Major assets were poised to extend themes from the previous day when the US GDP release shook up overall price action.
How did the major assets trade yesterday?
We’re breaking down the headlines you might have missed!
headlines:
- People’s Bank of China Surprisely Cuts Medium-Term Lending Facility Rates By 20 basis points to 2.3%, the biggest cut since April 2020 and the first in nearly a year.
- The German IfO business climate index fell from 88.6 to 87.0 in July, as the manufacturing, services, trade and construction sectors saw a decline in sentiment.
- The CBI’s industry trends survey showed UK output growth was unchanged in the quarter to July, but growth expectations were the strongest since March 2022; total new orders fell in July
- US GDP advances in Q2 2024 Growth accelerates from 1.4% to 2.8% (2.5% expected) on strong consumer spending and private inventories
- US Initial Jobless Claims for the week ending July 20: 235K (247K expected, 245K prior)
- US Durable Goods Orders For June: -6.6% m/m (0.0% expected, 0.1% previously); Core durable goods at 0.5% (0.2% expected, -0.1% previously)
- The Bank of China’s leading economic index fell another 0.7% month-on-month in June after a 0.5% decline in May.
Price movement in the broad market:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Treasury Yield, Bitcoin Chart by TradingView
With no major data on the agenda, traders in the Asian session had time to price in themes from previous sessions. Spot gold hit a two-week low while Bitcoin (BTC/USD) extended its downtrend during the week to reach the $63,800 area ahead of Thursday’s US data.
The Japanese yen, which had been on an upward trend for most of the week, saw another surge shortly after the Japanese markets opened.
Then the People’s Bank of China surprised markets by cutting its medium-term lending rate by 20 basis points to 2.3%. Not only did the cut follow a cut to short-term lending rates earlier this week, but the 20-basis-point cut was more than the central bank’s “usual” 10-basis-point cut.
US crude oil prices fell during the session and then fell again when the German IfO business climate index missed market expectations and encouraged a risk-off trading environment during the early London session.
Tensions rose during the US trading session when US Q2 GDP data came in much stronger than expected. Interestingly, both risk assets and US Treasury yields received support from the news. The strong growth signaled a “soft landing” in the US but also supported a “higher for longer” interest rate environment.
Bitcoin, crude oil and US stocks rose, while the yield on the 10-year US Treasury note rose from 4.20% to 4.26% before settling lower.
Forex Market Behavior: US Dollar vs Major Currencies:
US Dollar Overlay Against Major Currencies Chart by TradingView
The dollar price action was all over the place on Thursday as traders priced in Uncle Sam’s data and overall market sentiment.
The US dollar extended losses against the Japanese yen and Swiss franc during the Asian session, with the USD/JPY pair hitting a low of 152.00 before heading higher. The pair also saw broad-based declines at the start of the London session, likely as traders booked profits ahead of Thursday’s US data.
The US reports released later in the day did not cause a uniform price movement for the dollar. While strong Q2 GDP is good for the US dollar, it also encouraged risk appetite that pushed it lower against its “riskier” peers. The dollar fell in the first hour or so after the report before seeing a (very slight) recovery by the end of the day.
Potential catalysts coming up on the economic calendar:
- Spain Unemployment Rate at 7:00 AM GMT
- US Core PCE Price Index at 12:30 PM GMT
- US Personal Income and Spending at 12:30 PM GMT
- US: University of Michigan Consumer Confidence Index at 2:00 PM GMT
US data releases will be in the spotlight again today as we see the core PCE price index, The Fed’s preferred measure of inflation.
Shortly after, the final reading of University of Michigan Consumer Confidence and Inflation Forecasts for July It will be printed.
the The Fed has cited the two reports in past policy decisions.So make sure you stay close by in case it affects the demand for the US dollar or risky assets in the final hours of the trading week!