Forex Fundamental News Facts for 21st June, 2024
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[Quick Facts]
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1. U.K. June GfK consumer sentiment rises to highest since Nov. 2021.
2. U.S. initial jobless claims fall from a 10-month high.
3. Fed’s Barkin says more data are needed before rate cuts.
4. BOE keeps rates unchanged but hints at approaching rate cut timing.
5. Fed’s Kashkari says it may take a year or two to bring inflation to 2%.
6. U.S. new home construction falls to the slowest pace in four years.
7. There’s Likely No Such Thing as ‘Frexit’.
8. Gold Prices Rally Amid Economic Slowdown and Inflation Decline.
9. Oil Prices Set For Second Week of Gains On Signs Demand Improving.
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[News Details]
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In June 2024, the U.K. GfK consumer confidence index rose to -14, the highest level since November 2021.
Households’ assessment of the overall economic situation improved, overshadowing concerns about their financial situation.
Despite the increase, the overall confidence index remained negative due to ongoing cost-of-living challenges.
Assessment of the general economic situation over the past 12 months rose by 7 points, while the financial outlook fell slightly.
Inflation returned to the 2% target, but many households still face difficulties.
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2. U.S. initial jobless claims fall from a 10-month high:
Initial jobless claims fell to 238,000 in the week ending June 15, retreating from a 10-month high.
The four-week average rose to 227,000, the highest level since last September.
Continuing jobless claims increased for the seventh straight week to 1.82 million by June 8
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Richmond Fed President Tom Barkin said on Thursday that the Fed needs to further clarify the path of inflation before it can cut interest rates.
When asked if the Fed could cut rates once and maintain them at that level, Barkin said it depends on economic data. If current conditions persist, now may not be the best time to provide guidance on the timeline for subsequent policy adjustments.
Thomas Barkin’s View:
Richmond Fed President Thomas Barkin emphasized caution. He believes the Fed should gain more confidence before making any moves.
Before adjusting interest rates, the Fed needs to observe expanding progress in inflation, aiming for a return to the Fed’s 2% target.
Austan Goolsbee’s Perspective:
Chicago Fed President Austan Goolsbee, representing dovish Fed members, highlighted the importance of encouraging inflation data.
If inflation continues moving toward 2%, Goolsbee suggests that rate cuts could be considered.
Neel Kashkari’s Assessment:
Minneapolis Fed President Neel Kashkari acknowledged that returning inflation to the 2% target might take time—possibly a year or two.
The path of interest rates will depend on the overall economy, which currently shows healthy and strong fundamentals.
However, there are signs of softening around the margins.
Recent Fed Decisions and Market Expectations:
Last week, Fed officials left interest rates unchanged at the meeting.
They reduced the predicted number of rate cuts for this year from three (in March) to just one.
Policymakers want more evidence that inflation is moving toward the 2% target before confidently implementing rate cuts.
Interestingly, despite Fed officials’ speeches, market expectations differ: the CME Fed Watch tool predicts two rate cuts in September and December.
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The BOE voted 7-2 to leave interest rates unchanged at 5.25%, in line with market expectations.
Monetary policy needs to remain restrictive for longer, and the decision was finely balanced.
Inflation expectations have moderated, but some members express concerns about inflation persistence.
Labor markets remain tight, and there’s uncertainty around labor market activity.
Swiss National Bank (SNB) Rate Cut:
The SNB recently cut its rate by 25 basis points.
Despite rising inflation, Swiss policymakers believe it remains manageable.
The rate cut aims to support the Swiss economy, especially exporters and mortgage holders.
Immediate market reactions included a stronger euro-franc exchange rate and a positive trend in USDCHF.
The franc may face further pressure due to the SNB’s dovish stance, potentially leading to another rate cut.
UK Bank of England (BoE) Statement:
The BoE’s statement was “finely balanced,” hinting at a potential rate cut in August.
The market had previously priced in a rate cut for November, but yesterday’s decision pushed the British pound (Cable) down to 1.2654.
A hurdle to an August cut is the BoE’s new member, Claire Lombardelli, who may prevent the dovish camp from securing the necessary votes.
European and US Markets:
The BoE’s dovish statement boosted appetite in the FTSE 100.
Rising oil prices also contributed to positive sentiment.
European stocks, including the Stoxx 600 and French CAC 40, performed well.
Investors are cautiously watching the upcoming snap election in France.
In the US, despite soft data, stocks didn’t follow European gains.
The Nasdaq 100 is approaching the psychologically significant 20,000 level, raising concerns about tech valuations.
Triple Witching Day and Market Positioning:
Today is triple witching day, with significant expirations in index futures, options, stock options, and ETFs.
Given high and overstretched market levels, unexpected turns and twists in positioning may occur.
Foreign Exchange (FX) Trends:
The US dollar index rose despite soft economic data.
Major currencies like the franc and pound weakened, supporting the dollar.
The EUR/USD rebounded from 1.07.
The USD/JPY is rising due to the Bank of Japan’s decision not to soften bond purchases.
The pair is close to 160, a level where the BoJ previously intervened.
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Fed President Kashkari expects to bring inflation back to the 2% target, but it may take a year or two.
Interest rate decisions depend on economic data, and the U.S. economy remains healthy.
New home construction in the U.S. fell to the slowest pace in four years due to rising interest rates
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Data released on Thursday showed that U.S. new home starts fell 5.5% in May to an annualized total of 1.277 million, below market expectations. The monthly rate of building permits, which signal future construction, also dropped by 3.8%. Multifamily and single-family home starts and permits generally declined. Overall, new housing starts slipped to their slowest pace in four years in May as rising interest rates caused the housing sector to lose momentum earlier this year.
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The French government debt faces scrutiny, but betting against it hinges on an improbable euro collapse. France’s central role in the euro zone makes any “Frexit” scenario unlikely. Despite political upheaval, membership in the euro remains stable. Concerns about France’s deficit and debt persist, but the European Central Bank (ECB) aims to maintain stability. The ECB’s Transmission Protection Instrument (TPI) curbs speculation against individual euro countries’ debt. French-German debt spreads have widened, but the situation is not critical. French 10-year bond yields remain below previous peaks. While French banking stocks dropped, stress tests show resilience. A euro crisis redux seems unlikely for now.
In summary:
France’s euro membership remains strong.
ECB initiatives curb speculation against French debt.
French banking stocks dropped, but stress tests show resilience.
A euro crisis is unlikely at present
EU’s First-Ever Sanctions on Russian LNG:
The EU member states have agreed to impose sanctions specifically targeting Russian liquefied natural gas (LNG).
These sanctions will prohibit the re-export of Russian LNG from European ports.
Novatek, a major Russian LNG producer, currently uses French and Belgian ports for transloading and re-exporting LNG to markets like China.
The use of EU infrastructure allows Novatek to optimize its icebreaking LNG carriers’ voyages, enhancing efficiency.
Limited Impact on Russian LNG Shipping:
Despite the ban on re-exports, EU-based transloading and re-export activity constitutes only a small fraction of Russian LNG shipping.
European utilities can still purchase and import Novatek’s Russian LNG for local consumption.
This trend began when Russian pipeline gas supply was disrupted in 2022.
The likely outcome is that the previously re-exported Russian LNG will now remain within Europe.
Novatek and its trading partners may use locational swap agreements with non-Russian LNG producers to fulfill contractual obligations.
Additional Measures and Impact:
The sanctions package also includes a ban on European financing for three Russian LNG export terminal projects.
More Russian tankers from the “dark fleet” are added to the list of EU-sanctioned vessels.
EU leaders emphasize that the overall package will have a substantial impact.
European Commission President Ursula von der Leyen highlights the denial of Russia’s access to key technologies and the targeting of Putin’s shadow fleet and banking network abroad.
Loopholes and Omitted Measures:
Notably, the package omits a long-discussed element that would have required EU-owned subsidiaries to stop re-exports of goods to Russia.
Moscow’s weapons developers have previously evaded sanctions by routing shipments through third countries.
The proposed limit on European-owned subsidiaries was dropped due to objections from the German government, concerned about potential harm to small German businesses.
Business Growth Slowdown:
Euro zone business growth slowed sharply this month.
Demand fell for the first time since February.
The services industry showed signs of weakening, while manufacturing worsened.
European Central Bank’s Actions:
Despite the ECB’s anticipated interest rate cut, business conditions deteriorated.
Expectations were for two more rate reductions this year.
Purchasing Managers’ Index (PMI):
HCOB’s composite PMI dropped to 50.8 (from May’s 52.2), defying expectations for a rise to 52.5.
June marked the fourth month above 50, indicating continued growth.
Services Sector and Manufacturing:
The services sector is sustaining the euro zone, even as manufacturing struggles.
New business index declined to 49.2 (a four-month low).
Services PMI fell to 52.6 (from 53.2), contrary to predictions of an uptick to 53.5.
Inflationary pressures eased, supporting further ECB rate cuts.
Services output prices index hit a three-year low at 53.7.
Manufacturing Challenges:
Manufacturing activity, declining for nearly two years, reversed recent signs of recovery.
Factory PMI dropped to 45.6 (from 47.3), below expectations.
Output index plummeted to 46.0 (from 49.3).
Factories reduced headcount for the thirteenth consecutive month
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The recent trajectory of gold has been upward, recovering most of the $84 loss it experienced after a strong jobs report on June 7. This rise is primarily driven by economic signals pointing to a contracting economy and reduced inflation.
Two key reports reinforce gold’s position:
US Jobless Claims: Last week, jobless claims declined to 238,000, down from the previous week’s 243,000.
Housing Starts: In May, housing starts fell to 1.28 million (seasonally adjusted), below April’s 1.36 million and missing estimates.
These reports, along with data indicating moderating labor conditions, easing price pressures, and softer retail sales, suggest tepid second-quarter GDP growth. This aligns with the Federal Reserve’s goal of observing consistent evidence of declining inflation.
Chicago Federal Reserve Bank President Austan Goolsbee has described the latest consumer price inflation reading as “excellent,” expressing optimism for further cooling. While the Fed acknowledges that no single data point is definitive, the cumulative evidence supports the case for potential rate cuts.
Market sentiment is shifting, with increasing bets on a rate cut as early as September. The CME’s FedWatch tool indicates probabilities:
35.9% for unchanged rates
57.9% for a 25-basis-point cut
6.2% chance of the Fed funds rate falling between 4.75% and 5% after the September FOMC meeting.
As the Fed’s monetary tightening impacts economic activity, each new data point strengthens the case for a policy pivot. Inflation, after persistently high readings, now shows signs of abating, potentially paving the way for the Federal Reserve to cut rates sooner than expected.
In this economic landscape of slowing growth and declining inflation, gold has thrived, recently reaching two new record price highs
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Oil Price Trends:
Crude oil futures are set to rise for a second week.
Signs of improving demand and falling inventories in the U.S. contribute to this trend.
Current Prices:
Brent futures for August settlement dipped slightly to $85.56 per barrel.
U.S. West Texas Intermediate crude futures for August delivery were at $81.15 per barrel.
Recent Developments:
Prices have risen about 5% since the beginning of the month, reaching the highest level in over seven weeks.
Factors include seasonal demand increase, geopolitical tensions (Israel and Hezbollah), and the hurricane season.
U.S. Demand and Stockpiles:
U.S. government data shows total product supplied rose by 1.9 million barrels per day to 21.1 million bpd.
U.S. crude stockpiles declined by 2.5 million barrels to 457.1 million barrels.
Gasoline inventories fell by 2.3 million barrels to 231.2 million barrels.
Global Demand and Asia:
Stronger demand in Asia contributes to price sentiment.
Oil refineries in the region are restarting capacity after maintenance.
Japan’s Economic Indicators:
Japan’s core consumer prices gained 2.5% year-on-year, signaling economic growth.
The country’s central bank is on track to raise interest rates.
Potential Impact of U.S. Data:
U.S. unemployment claims decline may lead the Federal Reserve to keep interest rates unchanged.
Higher interest rates can limit economic growth and, consequently, oil demand
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🔥News releases on THIS WEEK :
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
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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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