June 14, 2023 - Fundamental Reminder
☆ 14:00 GBP GDP MoM (3M) (April)
☆ 16:00 IEA Oil Market Report
☆ 20:30 USD PPI YoY (MAY) & USD PPI MoM (MAY)
☆ 22:30 USD EIA Crude Oil Stocks Change (JUN/09) & USD EIA Strategic Petroleum Reserve Inventory (JUN/09)
☆ The following day at 02:00 USD Fed Interest Rate Decision & USD FOMC Economic Projections
The market expects the Fed to stay put.
☆ The following day 02:30 USD Fed Press Conference
Market Overview
Review of Global Market Trend
Data released on Tuesday showed that U.S. inflation is still on a downward trend. May CPI fell to the lowest since March 2021 and was lower than expected. Despite a slightly higher-than-expected core CPI, the dollar index weakened, narrowly missing the 103 mark. But Nick Timiraos, known as the "Fed's sounding board," then warned that the Fed may raise the dot plot, a word to reverse the impact of CPI, the U.S. index recovered most of its lost ground, closing down 0.26% at 103.3.
U.S. bond yields both declined after the release of CPI data, but both rebounded sharply after Timiraos' warning, rising to the highest level since the banking crisis. The two-year U.S. bond yield rose 10 basis points during the day, from 4.57% to 4.67%; the 10-year U.S. bond yield once rebounded 17 basis points from the daily low and closed slightly lower, closing near 3.81%.
Spot gold jumped up and down after the CPI data was released, with a huge intraday shock of $30, narrowly missing the $1,940 mark and closing down 0.72% at $1,943.6 per ounce. Spot silver lost the $24 mark and closed down 1.63% at $23.66 per ounce.
Crude oil was boosted by OPEC's monthly report on China's economic recovery and expected Saudi Arabia's production cuts will bring a larger energy supply gap, WTI crude oil rose more than 3% intraday and forced the $70 mark, closing up 2.9% at $69.26 per barrel; Brent crude oil rose more than 4% intraday, closing up 2.77% at $74.1 per barrel. The two oils recovered most of the previous session's losses and stopped a three-day losing streak. European natural gas futures jumped because of the impact of compressed supply from Norway's shutdown, once jumping 30% from the daily low to close up 16.2%.
U.S. stocks continued to close higher, the Dow closed up 0.43%, the S&P 500 index closed up 0.7%, and the Nasdaq closed up 0.83%. AMD, which released a new AI chip, closed down 3.6%, Apple closed down 0.2%, and Tesla closed up 3.5%, which was the 13th consecutive session of gains, with a cumulative gain of over 26% this month. The Nasdaq China Golden Dragon Index closed up 2.2%.
European stock indexes mostly closed up, Germany's DAX30 index closed up 0.79%; Britain's FTSE 100 index closed up 0.30%; France's CAC40 index closed up 0.56%; Europe's Stoxx 50 index closed up 0.74%; Spain's IBEX35 index closed down 0.09%; Italy's FTSE MIB index closed up 0.63%.
Market Focus
1. The U.S. CPI data series in May was generally weaker than expected, and interest rate markets saw only a 12% probability of a Fed rate hike this week, but U.S. bond yields fell before reversing, rising to a high since the banking crisis.
2. U.S. Treasury Secretary Yellen: should expect a slow decline in the dollar's status as a reserve currency.
3. The "secret documents storm" hearing: Trump appeared in court throughout the silence, did not answer any questions from the prosecution, and left the courtroom after the hearing.
4. Russian President Vladimir Putin said he was cheated again and considered withdrawing from the Black Sea food agreement.
5. Debt ceiling outreach: McCarthy forced to launch a new $120 billion spending reduction plan, or cause a U.S. government shutdown.
6. Foreign media: Iran's chief nuclear negotiator met with European officials on Tuesday, the latest sign of renewed diplomatic contacts between Western powers and Iran since last year.
7. The U.S. Department of Energy: will buy about 12 million barrels of oil in 2023 to increase the strategic oil reserve, which includes the purchase plan in August and September.
8. India closes major oil and container ports as strong tropical storm approaches.
9. OPEC monthly report: OPEC oil production fell by 464,000 bpd to 28.06 million bpd in May as voluntary production cuts took effect.
10. UK employment data for May was strong and interest rate markets increased bets on a Bank of England rate hike, with terminal rate expectations rising to 5.80% from yesterday's 5.5%.
Geopolitical Situation
Conflict Situation
1. Deputy Minister of Defense of Ukraine: the Ukrainian Army retook 7 settlements in the past week.
2. Zelensky held a meeting of the Supreme Commander, saying that the Ukrainian Army has made progress and that the enemy's losses are exactly what the Ukrainian Army needs.
3. According to Ukrainian TV station TSN: Russia has again attacked Ukraine with missiles, including Kiev, and all enemy targets in the airspace around Kiev were successfully destroyed by air defense forces. Ukraine claims to have shot down 10 of the 14 Russian-launched missiles last night.
4. According to Ukrainska Pravda: A fire broke out at an oil depot near Yablonovsky Bridge in Krasnodar, Russia.
5. According to Ukrainska Pravda: The General Staff of the Ukrainian Armed Forces said that over the past day, the Ukrainian forces killed 470 Russian soldiers and destroyed one Russian helicopter, four tanks, 20 artillery pieces and other equipment.
6. Russian Defense Ministry: Russian troops captured German Leopard tanks.
7. Russian Defense Ministry: Ukraine continues to try to launch attacks in the Bakhmut and South Donetsk regions. Russian troops successfully repelled three Ukrainian attacks near the village of Makarivka in South Donetsk and two attacks near Rivneupil in South Donetsk.
8. Putin: Ukraine's counter-offensive has been underway since June 4, and it is massive and still ongoing. Parts of Russia are facing attacks, and if the attacks continue, we will consider establishing a quarantine zone inside Ukraine. No additional mobilization is required at this time. If necessary, we will respond with depleted uranium weapons.
Assistance Situation
1. French President Macron: Western countries will increase military aid to Ukraine to help Ukrainian armed forces fight back against Russian forces.
2. Ukrainian Leopard 2 tanks destroyed, German defense minister says he will continue to provide more refurbished Leopard 1a5 tanks.
3. According to the Wall Street Journal: The U.S. will approve the supply of depleted uranium ammunition to Ukraine. U.S. Secretary of State Blinken: $325 million in weapons and equipment will be provided to Ukraine.
4. According to TASS: Belarusian President Lukashenko said that Minsk will receive Russian tactical nuclear weapons within a few days.
5. The British government announced a new package to provide Ukraine with vital air defense capabilities, announced today at the Joint Expeditionary Defence Ministers' meeting. The package will provide radar to help protect against indiscriminate Russian attacks, as well as firearms and large quantities of ammunition.
Food Situation
1. Putin: There has been no progress in the liberalization of Russian grain exports. They are not fulfilling the agreement. Will discuss grain deal with some African leaders who are expected to visit Russia. Withdrawal from the grain agreement is being considered. We are ready to provide food to the poorest countries without compensation.
Energy Situation
1. During his visit to Kiev, International Atomic Energy Agency (IAEA) Director General Grossi expressed "great concern" that the Zaporozhye nuclear power plant could be involved in a counterattack. He will personally visit the plant to assess the situation and plans to spend several hours there.
2. Russian President Vladimir Putin: The strike on Ukraine's energy infrastructure is a response to (Ukraine's) violation of Russia's red lines.
Institutional Perspective
01
Goldman Sachs
【Goldman Sachs CEO: Rising Inflation May Lead to Higher Interest Rates】
On June 13, Goldman Sachs CEO Solomon said the Federal Reserve may still raise interest rates as inflation remains stubbornly high. Solomon said: "Inflation is a bit of a tricky issue, and I do think there's a decent chance that rates will move up among the various possible outcomes. If they do, it could make the economic environment more challenging." Solomon said he was surprised by the economy's resilience in the face of a tighter economic environment, adding. It can cope with the past by a better soft landing than we expected. The Goldman Sachs CEO's words are usually more cautious than those of the bank's chief economist Jan Hatzius, whose team lowered its expectations for the probability of a U.S. recession over the next 12 months to 25 percent as banking sector stress eased and the U.S. suspended its debt ceiling. Capital market activity has been sluggish over the past year, but could begin to recover in 2024 as investors and companies have time to digest the new economic conditions and rework their plans, Solomon said.
02
SOCIETE GENERALE
【Societe Generale: 10-Year U.S. and German Treasury Spreads Expected to Narrow】
On June 2, Societe Generale interest rate strategists wrote in a report that there is room for a narrowing of the 10-year U.S. Treasury/German bond yield spread, which is consistent with the usual trend around the last Fed rate hike. They said, "Eurozone core inflation has yet to plummet, while the ECB's stance is less restrictive than the Fed's." They said, "This has helped narrow the spread between U.S. Treasuries and U.S. Treasuries." The yield spread between 10-year U.S. Treasuries and 10-year German Bonds currently stands at 135 basis points, with the 10-year U.S. Treasury yielding about 3.62% and the 10-year German Bond yielding about 2.27%, according to Tradeweb.
03
MUFG
【Mitsubishi UFJ: Norway's Central Bank May Increase Interest Rate Hikes, Boosting the Norwegian Krone】
On June 12, Mitsubishi UFJ Financial Group foreign exchange analyst Lee Hardman said in a report that the Norwegian krone should appreciate if the Bank of Norway accelerates the pace of interest rate hikes at its next meeting after the recent release of higher-than-expected inflation data. Norway's central bank has hinted that it plans to raise rates further at its June 22 meeting and will be under pressure to raise rates for a longer period of time, possibly even by 50 basis points. A hawkish policy response from the Norwegian central bank would help provide more support for the Norwegian krone, which has been severely undervalued since the beginning of this year.
