoing property crisis continues to undermine overall confidence, prompting calls for more policy stimulus.

In response to slowing growth and rising government debt, Fitch Ratings downgraded its outlook on China’s sovereign credit rating to negative. The Communist Party’s Politburo pledged to bolster the economy through prudent monetary policy and proactive fiscal policies, including adjustments to interest rates and bank reserve requirement ratios. Beijing has set a 2024 economic growth target of around 5%, a goal analysts believe will be challenging to meet without significant stimulus.

China’s stocks rose following the release of the trade data, with the CSI 300 index and Hong Kong’s Hang Seng Index increasing by 0.9% and 1.1% respectively. However, the surge in imports may not entirely reflect domestic demand, as businesses have been stockpiling goods. The Chinese yuan has depreciated the least among major Asian currencies this year, supporting strong import figures.

Last month, shipments of coal into China increased by 11% year-on-year, as power generators stocked up ahead of the peak season for air conditioning consumption. Iron ore imports also rose by 1.1%, as lower prices in March encouraged some buyers to place orders, anticipating a rise in demand and prices later in the year. Soybean imports in April surged by 18% from a year earlier, as buyers took advantage of cheap and abundant beans from Brazil.

Despite these positive developments, China’s exporters continue to face challenges. High interest rates have dampened overseas demand, and with no immediate plans for interest rate cuts by the Federal Reserve and other developed nations, manufacturers may face further pressures. Overcapacity has led to reduced export prices and boosted exports. However, with squeezed profit margins and export prices bottoming out, the quality and sustainability of China’s export upturn are being questioned. The ongoing appreciation of the renminbi could pose additional challenges.


🔥News releases on THIS WEEK :

09/05 Thu All Day CHF, EUR(French,German) Bank Holiday

09/05 Thu 5:00pm GBP BOE Monetary Policy Report 

09/05 Thu 5:30pm GBP BOE Gov Bailey Speaks

09/05 Thu 6:30pm USD Unemployment Claims

09/05 Thu 11:01pm USD 30-y Bond Auction

10/05 Fri 9:35am JPY 30-y Bond Auction

10/05 Fri 12:00pm GBP GDP m/m & Goods trade balance

10/05 Fri 6:30pm CAD Employment Change

10/05 Fri 8:00pm USD Prelim UoM Consumer Sentiment

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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