Forex Fundamental News Facts for 6th May, 2024

Forex Fundamental News Facts for 6th May, 2024

[Quick Facts]

1. Fed’s Goolsbee says the US rate-path ‘dot plot’ needs more context.
   2. Yellen says Fundamentals still point to slowing inflation.
   3. If Israel attacks Rafah, Houthis will attack all Israel-related ships.
   4. U.S. services PMI contracts in April after 15 months of expansion.
   5. Nonfarm payrolls unexpectedly cool down, fueling rate-cut expectations.
   6. The U.S. Economy Is Headed for a Hard Landing, And Fed Rate Cuts Won’t Be Enough to Rescue It, Citi Says.
   7. RBA Seen Keeping Key Rate At 12-Year High As Inflation Stirs.
   8. Gold Rate Today Jumps After Disappointing US Non-farm Payroll Data,Slide In US Dollar Rate,Xi Jinping’s Europe trip.
   9. China’s Services Activity Eases In April But Still Solid,Caixin PMI Shows.
   10. Oil Demand Likely To Surprise To The Upside.
   11. The Commodities Feed: Saudis Raise OSPs.

[News Details]

Chicago Fed President Austan Goolsbee’s Statement on the ‘Dot Plot’

Austan Goolsbee, the President of the Chicago Federal Reserve, expressed his views on the U.S. Federal Reserve’s “dot plot” on Friday. He suggested that the “dot plot” should be enhanced by incorporating the individual economic expectations that shape each dot. Currently, the “dot plot” is merely a collection of opinions without any economic substance. For instance, it’s impossible to discern whether a policymaker predicting fewer rate cuts for the year is worried about the economy overheating or simply believes that the economy can grow faster and thus withstand higher rates. Goolsbee emphasised that the objective of Fed communications should be to explain the reasoning behind policy decisions, a goal that the current “dot plot” does not meet. He proposed a matrix that anonymously links the economic forecasts to the rate path for each participant, which would answer some crucial questions.

U.S. Treasury Secretary Janet Yellen’s Views on Inflation

Janet Yellen, the U.S. Treasury Secretary, stated on a Friday that she continues to see the underlying pressures on prices decreasing, even though a shortage of housing has slowed the reduction in inflation. She believes that inflation expectations are well anchored. She noted that while the labor market is robust, it does not significantly contribute to inflation. She also pointed out that the progress in reducing housing inflation has been slower than anticipated, primarily due to supply constraints. She highlighted that housing is a significant issue in the United States due to a severe shortage of affordable housing and partly because of high interest rates. As housing is one of the most sensitive sectors, new housing construction is not at levels that would significantly moderate housing prices. However, she believes that it’s highly likely that housing costs will decrease based on the data on rental prices for new apartments and single-family homes.

Yemen’s Houthi Group’s Warning to Israel

Yahya Saria, a spokesperson for Yemen’s Houthi group, warned in an interview with the Al-Masirah TV channel that if the Israeli army attacks Rafah in the southern Gaza Strip, the Houthis will retaliate by attacking ships linked to Israel or those en route to Israeli ports. He stated that the Yemeni armed forces are prepared to attack all ships heading to Israeli ports in any area within reach, including the Mediterranean Sea.

U.S. Services PMI for April

The U.S. services PMI for April recorded a figure of 49.4, indicating the first contraction since December 2022 following 15 months of expansion. The decrease in the composite index in April was attributed to a reduction in business activity, slower growth in new orders, quicker supplier deliveries, and ongoing employment contraction. Survey respondents indicated a general slowdown in overall business. Employment challenges continued to be largely attributed to difficulties in filling positions and/or controlling labor costs. Most respondents expressed that inflation and geopolitical issues remain a concern.

U.S. April Nonfarm Payrolls (NFP)

The U.S. nonfarm payrolls (NFP) for April unexpectedly dropped to just 175,000, which was significantly below both the previous figure and expectations, marking the smallest rise in six months. The unemployment rate increased to 3.9%, which was higher than the anticipated 3.8%. The growth rate of average hourly earnings from a month earlier and from a year earlier was 0.2% and 3.9% respectively, the slowest growth rate since June 2021. Job growth slowed in the leisure and hospitality, construction, and government sectors, while employment declined in automakers and temporary service providers. However, the healthcare, transportation, and retail trade sectors saw job growth. The NFP data boosted expectations for a rate cut. More importantly, the slight rise in unemployment suggested a cooling of the labor market. U.S. Treasury yields and the U.S. dollar both fell, and stock index futures rose after the report was released. Swap contracts resumed expectations for two 25bp rate cuts by the Fed in 2024. Traders expected the Fed’s first rate cut to occur in September compared with November previously. The likelihood of a September cut has increased to over 50%. Policymakers will not feel more comfortable with job market-induced inflationary pressures just because of one month of good data. They need to see more evidence of a slowdown or an unexpectedly large drop in employment.

The U.S. Bureau of Labor Statistics released its latest nonfarm payrolls report at 8:30 a.m. (ET) on May 3. The report showed that U.S. nonfarm payroll employment in April increased by 175,000, which was lower than the expected 243,000 and the revised previous figure of 315,000. The U.S. unemployment rate for April was 3.9%, slightly higher than the expected and previous rate of 3.8%. U.S. average hourly earnings rose by 3.9% over the past 12 months, compared to expectations of 4% and the previous 4.1%.

The total nonfarm payroll employment increased by 175,000 in April, lower than the average monthly gain of 242,000 over the prior 12 months. The figures for February and March were revised to +236,000 and +315,000, respectively. Job growth slowed in the leisure and hospitality, construction, and government sectors, while employment declined in motor vehicle and parts dealers and temporary help services sectors. However, job gains occurred in health care, transportation, and retail trade.

The labor force participation rate remained unchanged at 62.7% in April, and the employment-to-population ratio was little changed at 60.2%. The number of people employed part-time for economic reasons, at 4.5 million, changed little in April. In April, average hourly earnings for all employees on private nonfarm payrolls increased by 7 cents, or 0.2%, to $34.75. Over the past 12 months, average hourly earnings have increased by 3.9%, marking the lowest growth rate since June 2021.

The latest nonfarm payroll data suggests that the U.S. labor market is now slowing down somewhat after strong growth earlier in the year. The market’s reaction shows that the current non-farm payrolls boosted expectations for a rate cut. However, the data’s soft across the board from the Fed’s perspective, which is what really matters here and an unemployment rate of 3.9% is not something disastrous. This indicates an economy that is not declining dramatically, but it definitely indicates a looser labor market. The Fed is looking for data points that pull them back away from the long period of tightening. The one caveat would be that the labor market reports are notoriously fickle and what we see this month might not be what we turn around and see next month. It gives the Fed some hope, but it does not establish the trend for them.

Last week, the Japanese yen experienced its largest weekly increase in over 17 months, likely due to government intervention to strengthen it from a 34-year low against the dollar. However, the yen weakened slightly on Monday. The offshore yuan also rose, benefiting from the dollar’s decline after U.S. job market data indicated a slowdown, and the Federal Reserve’s indication of a possible easing policy.

Despite the holiday in Japan and Britain leading to lower trading volumes, the market remains vigilant for further interventions by Japanese authorities. The Bank of Japan reportedly spent over 9 trillion yen last week to support the yen, but the market sentiment towards the yen remains bearish.

The U.S. job growth has slowed, and wage increases have dropped below 4% for the first time in almost three years, suggesting a cooling labor market. This has led to market expectations of a Federal Reserve rate cut, with a 45 basis point reduction anticipated this year and a cut in November already factored in.

The Federal Reserve has kept interest rates steady but hinted at future rate cuts. Citi strategists believe that if inflation cools sufficiently, a rate cut could occur this summer. The dollar index fell to a three-week low, while the euro and sterling saw slight gains.

The U.S. Economy Is Headed for a Hard Landing, And Fed Rate Cuts Won’t Be Enough to Rescue It, Citi Says:

Citi’s chief U.S. economist, Andrew Hollenhorst, has expressed a pessimistic view on Bloomberg TV, predicting a severe economic downturn, or “hard landing,” and anticipating that the Federal Reserve will lower interest rates four times this year, which is more than the general market expectation. This prediction aligns with recent job data showing a significant decrease in new jobs added in April compared to March, and other indicators suggesting a weakening labor market.

Despite some data suggesting a strong job market, such as a rise in the employment cost index, the overall economic growth has slowed, primarily due to a larger trade deficit and reduced inventory restocking, although consumer spending remains strong. Hollenhorst believes that the Federal Reserve will act by cutting rates upon witnessing either inflation or labor market weakening, not necessarily both. He suggests that the current economic policy cycle is in a phase where persistent inflation keeps interest rates high, but expects a rapid deterioration in the labor market soon. Earlier this year, he had already forecasted a recession by mid-year, citing subtle indicators of economic softness despite seemingly positive job numbers.

Australia’s RBA Seen Keeping Key Rate At 12-Year High As Inflation Stirs:

The Reserve Bank of Australia (RBA) is expected to maintain the current interest rate of 4.35% to control inflation, influenced by a strong job market. Most economists predict this rate will persist, with a hawkish stance due to persistent high consumer prices. The RBA’s decision aligns with the Federal Reserve’s recent actions, which also considered inflation trends.

Governor Michele Bullock emphasises flexibility in policy, aiming for a sustainable reduction in inflation to the target range of 2%-3%. Despite initial expectations of a rate cut, revised economic forecasts suggest that inflation will remain above the target until late next year, with a potential rate cut in November.

Financial markets have adjusted to anticipate rate hikes, as evidenced by a significant increase in bond yields. This adjustment reflects a growing appeal for Australian investments. However, economic indicators show a slowdown, with GDP contraction and weak retail sales highlighting low consumer confidence.

Inflation remains stubborn, but a tight labor market with low unemployment offers hope for a balanced economic adjustment without sacrificing job growth. The upcoming federal budget will be crucial in supporting the RBA’s inflation management efforts, with significant policy decisions expected in November after further economic data analysis.

Gold Rate Today Jumps After Disappointing US Non-farm Payroll Data,Slide In US Dollar Rate,Xi Jinping’s Europe trip:

Gold rates have surged due to last week’s disappointing US job data and the weakening US dollar. The June 2024 gold futures on MCX opened at ₹70,849 per 10 grams and peaked at ₹70,984. Globally, COMEX gold is around $2,320 per troy ounce, and spot prices are near $2,310. Market experts link this increase to the soft US dollar and the negative job data, which have reignited US Federal Reserve concerns about inflation.

Anuj Gupta from HDFC Securities attributes the rise in gold rates to the pressure on the US dollar following the unsatisfactory non-farm payroll figures, which reported fewer jobs created in April than expected. This discrepancy has sparked renewed worries about the US economy and inflation. Kaynat Chainwala from Kotak Securities expects gold prices to climb further, driven by the anticipation of an earlier rate cut by the Fed, with market expectations for a September rate cut now at 80%. Despite a recent decline in gold prices due to reduced geopolitical tensions and optimistic global economic growth forecasts, the OECD has upgraded its global economic outlook, potentially supporting a recovery in gold prices amid Middle East tensions and a weaker dollar.

Regarding Chinese President Xi Jinping’s trip to Europe, Anuj Gupta notes that it could positively impact the market, especially with the ongoing tensions between Ukraine and Russia and new issues in the Middle East. He also highlights important price levels for gold, with MCX gold having immediate support at ₹70,500 per 10 grams and resistance at ₹71,200, suggesting a potential rise to ₹71,600 upon breaking this resistance. Internationally, COMEX gold has significant support at $2,300 and faces resistance at $2,330 per troy ounce. Gupta’s insights are valuable for investors and traders navigating the gold market.

China’s Services Activity Eases In April But Still Solid,Caixin PMI Shows:

According to a private sector survey, China’s services activity expansion has slightly slowed due to increasing costs. However, the growth in new orders has accelerated and business sentiment has significantly improved, raising hopes for a sustained economic recovery. The Caixin/S&P Global services purchasing managers’ index (PMI) dropped slightly to 52.5 from 52.7 in March, but it has remained in the expansionary zone for the 16th consecutive month.

Despite the faster-than-expected growth of the world’s second-largest economy in the first quarter, it continues to face several challenges, including a prolonged property slump and weak domestic demand. The overall new business reached its highest level since May of the previous year, driven by increased overseas demand and growth in tourism activity. This has resulted in the fastest growth in new export orders in ten months and has significantly boosted business confidence among Chinese service providers for the next 12 months.

However, companies continue to face some cost pressures due to rising input prices for materials, labor, and energy. This has led firms to increase the prices they charge their customers, while they have been hesitant to fill vacancies created by departures. Economists believe that the Caixin survey is more skewed towards smaller, export-led firms than the broader official PMI, which showed a significant slowdown in services sector activity for the previous month.

The Caixin/S&P’s composite PMI, which tracks both the services and manufacturing sectors, increased to 52.8 last month from 52.7 in March, marking the fastest pace since May 2023. China’s economy has struggled to achieve a solid post-COVID recovery, primarily due to the ripple effects on confidence and demand caused by a prolonged crisis in the property sector. While some strengths in the first quarter GDP report have raised hopes of a steady recovery throughout the rest of the year, economists generally agree that a robust revival is still some way off. Investors and analysts argue that China’s structural reform efforts must be accompanied by greater stimulus measures to foster a stronger and sustainable economic recovery.

Oil Demand Likely To Surprise To The Upside:

Oil prices have seen the largest weekly drop in three months, largely due to challenging economic indicators and increasing demand worries. U.S. crude inventories unexpectedly rose last week, with the American Petroleum Institute (API) reporting a build of 4.91 million barrels, a stark contrast to the expected decrease of 1.1 million barrels. This increase follows reports that U.S. crude production jumped to 13.15 million barrels per day in February, up from 12.58 million barrels in January, indicating that supply is exceeding demand.

However, it’s not just negative crude oil metrics driving the decline in oil prices. The EIA has initially estimated that U.S. gasoline demand fell 4.4% Y/Y in April, a negative sign for oil bulls that has caused a quick shift by speculative funds towards the short side of the market. Yet, commodity analysts at Standard Chartered argue that this pessimism about demand is exaggerated. According to StanChart, there seems to be a systematic downward bias in the weekly estimates of U.S. fuel demand, with actual gasoline demand surpassing estimates in 22 of the past 24 months, while distillate demand (mainly diesel) has been revised upwards in all of the past 24 months.

Weekly data by the Energy Information Administration (EIA) shows U.S. crude stockpiles surged to 7.3 million barrels for the week to April 26, a sharp reversal from a draw of 6.4 million barrels reported the previous week, marking the highest inventory levels since last June. Adding to the bearish data are expectations that the Fed will keep its benchmark federal-funds rate steady at around 5.3% as inflation appears to have reversed direction.

However, Standard Chartered has forecasted that global oil markets will record the largest stock draws in the first half of 2024 in May and June, suggesting we have entered a crucial period for oil fundamentals that will determine whether the market will further tighten or disappoint. StanChart advises closely watching global oil demand, predicting demand will reach an all-time high of 103.1 mb/d in May and rise further to 103.8 mb/d in June.

In contrast to oil markets, natural gas markets have suddenly become bullish due to the EU considering cutting off more Russian gas and a late cold snap in Europe forcing EU gas inventories to reverse direction. TotalEnergies (NYSE:TTE) CEO Patrick Pouyanne has predicted that natural gas and LNG prices will surge after the EU sanctions Russian gas from the Yamal LNG project. Henry Hub prices are up 4.7% in Friday’s intraday session and have gained 24.4% over the past week to trade at $2.14/MMBtu. However, it will be interesting to see whether these gains will hold given that experts still expect Europe’s spare storage capacity to become constrained in late summer, although the cold snap has delayed the timing of the tightness by about three weeks.

The Commodities Feed:

Energy and Agriculture Market Summary.

Energy Sector:

ICE Brent Crude: After a 7.3% drop last week, ICE Brent opened higher this week. This rise follows Saudi Arabia’s increase in official selling prices (OSPs) for June, with Arab Light’s price to Asia up by $0.90/bbl to $2.90/bbl above the benchmark.

Iraq and Kazakhstan: These countries have reached an agreement to compensate for their overproduction since January, with plans to offset the excess by year’s end.

Speculative Activity: Speculators have increased their net long positions in ICE Brent, although further price drops may have reduced current levels.

Upcoming Reports: The EIA will release its Short-Term Energy Outlook, and China will publish April’s trade data, including oil imports.

Agriculture Sector:

Coffee Exports: Global coffee exports increased by 8.1% year-over-year in March, with Arabica up by 9.7% and Robusta by 6%. Overall, exports from October 2023 to March 2024 are up by 10.4%.

Grain Speculation: Money managers have cut their net short positions in CBOT wheat to the least bearish since August 2023, mainly due to short covering. Corn shorts have also been reduced, while soybean positions remain largely unchanged.

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🔥News releases on THIS WEEK :

06/05 Mon All Day GBP Bank Holiday

06/05 Mon 2:00pm EUR Final Services PMI

06/05 Mon 6:25pm CHF SNB Chairman Jordan Speaks

07/05 Tue 10:30am AUD Cash Rate & RBA Rate statement

07/05 Tue 11:30am AUD RBA Press Conference

07/05 Tue 2:30pm GBP Construction PMI

07/05 Tue Tentative NZD GDT Price Index

07/05 Tue 8:00pm CAD Ivey PMI

08/05 Wed All Day EUR French Bank Holiday

08/05 Wed Tentative GBP 30-y Bond Auction

08/05 Wed 11:01pm USD 10-y Bond Auction

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

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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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