Mai hui MHmarkets: July 7, 2023 - Fundamental Reminder

☆ 20:30 USD Unemployment Rate (JUN) & USD Non Farm Payrolls S s.a (JUN)

Rabobank said the stronger-than-expected data could boost the Fed's prospects for another rate hike after July and support the dollar in the near term, as the market is currently “still reluctant to digest expectations of further rate hikes after July”.

☆ Huawei's annual developer conference will be held in Dongguan on July 7-9.

☆ The following day at 0:45 am GMT, ECB President Lagarde participates in a panel discussion.

Market Overview

Review of Global Market Trend

On Thursday, the expected hot “ADP” data pushed up expectations that the Federal Reserve will raise interest rates further, spot gold dived nearly $25 to a new 3-month low, eventually closing down 0.34% at $1910.88 per ounce. Spot silver touched an intraday low of $22.53 per ounce and closed down 1.71% at $22.71 per ounce.

The U.S. dollar index turned up in the U.S. session, setting a new two-week high, but gave back gains in late trading and finally closed down 0.223% at 103.13. The two-year U.S. bond yield, which is the most sensitive to the Fed's interest rate policy, once rose above the 5.1% mark, and the 10-year U.S. bond yield continued to set a new four-month high, finally closing at 4.03%. The 10-year U.S. bond real yield rose 14 basis points from the previous trading day to 1.81%, a new 14-year high.

International crude oil was close to closing flat after a V-shaped reversal as data showed tightening U.S. crude supplies, but the growing likelihood of a Fed rate hike would weaken demand. WTI crude ended down 0.18% at $71.75 per barrel; Brent crude was flat at $76.44 per barrel.

U.S. stocks maintained losses throughout the day, with the Dow closing down 1.07%, the S&P 500 closing down 0.79% and the Nasdaq closing down 0.82%. The Nasdaq China Golden Dragon Index closed down 3%, NEXTEV, Pinduoduo closed down at 6% a line and Xiaopeng dropped 4.4%. Tesla closed down 2% and Apple closed marginally higher. The Chicago Board Options Exchange Volatility Index hit a new high in more than a month, rising 1.45 points to 15.60 points.  

The major European stock indices collectively plummeted, with Germany's DAX30 closing down 2.57%, the FTSE 100 closing down 2.17% and the Euro Stoxx 50 closing down 2.93%.     

Market Focus

1. The U.S. agreed to supply cluster munitions to Ukraine, sources said.

2. April-June, 9.49 trillion yen of overseas fund inflows to Japanese stock market, which was a quarterly high.

3. Pak-Russian President Lukashenko said the situation in Ukraine will change by fall, and perhaps peace talks will be launched.

4. Fed's Logan: further rate hikes may be necessary, skeptical of significant impact of lagging effect of rate hikes.

5. Saudi Arabia set the price of Arabian light crude sold to Asia in August at $3.2 per barrel premium to the average price in Dubai, Oman.

6. Eisai and Biogen developed Alzheimer's disease drug LEQEMBI received full FDA approval at $26,500 per year.

7. The SEC proposed new regulations for money funds, including stricter rules such as increasing the percentage of cash and equivalents held to 25% of overnight liquidity.

8. U.S. ADP employment jumped 497,000 in June; U.S. 10Y yield rose above 4% again in four months; Major European stock indexes generally fell 2~3% on Thursday; U.S. stocks followed the Eurasian market dip.

Geopolitical Situation

Conflict Situation

1. Ukrainian Defense Ministry: Russian missile strikes on Lviv, Ukraine, kill 4 people.

2. Belarusian President Lukashenko proposed that Ukraine and Russia start peace talks without preconditions.

3. General Staff of the Ukrainian Armed Forces: The Ukrainian air force struck Russian ammunition depots, electronic warfare systems and other targets, and carried out multiple airstrikes on Russian positions.

4. Russian Ministry of Defense: repellable multiple Ukrainian attacks in Kupiansk, Dijman, Donetsk, Zaporizhzhai, Kherson and other directions, and hit multiple Ukrainian command posts.

Institutional Perspective

01

Goldman Sachs

Goldman Sachs: Global demand for rare earth elements neodymium and praseodymium is expected to outpace supply from 2028.

02

SOCIETE GENERALE

【SOCIETE GENERALE：The low EUR/USD implied volatility seems to ignore the risks facing the euro area economy】

“Given the economic instability in the euro zone, the low level of implied EUR/USD volatility looks like a sign of complacency,” Olivier Korber, FX derivatives strategist at Socgen Bank, said in a note. Implied EUR/USD volatility has fallen to the level of realized volatility, seemingly reflecting market complacency as the euro area recently faced a series of negative economic surprises and entered a technical recession. Implied volatility may now rise with the impact of a sharp rise in interest rates. Mechanically tightening monetary policy comes at the expense of future growth, the strategist said. Three-month implied volatility for the euro/dollar is around 6.425%, down from 8.6% at the start of the year, according to Refinitiv data.

03

MUFG

【MUFG：Falling inflation trends in the UK could weaken the pound】

July 5 - Near-term U.K. inflation expectations should fall soon and the pound will weaken as expectations for the BOE's interest rate are lowered, MUFG analyst Derek Halpenny said in a note. He said recent CPI figures showed food inflation had peaked, UK supermarkets had already announced plans to cut prices and utility bills should fall from July. That should mean “a more meaningful decline in inflation over the coming months and will lead markets to question the extent to which the BOE will need to raise interest rates in the future.” It expects two more rate hikes from the BOE, compared with current market expectations of five, which would remove some of the current support for sterling yields.