The strongest to the weakest of the major currencies
The JPY is the strongest and the AUD is the weakest as the NA session begins.
The RBA announced meeting minutes and the traders marked the AUD lower. According to the minutes, the Reserve Bank of Australia (RBA) discussed the potential for a 25 basis points rate rise. The board was split but ultimately decided that an immediate hike was necessary to ensure inflation would return to the target over a “reasonable” timeframe. Factors such as the increased risk of inflation expectations rising, higher-than-expected wage increases, and rising electricity prices and rents were cited as key inflation risks. Additionally, productivity was described as disappointing and in need of improvement to balance the wage increases. The board also noted signs of slowing consumer spending in Q2 and warned of the potential for a sharper economic slowdown due to lags in policy. Despite these concerns, falling commodity and shipping prices could alleviate some inflation pressure. The board concluded that they would continue to monitor household spending and financial stress closely and reiterated their commitment to do what is necessary to bring inflation to the target.
Recent economic developments have seen continued shifts in China central bank policy. Over the weekend US Secretary of State Blinkin met with China’s Xi with Xi calling the meeting “very good”. Meanwhile, China’s central bank cut the one and 5-year loan prime rate by 10 basis points to 3.55% and 4.20% respectively. The cut represented the first such reductions in 10 months and is in response to concerns over a flagging economy, signaling by the central bank, the urgency to stimulate recovery. The cut comes as property market concerns leave some market participants seeking more substantial intervention. Furthermore, geopolitical relations between China and the US have experienced a thaw, with Secretary of State Antony Blinken meeting with President Xi Jinping and suggesting further diplomatic exchanges in the coming months.
Meanwhile, China’s Alibaba’s CEO, Daniel Zhang, has made the decision to step down as CEO to become head of the important cloud unit. Zhang held the position for 8-years. This comes after Alibaba’s announcement about a planned restructuring into six business groups earlier this year.
The US stock and bond traders return after the Juneteenth holiday on Monday. The US stocks had solid gains last week with the S&P up for the 5th week in a row (up 2.5%) and the Nasdaq up for the 9th week in a row (up 3.25%). The Dow is up 3 consecutive weeks. The indices will be awaiting signals from the Federal Reserve on future monetary policy this week. Recent rate hikes have paused, but with multiple Fed speakers lined up to talk and Fed chair Jerome Powell’s two-day congressional testimony looming on Wednesday and Thursday, market sentiment is hesitant. All major indices are tracking lower in pre-market trading. Meanwhile, in the US debt market, yields are mixed with the shorter end lower and the longer end marginally higher
Crude prices exhibited mixed trends as U.S. traders return and begin digesting China’s recent rate cut. By early morning, U.S. crude futures are near unchanged in up and down trading. Concerns over China’s economic recovery, the world’s largest crude importer, continue to impact oil prices, with the country’s benchmark loan prime rate cut having a limited effect due to market anticipation. The market will also be eyeing Federal Reserve Chair Jerome Powell’s upcoming congressional testimony, given hints at future interest rate hikes despite a pause in the bank’s tightening cycle. These prospects, combined with concerns over the U.S.’s economic activity as the largest energy consumer, have contributed to the pressure on crude prices. Additionally, U.S. crude inventories and fuel stocks have significantly exceeded forecasts, raising questions about energy demand during the peak summer travel period.
Bullard spoke in Spain, but his presentation was largely technical (from an economist’s sense). You can see his slide HERE. At 1545 GMT/1145 US Eastern time: Federal Reserve Vice Chair for Supervision Michael Barr and Federal Reserve Bank of New York President John Williams participate in “Reflections on Culture: A Leadership Conversation” before the 2023 Governance and Culture Reform Conference. HMMM, we might have to wait for Q&A from that one too.
US building permits and housing starts will be released at 8:30 AM ET.
A snapshot of the markets currently shows:
- Crude oil is trading modestly lower (July) at $71.68 down -0.14%
- Spot gold is trading up $2 or 0.10% at $1951.01
- Silver is down $0.10 or -0.43% at $23.82
- Bitcoin is trading at $26,864.
In the premarket for US stocks, the major indices are trading lower
- Dow Industrial Average is trading down 100.12 points after Friday’s minus 108.94.1
- S&P index is trading down 13 points after Friday’s -16.25 point decline
- NASDAQ index is trading down 41 points after Friday’s -93.25 point decline
In the European equity markets, the major indices are trading mixed
- German DAX down -0.35%
- France’s CAC down -0.14%
- UK’s FTSE 100 up 0.11%
- Spain’s Ibex up 0.17%
- Italy’s FTSE MIB down -0.17% (delayed)
In the Asian Pacific market today :
- Japan’s Nikkei rose 0.06%
- Hang Seng index fell -1.54%
- Shanghai composite index fell -0.47%
- Australia’s S&P/ASX 200 index rose 0.86%
In the US debt market yields mostly lower
- 2-year yield 4.697% -2.5 basis points
- 5-year yield 3.967% -2.6 basis points
- 10-year yield 3.753% -1.5 basis points
- 30-year yield 3.854% unchanged
In the European debt market, benchmark 10 year yields are all trading lower: