The lack of high-level economic data out of the US certainly didn’t stop traders from moving the majors this week!
After all, they had growth concerns on their minds for the first half of the week and then had to price in the Fed’s hawkishness the last few days.
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
Bank of Japan Tankan Industrial Index leaps from 1 to 5, the non-manufacturing index also rose from 20 to 23 in the second quarter as raw material costs peaked and the removal of pandemic restrictions boosted factory production and consumption
US jobs data (private payroll and job cuts) June signaled a very tight labor market, adding more fuel to the idea that the Fed will remain hawkish.
Germany factory orders For May: +6.4% m/m (+1.5% m/m forecast; +0.2% m/m previous)
Retail sales in Australia up a further 0.7% in May (versus 0.7% expected and prior) as consumers take advantage of promotions and sales events
ISM Services PMI In June: 53.9 compared to 50.3 in May; price index: -2.1 to 54.1; the Employment Index rose +3.9 to 53.1; The new orders index rose +2.6 to 55.5
S&P Global US Services PMI In June: 54.4 compared to 54.9 in May; “Companies have noted that strong customer demand and a continued rise in new business support the recent expansion.”
Extensive arguments for deflecting market risk
Russia and Saudi Arabia extended oil supply cutswhich led to a sharp rise in oil prices on Monday
Caixin Manufacturing in China PMI It slowed from 50.9 to 50.5 in June (vs. 50.0 expected) as firms grew more concerned about sluggish market conditions.
UK Manufacturing PMI For June: 46.5 (expected 46.2; previous 47.1); “Manufacturers are facing fading demand in both domestic and overseas markets”; Employment declined for the ninth month in a row, and the rate of decline was the sharpest since March.
agree New residential buildings Continued decline in New Zealand, down -2.6%m/m in May (from -2.6%m/m in April)
China strikes again in the chip warand imposed export controls on gallium and germanium used in computer chips and solar panels from August 1 to “protect national security and interests.”
Minutes of the Federal Open Market Committee meeting Wednesday showed that there is likely to be a slower pace of hiking; 12 of the 18 members expect an increase of at least two times this year.
Member of the Governing Council of the European Central Bank Joachim Nagel He said that the rate hike cycle is not over as the price outlook is dominated by upside risks
HCOB Eurozone Construction PMI For the month of June: 44.2 vs. 44.6; “A marked deterioration in activity in Germany was the sharpest since February 2021.”
S&P Global Canada Manufacturing PMI In June: 48.8 compared to 49.0 in May; declining market demand as customers delay spending decisions (most likely due to higher interest rates and macroeconomic uncertainty); modest rise in input costs; Firms, on average, have chosen to reduce their staffing levels.
Caixin Services in China PMI It expanded at a slower pace (from 57.1 to 53.9) in May amid a sharp contraction, rising youth unemployment, and a slowdown in external demand.
The United Kingdom sold 4 billion pounds of gold bonds, the highest yield in 16 years, on Wednesday, confirming that High returns that governments must offer to attract investors After more than a year of high interest rates
Retail sales in the eurozone For May: 0.0% m/m (0.3% m/m forecast; previous 0.0% m/m); -2.9% YoY (-3.2% YoY expected; -2.9% YoY)
HCOB Services in France PMI From 52.5 to 48.0, the strongest pace of decline since February 2021, as demand slows
US Nonfarm Payrolls for June: 209K (250K forecast; 306K previous); Unemployment rate fell to 3.6% vs. 3.7% expected/previously. Average hourly earnings: 0.4% MoM (0.3% MoM expected; 0.4% MoM)
Weekly global market summary
Dollar, gold, S&P 500, oil, US 10-year yield, bitcoin overlay Planned by TV
Traders were happy to continue pricing in the weak US Core PCE and buying dollars on Monday when Saudi Arabia and Russia rocked the markets ahead of the OPEC+ meeting.
Saudi Arabia announced that it will continue to reduce its production by 1 million barrels per day for an additional month until August. Meanwhile, Russia decided to cut its oil exports by another 500,000 barrels per day in August. This tops the supply cuts that the OPEC+ gang has already agreed to!
Crude oil prices rose on the news, but hit new intraday lows during the US session.
The prospect of global oil demand weakening enough to justify supply cuts did not sit well with markets already worried about rising interest rates dragging down economic growth.
Of course, it didn’t help that both China and the US – the two largest economies in the world – printed weaker Manufacturing PMI numbers that day.
Safe-haven currencies such as gold, the US dollar, and the Swiss franc traded higher while the BTC/USD pair returned to last week’s highs.
The fireworks were all over the US and Asian markets on Tuesday with RBA officials and Japanese officials only making things interesting for the markets.
The Reserve Bank of Australia kept interest rates at 4.10% disappointing those who saw another rate hike. But her militant plans were not completed! While its members realize that inflation has “past its peak”, they also believe that “further tightening” may still be required in the future.
The Australian dollar rallied lower on the “surprise” rate hike pause, but quickly recovered its losses and posted new highs for the week against the majors (excluding the New Zealand dollar).
In Japan, Finance Minister Shunichi Suzuki and chief financial diplomat Masato Kanda made some verbal intervention by showing that they are in close contact with US Treasury Secretary Yellen and other foreign officials “almost every day” about currencies and the broader financial markets.
Threats from Japanese and global financial authorities weren’t much better for the Japanese yen, as it capped the day lower against the US dollar and British pound.
Intraweek trends became even clearer when our US trader friends got back on Wednesday. Unfortunately for the market bulls, the mood was distinctly bearish.
China helped set the tone with a much weaker-than-expected Caixin services PMI while Asian and European stock traders remained on the sidelines ahead of the release of the FOMC meeting minutes.
All caution translated into risk aversion when the Fed’s meeting minutes showed that 12 out of 18 members expect at least two rate hikes this year. This has shocked traders who were already betting on a rate cut at least once in 2023.
A repricing of the Federal Reserve’s expectations kicked off US Treasury yields in an upward trend and the dollar gained against major peers such as bitcoin, gold, Australian dollar, New Zealand dollar, and Canadian dollar during Wednesday’s US session.
US Crude Oil was an exception, reaching new highs above $72.00, as some traders who had just started their trading week caught up to production cuts in Saudi Arabia and Russia.
The US jobs reports provided traders with more reasons to extend the dollar’s rally on Thursday and sell risky assets.
Closely watched data releases such as Challenger job cuts, ISM Services PMI, and ADP report came in better than expected and supported the Fed’s hawkish biases.
US 10-year yields peaked near 4.08%, gold fell, and commodity-linked currencies lost more pips. US Crude Oil, which set new weekly highs at $72.30, also fell sharply before the inventory report attracted some bulls.
Markets cooled lower heading into the Asian Friday session, which is the usual trend as traders await the highly anticipated US Nonfarm Payrolls report. To no one’s surprise, volatility quickly picked up again after its release, but it was more muted than the reaction to Thursday’s data, as traders arguably saw Friday’s data as conflicting.
The net employment change figure came in below expectations and the May reading of 209K, but the unemployment rate fell to 3.6% and the average hourly earnings rate rose faster than expected. Overall, this indicates a very tight labor market but the US dollar sold off after the report and was unable to recover at Friday’s close.
As for the rest of the financial markets, it appears to have been mostly a hostile day for the dollar as oil, gold and equities all headed higher over the next few hours, likely indicating that traders are still seeing the Fed nearing the end of the rate hike cycle after the start. this event.
