Rising tensions in Ukraine and resilient economic data from major economies has left traders seeking higher interest rates and risk averse.
No wonder commodity linked currencies such as the New Zealand dollar fell while safe havens such as the Swiss franc and gold rose!
Not sure what I’m talking about? I could explain, but lemme show you the headlines first:
Notable economic news and updates:
🟢 Extensive arguments about market risk
The Governing Council of the European Central Bank Member Class Nott said monetary tightening beyond next week’s meeting is far from guaranteed
New Zealand consumer price index Up by 1.1% QoQ in Q2 2023 vs. 1.2% in Q1, 0.9% is expected. The annual CPI fell from 6.7% to 6.0% in the second quarter thanks to lower gasoline prices and higher interest rates
US retail sales For June: 0.2% m/m (0.3% m/m expected; 0.5% m/m prior); Core retail sales were in line with expectations at 0.2% m/m (0.3% m/m previously).
The drop in fuel prices has led to the withdrawal of the UK consumer prices From 8.7% yoy to 7.9% yoy in June. Core CPI also fell from 7.1% yoy to 6.9% yoy.
Canada CPI In June 2032: 2.8% YoY (3.0% YoY expected; 3.4% YoY); Led by energy costs falling to a 27-month low; Core CPI fell to 3.2% yoy (3.6% yoy forecast) vs. 3.7% yoy prior
PBoC parameter triggered on Cross-border corporate finance under its macroprudential ratings (MPA) to 1.5 from 1.25, allowing companies to borrow more abroad in proportion to their assets
Australia added a net 32.6 thousand jobs in June As against the expected 15k and the previous 76.6k. The unemployment rate fell from 3.6% to 3.5% as the participation rate fell 0.1% to 66.8%
Consumer Confidence Index for the Eurozone For July 2023, it improved by 1 point to -15.1, continuing its slow recovery since 2022 lows around -30.
NAB Australian Quarterly Survey Showing business confidence increased by 1 point to -3 while business conditions fell by 8 points to +9 as business “moderated significantly” in the second quarter.
Sources familiar with the Bank of Japan said the BoJ is likely leaning toward keeping yield control steady next week
Extensive arguments for deflecting market risk
China’s gross domestic product It grew 0.8% in the second quarter of 2023, slower than the 2.2% quarterly growth in the first quarter. Annual GDP came in at 6.3%, faster than the 4.5% rise in the first quarter, but slower than the expected 7.1% growth.
Retail sales in China It slowed from 12.7% to 3.1% year-on-year in June
New Zealand PMI Services fell to 50.1 in June (52.5 expected) from a previous revised 53.1; Employment Index fell to 49.1 from 52.3 previously; New orders fell to 51.3 versus 55.4 previously
Minutes of the Reserve Bank of Australia meeting in July It showed that the Fed agreed that “further tightening may be needed” and hints to revisit the rate hike move at the August meeting.
Wheat prices rose After Russia ended its grain deal with Ukraine, it warned it would treat ships bound for Ukrainian ports as potential military targets.
Retail sales in Canada For May 2023: 0.2% m/m (0.5% m/m expected; 1.0% m/m previously); Core retail sales were 0.0% m/m (0.3% m/m expected; 1.2% m/m prior).
The Japanese government lowered its economic forecasts on Thursday from 1.5% for the fiscal year ending March 2024 to 1.3%; It raised the consumer price inflation forecast for 2023 to 2.6% from 1.7% previously
Weekly global market summary
Dollar, gold, S&P 500, oil, US 10-year yield, bitcoin overlay Planned by TV
Global markets started the week on shaky ground on Monday when China — the world’s second-largest economy — released a gross domestic product reading for the second quarter of 2023 at 6.3% year-on-year, below expectations for annual growth of 7.1%.US Treasury Secretary Janet Yellen reinforced global growth concerns later that day when she said: “Slow growth in China could have some negative ramifications for the United States“
It’s as if she’s setting the stage for gloomy feelings before the Oppenheimer weekend!
With the markets of Japan and Hong Kong closed on Monday, currencies linked to China such as the Australian dollar and the New Zealand dollar saw steady fluctuations during the Asian and European sessions.
Interestingly, US stocks rose as traders focused on the topics of “peak inflation” and “peak interest rates” on Friday.
Meanwhile, US crude oil prices traded below $74 due to weak Chinese growth and rumors that two of Libya’s three oil fields will resume production, adding about 370,000 barrels of oil per day.
On Tuesday, US retail sales data inspired all sorts of shenanigans for global assets. See, headline and core retail activity grew 0.2% in June, which apparently wasn’t low enough to trigger hard landing concerns, but also not high enough to support more hawkishness among Fed members.
High-yielding currencies like the Australian dollar, the New Zealand dollar, the pound sterling and Bitcoin remained under China Growth Watch and continued their declines. On the other hand, the Swiss Franc, European and US stocks traded higher as traders priced in “peak rate” bets for the Federal Reserve.
US crude oil also recovered all of its losses for the week, while spot gold jumped to a one-month high near $1,985.
Inflation was the name of the game on Wednesday, and it kicked off with New Zealand’s growth picking up 6.0% year-on-year in the second quarter. While it is slower than the 6.7% rise in the first quarter, it is still high enough above the RBNZ’s target range of 1%-3% that the central bank can maintain its hawkish stance.
The New Zealand dollar rose higher before general risk aversion during the Asian session pushed it down to its lowest levels in the week.
Then the UK CPI fell and so did the British Pound and global bond yields. Look, UK inflation slowed from 8.7% yoy to 7.9% yoy, while core CPI fell from 7.1% yoy to 6.9% yoy.
Optimism about slowing UK inflation and upcoming US earnings reports helped boost US stocks in late European/early US trade.
Risk sentiment soured before the day was out, thanks to Russia warning that ships bound for Ukrainian ports (including those carrying wheat!) could be seen as potential military targets.
It also didn’t help risk sentiment that Netflix’s expected revenue for the third quarter didn’t beat analyst estimates while Tesla reported a decline in profitability in the second quarter.
Risky assets took a further beating Thursday, perhaps that is because Data is better than expected.
What’s up with that?!
Australia created more net jobs than markets expected in June, and the country’s unemployment rate fell from 3.6% to 3.5%.
Meanwhile, the People’s Bank of China (PBoC) instituted a much weaker USD/CNY fix and adjusted its financing rules so that companies could borrow more through cross-border financing.
The Australian and New Zealand dollars traded higher while safe havens such as the US dollar and Swiss franc lost pips until the US session when the US printed jobless claims data.
Turns out, there were “only” 228,000 initial jobless claimants in the US last week, less than the 239,000 analysts had estimated. Traders who made “peak” bets were shaken up by major central banks and trimmed their “risky” holdings.
US dollar and 10-year Treasury yields popped, US stocks struggled for direction, Crude Oil, BTC/ US dollar, spot gold fell sharply.
Friday was light on the major catalysts, except perhaps for the Japanese National Core CPI update. It came in at a mark above the previous reading of 3.3% y/y, which based on the decline in the yen apparently isn’t enough to get the Bank of Japan to make any changes to control the yield curve at their next meeting.
But overall, the players at risk seemed to hold their own at the weekend. Oil rallied further to break the $77 a barrel market, Bitcoin recovered from the previous day’s low to retest the $30,000 handle, and stocks edged higher while gold fell into Friday’s close.