May 23, 2023 - Fundamental Reminder

☆ 07:00, Speaker of the U.S. House of Representatives McCarthy will hold a press conference.

☆ 16:00 EUR Manufacturing PMI Flash (MAY)

If the data shows that the economy is still resilient, it may strengthen the expectation that the ECB will continue to raise interest rates.

☆ 21:00, 2023 FOMC voting member and Dallas Fed President Logan gives a welcome speech at a seminar hosted by the Richmond Fed. Logan previously said that the current data is not enough to justify a pause in rate hikes.

☆ 21:45 USD Markit Manufacturing PMI Flash (MAY) & Markit Services PMI Flash (MAY)

Investors may look to these two data for clues about the U.S. recession.

Market Overview

Review of Global Market Trend

On Monday, under pressure from renewed optimism in debt ceiling negotiations and hawkish comments from Fed officials, spot gold retreated, falling below the 1,970 mark during the session and eventually closing down 0.24% at $1,971.84 per ounce. Spot silver oscillated lower, eventually closing down 0.8% at $23.64 per ounce.

The U.S. dollar index rebounded, hovering near a two-month high, eventually closing up 0.039% at 103.25. U.S. Treasury yields continued to move higher, with the U.S. 10-year Treasury note standing at 3.70%, closing at 719%, which was a seventh consecutive day of gains and a new high since March 13.

Crude oil overall fell before rising as progress in debt ceiling negotiations reinvigorated risk sentiment, the approaching Memorial Day holiday boosted demand outlook, and declining supply from Canada and OPEC+ in recent weeks. WTI crude oil stood at the 72 mark and ended down 0.43% at $72.17 per barrel; Brent crude oil ended up 0.29% at $76.03 per barrel.

U.S. stocks closed with the Dow closing down 0.42%, the Nasdaq closing up 0.5%, the S&P 500 up 0.02% and the Nasdaq China Golden Dragon Index up 2%. The new energy vehicle sector generally closed higher, Maverick Electric, Azera Motors rose about 9%, Lucid Group rose nearly 7%, Rivian rose nearly 5.3%, Tesla, Xiaopeng car rose more than 4%.      

European shares were mixed, Germany's DAX30 index closed down 0.32%; FTSE 100 index closed up 0.18%; Europe's Stoxx 50 index closed down 0.22%.

Market Focus

1. Debt ceiling - McCarthy will hold a press conference at 7am this morning, and Yellen reiterated that special measures will be exhausted as early as June 1st. Media reports suggest that both sides have made progress on the issue of excess epidemic funds and energy licensing system reform.

2. Federal Reserve Brad: We may need to raise interest rates another 50BP/twice this year. Kashkari: It is too early to declare that the banking crisis has been fully resolved, and it will be difficult to decide whether to raise interest rates at the June meeting. There may be a need to raise interest rates to 6% to combat inflation, and Bostick has hinted that he is willing to suspend rate hikes and observe the situation. Daley: The credit squeeze may be equivalent to raising interest rates “several times” (COUPLE). US media: Powell will deliver a speech at the New Democratic Alliance luncheon on Tuesday.

3. Putin plans to fine-tune the oil price tax indicators, aiming to reduce crude oil price discounts.

4. The Turkish lira has depreciated by 6% this year, and the US dollar rose above the 20 level against the Turkish lira for the first time, with an annual line of 11 consecutive positive days.

5. European Central Bank Governing Committee Veleruva: The interest rate will reach its peak no later than September, and it may be increased or suspended at the next three meetings.

6. The rumor of the “Pentagon Explosion” last night was widely spread on social media, and after the “Russia Today” report, risk aversion significantly increased. US stocks turned lower, and the US Department of Defense urgently dismissed the rumor.

Geopolitical Situation

Conflict Situation

1. Ukraine's Deputy Defense Minister: Ukraine continues to advance around Bakhmut, but the “intensity of the offensive” has been reduced.

2. According to US media reports, two pro-Ukraine Russian military groups, “Free Russia Corps” and “Russian Volunteers,” entered Russia's Belgorod region bordering Ukraine and seized a number of villages. The governor of the Russian state of Belgorov said sabotage squads from the Ukrainian army had crossed into Russian territory and that Russian security forces were taking steps to “wipe out the enemy.” A senior aide to the Ukrainian president said Ukraine had nothing to do with the incident and would be watching developments.

3. The governor of the Russian state of Belgorov says three houses and an administration building near the state's border with Ukraine were damaged in the attack.

4. According to TASS: Russian President Vladimir Putin has received reports of possible attacks on Belgorod.

Sanctions Situation

1. The European Union will not resume SWIFT payments to Agbank until the conflict between Russia and Ukraine ends, Izvestia newspaper quoted EU officials as saying.

2. Hungarian FM: Several EU Member States have pressed for nuclear sanctions against Russia, and we continue to firmly oppose them.

3. Foreign ministers of the European Union (EU) continued to discuss the 11th round of sanctions against Russia at a meeting held in Brussels, Belgium on Tuesday, but failed to reach a consensus.

Energy Situation

1. The Zaporoghi nuclear power Station in Ukraine was switched to backup and emergency power generators and work is under way to restore the electricity supply to Zaporoghi.

2. National Energy Company of Ukraine: The power lines to the Zaporoge nuclear power plant have resumed operation and the nuclear power plant is being integrated into the Ukrainian energy system.

3. Market news: Russian President Vladimir Putin has ordered a change in indicators to determine oil price taxes.

Institutional Perspective

01

Goldman Sachs

We view the oil market as overly pessimistic and expect continued undersupply from June onwards as Opec + cuts are fully implemented and demand picks up further.

02

SOCIETE GENERALE

Societe Generale economists Suktae Oh and Kiyoung Seong said concerns about slowing economic growth continued to linger as semiconductor exports remained weak. The Bank of Korea's current rate-raising cycle may effectively be over, as its policy focus shifts from fighting inflation to boosting growth.

03

MUFG

MUFG: Sterling could rise if underlying price pressures in the UK persist

May 22 - Data on Wednesday is expected to show UK headline inflation fell sharply in April due to falling energy prices, but this is unlikely to ease market concerns about underlying price pressures that could continue to support the pound, the Bank of Mitsubishi UFJ said. If underlying inflationary pressures keep expectations of further interest rate rises from the Bank of England alive, this will provide support for sterling in the week ahead. The main “downside risk” for sterling would be that underlying and food price inflation eased at the same time as energy price inflation expectations fell.