Forex Fundamental News

Forex Fundamental News Facts for 7th May, 2024

Forex Fundamental News Facts for 7th May, 2024

[Quick Facts]

  1. Hamas agrees to a Gaza ceasefire while Israel will continue operations in Rafah.
    2. Fed’s Barkin says full impact of high interest rates yet to come.
    3. Fed’s Williams says the next Fed move is likely to be lower rates.
    4. NY Fed survey shows Americans are preparing for higher housing costs.
    5. Retail Sales and RBA Moves in the Spotlight.
    6.Why The IEA Is Wrong About Peak Oil Demand.
    7. Japan’s Service Activity Extends Gains on Solid Demand, PMI Shows.
    8. The US Will See a Recession by Year-End.
    9. China Is Buying Gold Like There’s No Tomorrow.

[News Details]

Hamas Consents to Ceasefire, Israel to Persist with Rafah Operation:

Hamas, the Palestinian militant organization, has agreed to a ceasefire in Gaza, as proposed by mediators. Ismail Haniyeh, the leader of Hamas, announced that the group had accepted the ceasefire terms set by Qatari and Egyptian mediators. However, Israel’s Prime Minister, Benjamin Netanyahu, stated that the proposal did not meet Israel’s requirements. Despite this, Israel will send a delegation to negotiate a potential agreement. In the meantime, Israel’s War Cabinet has approved the continuation of operations in Rafah to pressure Hamas militarily, aiming to secure the release of hostages and achieve other war objectives.

An unidentified Israeli official suggested that Hamas had agreed to a diluted version of the Egyptian proposal, which included elements that Israel found unacceptable. This move was perceived as a ploy to portray Israel as the party rejecting the agreement. However, another official privy to the peace talks claimed that the proposal accepted by Hamas was identical to the one Israel had agreed to in late April. A U.S. official familiar with the ceasefire discussions expressed skepticism about the sincerity of Netanyahu and the War Cabinet in the latest negotiation phase.

Fed’s Barkin Foresees Impact of High Interest Rates:

Tom Barkin, the President of Richmond Fed, expressed optimism in a recent speech that the current high interest rates could curb demand and bring inflation back to the target level. He stated that the full impact of these high rates is yet to be felt. Barkin highlighted the challenge for policymakers in deciding whether to draw more conclusions from the past three months or the preceding seven months when the economy seemed to be steadily progressing towards the Fed’s inflation target. He emphasized the importance of maintaining inflation control, which he believes is feasible given the strong job market.

Fed’s Williams Predicts Lower Rates in Future:

John Williams, the New York Fed President, suggested that the next move by the Fed would likely be a reduction in interest rates. However, he stated that the current monetary policy is well-positioned, and there is time to gather more information. He noted that the economy is gradually balancing despite slower growth, with an expected growth rate of 2%-2.5% this year. When questioned about the duration of weak data required to cut interest rates, Williams emphasized the importance of considering the overall data rather than individual reports.

NY Fed Survey Indicates Anticipation of Higher Housing Costs:

According to a survey by the New York Fed, Americans are preparing for an increase in housing costs. The survey revealed that respondents anticipate higher short-term increases for both rent and home prices, although they expect some respite for home prices in the long term. However, no relief is expected for home borrowing costs. The survey found that respondents predict a 5.1% rise in home prices a year from now, up from the 2.6% predicted a year ago. Five years from now, respondents anticipate a 2.7% increase in home prices, down slightly from 2.8% in last year’s survey. As for rent, respondents expect a 9.7% increase a year from now, one of the highest predictions in the survey’s history. Five years from now, respondents predict a “essentially flat” rent growth rate of 5.1%. Despite these predictions, respondents maintain a “strongly positive” outlook on housing as an investment and expect mortgage rates to increase further.

Retail Sales and RBA Moves in the Spotlight:

On May 7, the finalized retail sales figures will be released, which could impact the AUD/USD. The preliminary report indicates a 0.2% decrease in retail sales in March, following a 0.2% increase in February. If the retail sales figures are revised upwards, it could lead to speculation about a more hawkish RBA rate path.

Consumer spending is a significant driver of demand-driven inflation. Given the recent inflation figures, the RBA might adopt a more hawkish monetary policy, increasing borrowing costs and reducing disposable income. This could result in consumers reducing their spending on non-essential items.

While retail sales figures are important, the main focus will be on the RBA’s monetary policy decision and press conference. Discussions about persistent inflation and the potential need for a rate hike could increase demand for the Aussie dollar.

US Economic Calendar: Fed Speakers in Focus: Later in the session, the RCM/TIPP Economic Optimism Index will be released. It is predicted to rise from 43.2 to 44.1 in May. Recent labor market and services sector figures have led investors to expect a Fed rate cut in September. Increasing optimism about the US economy could support bets on the US avoiding a recession. However, these figures are unlikely to influence the Fed’s rate path.

Beyond the numbers, investors should pay attention to Fed speakers. Their views on inflation, the economic outlook, and the timing of a Fed rate cut could be influential. FOMC member Neel Kashkari is scheduled to speak.

ASX 200 Futures and SGX Iron Ore: The ASX 200 futures have been trying to form a bottom since breaking long-running uptrend support three weeks ago. They have consistently found buyers on dips below 7540. Since the Federal Reserve FOMC meeting last week, SPI futures have seen a bounce to the 50-day moving average, a level it has respected constantly dating back to the final quarter of 2023.

The proximity to the 50-day moving average provides a decent level to build a trade around, allowing for optionality depending on what the RBA does (and Asian markets) later in the session. If the bank delivers a hawkish hold as expected and futures are unable to break convincingly through the 50-day moving average, it will allow for shorts to be established below the figure with a stop loss order above 7745 for protection.

One factor that’s been working in favor of ASX 200 bulls has been the sharp rebound in iron ore futures in Singapore after dipping below $100 per tonne on several occasions in March and April. Over recent weeks, the price has broken the 50-day moving average and downtrend resistance dating back to the start of 2024, leaving the price coiling up in an ascending triangle below the 200-day moving average. If the 200 gives way, it may open the door to a push towards $123.80, $126.85 or $131.60. Should we get the topside break, don’t forget to place a stop loss below the 200-day and/or uptrend support for protection against reversal.

Why The IEA Is Wrong About Peak Oil Demand:

Predictions about the decline in demand for petroleum-based fuels, often referred to as “Peak Oil Demand,” are becoming increasingly common. The International Energy Agency (IEA), a Paris-based intergovernmental agency established post the 1973 Oil Embargo, has projected that the use of petroleum fuels will start to decline after 2028.

This perspective, particularly regarding liquid motor fuels, is shared by several agencies and organizations that produce long-term estimates. They predict a rapid decline in this category in the 2030s as electric vehicles gain a larger market share. This is often referred to as the “Bear Case” for liquid fuels.

However, the Organization of Petroleum Exporting Countries (OPEC) disagrees with this view. In their recent report, they forecast that oil demand, except for electricity generation, will rise from approximately 105 million barrels per day (BOPD) in 2025 to 116 million BOPD in 2045.

The divergence between the IEA and OPEC outlooks is primarily due to differing assumptions about the rate at which internal combustion engine vehicles will be replaced by electric vehicles.

The growth of the middle class in China, India, and Africa and the advent of energy demand for Artificial Intelligence (AI) are two factors not taken into account in these divergent views of oil demand.

Arjun Murti, a well-known energy commentator, discussed future energy demand in a recent podcast. He explored the impact on world energy demand if everyone enjoyed the lifestyle of the 1.2 billion people living in the Western World.

The argument put forward by the Peak Oil crowd is that efficiency growth, Gross Domestic Product (GDP), and energy substitution will bend the curve on oil demand, spelling the twilight of fossil fuels. However, Arjun points out that there is simply no evidence this is happening.

The world we live in today and the one likely to exist at mid-century runs on oil. The notion that the world can quickly and painlessly transition to other forms of energy has developed some significant challenges in recent times.

Balanced against this lack of progress in substituting oil for other forms of energy is the fact that the world’s energy supply is in a tight balance with demand at present. If the world’s poor make even modest progress toward Arjun’s 10 barrels per annum prediction in the coming years, the Bull Case for oil will certainly assert itself.

Japan’s Service Activity Extends Gains on Solid Demand, PMI Shows:

In April, Japan’s service sector activity saw its fastest growth in eight months, driven by robust business and consumer spending. This information, revealed in a private survey, suggests that the central bank is likely to increase rates again this year.

The final au Jibun Bank Service purchasing managers’ index (PMI) climbed to 54.3 in April, marking its highest level since August 2023. This figure is a slight increase from 54.1 in March. The PMI has consistently stayed above the 50-mark, indicating expansion rather than contraction, since September 2022.

The survey also highlighted a sharp increase in prices charged by firms to their clients, with the inflation rate reaching its highest since April 2014, when the country increased the sales tax. Firms attributed this to rising wage expenses, a factor that aligns with the Bank of Japan’s longstanding encouragement for firms to steadily increase pay to boost consumption.

The Bank of Japan, which terminated negative interest rates in a significant move in March, is anticipated to raise rates again this year. However, the central bank has indicated a cautious stance towards further tightening due to the fragile economic recovery.

The service sector has been a positive aspect in an economy that has struggled to achieve a broad-based post-COVID revival, helping to counterbalance some of the ongoing weakness observed in manufacturing. The strength in business and consumer spending in the latest survey should be encouraging news for policymakers.

Tim Moore, economics director at S&P Global Market Intelligence, noted that April data showed another strong month for the Japanese service sector, with rising business and consumer spending driving the fastest increase in business activity since August 2023.

New business growth accelerated for the sixth consecutive month, reaching its fastest pace since June 2023. Firms reported that sales were also boosted by strong inbound tourism. Input prices rose at the fastest rate since August due to increasing labor costs and higher prices of transport and raw materials, leading to a significant rise in prices charged to clients.

Moore added that service providers are increasingly trying to negotiate higher prices charged to clients in response to elevated cost pressures. The composite PMI, which combines the manufacturing and service activity figures, expanded to 52.3 in April, the highest level since August 2023, up from 51.7 in March.

The US Will See a Recession by Year-End:

In a recent interview, a Wall Street veteran (Legendary Forecaster Gary Shilling) who had predicted the subprime mortgage bubble in the mid-2000s, expressed his concerns about an impending recession by the end of the year due to a weakening job market. This could potentially lead to a significant drop in the stock market, fueled by investor overconfidence, causing stocks to plummet by up to 30%.

The veteran highlighted the recent surge in risky assets, such as stocks and cryptocurrency, as an indication that the market is on the brink of a downturn. He pointed out that the current speculation is a sign of overconfidence, which is typically followed by a sharp correction.

The economy has already shown signs of weakness, with high interest rates impacting its strength. The labor market is deteriorating, with the unemployment rate nearing a two-year high. Furthermore, the quit rates have dropped to around 2%, indicating that workers are becoming aware of the challenging hiring conditions and are less inclined to leave their current jobs.

The veteran believes that companies have retained more employees than necessary due to the labor shortage experienced during the pandemic. He predicts that layoffs will increase later this year, with unemployment rates peaking at 5%-7% as the economy continues to weaken.

Job losses could severely impact Americans, especially as many may be in a worse financial situation than they were a few years ago. It is estimated that consumers exhausted their excess savings from the pandemic in March.

Several recession indicators have been warning about the state of the economy for months. The 2-10 Treasury yield curve, a well-known recession indicator, has been signaling a downturn since July 2022. The Conference Board’s Leading Economic Index, another measure of economic strength, also declined in April.

The Wall Street veteran is known for his contrarian and often bearish views on the market. He believes that people are overly optimistic despite evidence to the contrary. He actively disagrees with other Wall Street strategists, as he feels that the consensus view is typically already factored into the markets.

China Is Buying Gold Like There’s No Tomorrow:

This year, gold prices have reached an all-time high, attracting investors like Xena Lin, a 25-year-old administrative worker in China. She has been buying gold “beans”, small, affordable pieces of gold, as a way to participate in the gold market without having to purchase larger items like jewelry, gold bars, or coins.

Gold, often seen as a safe investment during times of geopolitical and economic turmoil, has seen its price soar due to events such as Russia’s invasion of Ukraine and the war in the Gaza Strip. However, the resilience and longevity of gold’s price increase, which has risen above US$2,400 per ounce, can be attributed to China.

Chinese consumers have been drawn to gold as their confidence in traditional investments like real estate or stocks has waned. Concurrently, China’s central bank has been steadily increasing its gold reserves while reducing its holdings of US debt. This has been further fueled by Chinese speculators betting on further appreciation of gold.

China’s influence on the gold market has become more pronounced during this latest bull run, with a nearly 50% increase in the global price since late 2022. Despite factors that traditionally make gold a less appealing investment, such as higher interest rates and a strong US dollar, gold prices have continued to rise.

Last month, gold prices increased even after the Federal Reserve signaled that it would maintain higher interest rates for longer. The price of gold has continued to appreciate even as the US dollar has risen against almost every major currency in the world this year.

There is a growing sentiment that the gold market is now governed more by the whims of Chinese buyers and investors than by economic factors. Ross Norman, CEO of, stated, “China is unquestionably driving the price of gold.”

Gold consumption in China rose 6% in the first quarter from a year earlier, following a 9% increase last year. As traditional investments have become less attractive, money has flowed into Chinese funds that trade in gold, and many young people have started collecting gold beans in small quantities.

Another major buyer of gold in China is the country’s central bank, which has been adding to its gold reserves for 17 consecutive months. Last year, the bank bought more gold than any other central bank in the world, adding more to its reserves than it had in nearly 50 years.

Beijing is buying up gold to diversify its reserve funds and reduce its dependence on the US dollar, which is traditionally considered the most important reserve currency. China has been reducing its US Treasury holdings for more than a decade. As of March, China held about US$775 billion worth of US debt, down from about US$1.1 trillion in 2021.

The combination of aggressive retail buying from Chinese consumers and central bank purchases has attracted the attention of speculators on markets in Shanghai who are betting that this trend will continue. Average trading volume for gold on the Shanghai Futures Exchange more than doubled in April from a year earlier.

Despite the recent slight fall in gold prices, the demand for gold as a safe haven remains amid geopolitical tensions. The ongoing conflict between Israel and Hamas, coupled with speculation over U.S. interest rate cuts, continues to support gold prices. However, gold remains more than $100 below record highs hit in April.

Among other precious metals, platinum futures rose, while silver futures fell. Copper prices remained near two-year highs, with focus on tighter supplies amid Chinese production cuts and sanctions on Russia.



🔥News releases on THIS WEEK :

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




Sources :
– CNBC, Bloomberg, Reuters, Fastbull, Yahoo Finance, CNN, ForexFactory News, Myfxbook News etc

Prepared to you by “Akif Matin

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