Market Review
The US dollar index was dragged down by weak economic data this week and showed an overall downward trend. Although it rose on Monday and Tuesday, after Fed Chairman Powell made remarks that were considered dovish by the market, market expectations for interest rate cuts increased, and the dollar accelerated its decline, once falling below 105. After non-farm data showed that the unemployment rate rose to 4.1%, the dollar's decline intensified and hit a new low since mid-June, and then recovered slightly.
Spot gold was successfully boosted by the downward trend of the US dollar and US Treasury yields, and continued to rise this week. After the non-farm payrolls on Friday, it hit a high of $2,385 an ounce, the highest since early June and closed higher for the second consecutive week.
As for international oil prices, both crude oil prices hit their highest levels since late April during trading this week, thanks to optimism that the summer travel peak season will boost oil demand and concerns that the geopolitical situation in the Middle East may lead to a reduction in oil supply.
As for non-US currencies, the Japanese yen continued to depreciate, with the USD/JPY exchange rate rising to 161.94 this week, hitting a 38-year high for three consecutive days, but falling back on Thursday and Friday as the dollar's decline intensified. The dollar's decline also gave other non-US currencies a respite, with the British pound, euro, and Australian dollar all rising against the dollar for four consecutive days.
Bitcoin fell for four consecutive days this week, falling below $54,000 per coin for the first time since February 27. As of press time, it has fallen by more than 9% this week.
Events of the week
1. Federal Reserve: Need to be more confident about inflation
This week, the Federal Reserve released the minutes of its June meeting. The minutes showed that Fed officials said they were waiting for more evidence of cooling inflation and had differences on how long to maintain high interest rates. Officials continued to emphasize that it would be inappropriate to cut interest rates "until more information emerges that makes them more confident that inflation is moving towards 2%."
In addition, Federal Reserve Chairman Powell said this week that "considerable progress" has been made in reducing inflation and the latest economic data showed that inflation was returning to a downward track, but more relevant evidence was needed before cutting interest rates.
He also said that it is usually more difficult to reduce inflation in the service industry, and some service industry inflation is catch-up inflation, but inflation may return to 2% by the end of next year or the year after. He added that the current decision to cut interest rates faces dual risks. Cutting interest rates too early will lead to a reversal of inflation progress, while cutting interest rates too late will lead to a slowdown in the economy and the job market.
As for other officials, Chicago Fed President Goolsbee, the "king of doves", said that if US inflation continues to fall back toward the 2% target, policymakers should be prepared to cut interest rates. New York Fed President Williams refuted the remarks that the neutral interest rate has risen, saying that the long-term neutral interest rate has remained low.
2. Multiple data show that the US economy and employment are cooling down
The non-farm report released by the U.S. Bureau of Labor Statistics on Friday showed that the unemployment rate continued to rise to 4.1% in June, the highest level since November 2021; but non-farm employment increased by 206,000, greater than the expected 190,000, and the previous value was revised down from 272,000 to 218,000, resulting in an average monthly increase of 220,000 jobs in the previous 12 months; the average hourly wage in June increased by 3.9% year-on-year, the smallest increase since 2021.
After the release of non-farm data, U.S. interest rate futures traders expect the probability of the Federal Reserve cutting interest rates in September and December to rise slightly. The latest data highlights that the U.S. labor market is gradually cooling, which will support expectations that the Federal Reserve will cut interest rates later this year.
Previously, a number of data have shown that the US economy and employment performance have cooled. ISM manufacturing activity shrank slightly for the third consecutive month, while the raw material payment price index hit the largest drop in more than a year; ISM service industry activity shrank at the fastest rate in four years, weaker than all economists expected. In the job market, the number of job vacancies in the United States unexpectedly rebounded from a three-year low in May, but both hiring and layoffs increased; the number of people continuing to apply for unemployment benefits set the longest consecutive increase since 2018, and the "small non-farm" ADP report showed that private enterprises' hiring slowed down and wage growth slowed down.
3. US election: Biden faces pressure to withdraw from the race, but claims he will not give up
After last week's TV debate, Biden's physical and mental condition has been questioned by more people. Polls show that Trump's lead has widened, and nearly three-quarters of voters think Biden is too old. There are reports that the Democratic Party is secretly seeking to replace the presidential candidate. The New York Times said that Biden admitted to important allies that if he cannot reverse public opinion in the next few days, he may have to give up his bid for re-election.
However, the White House and Biden's campaign team quickly denied the report, and the Democratic National Committee is said to have officially nominated Biden as a candidate as early as mid-July in an attempt to regain support from the party and voters. Major Democratic governors in the United States are supporting Biden's re-election, and Biden himself has made it clear that he will not withdraw from the election. The market believes that the current Vice President Harris has a higher chance of becoming the Democratic candidate than Biden.
As for Trump, the U.S. Supreme Court ruled that he could receive partial criminal immunity, almost ensuring that his case would not go to trial before the November election. A New York judge subsequently postponed the sentencing date for his hush money case to September 18. In addition, Trump's campaign fundraising in the second quarter reached $331 million, surpassing Biden. Wall Street is already preparing for Trump's victory.
4. The central bank plans to start borrowing government bonds in the near future
The People's Bank of China said this week that in order to maintain the sound operation of the bond market, it has decided to conduct treasury bond borrowing operations for some primary dealers in open market operations in the near future based on careful observation and assessment of the current market situation. On July 5, the reporter learned from the People's Bank of China that the central bank has signed bond borrowing agreements with several major financial institutions, and the financial institutions that have signed the agreement have hundreds of billions of yuan of medium- and long-term treasury bonds available for lending. The central bank will borrow treasury bonds in an open-ended and credit-based manner, and will continue to borrow and sell treasury bonds depending on the operation of the bond market.
5. State Council: Clarify the transitional arrangements for existing companies to adjust their subscribed capital contribution periods
According to the latest regulations, for companies registered and established before June 30, 2024, if the remaining subscribed capital period of a limited liability company exceeds 5 years from July 1, 2027, it shall adjust its remaining subscribed capital period to within 5 years before June 30, 2027 and record it in the company's articles of association. Shareholders shall pay the subscribed capital in full within the adjusted subscription period; the promoters of a joint-stock company shall pay the full amount of the shares they have subscribed for before June 30, 2027.
6. The ECB may only have one rate cut left this year
ECB President Christine Lagarde said this week that there is not enough evidence yet to show that the inflation threat has passed. The market took this as a hint that the July policy meeting will remain unchanged, and therefore reduced bets on an ECB rate cut this year. It is now more inclined to expect another 25 basis point rate cut this year.
The chief economist of the ECB also said that the ECB is not completely sure that inflation pressure in the eurozone has been fully controlled. ECB board member Wensch believes that it is necessary to fully believe that inflation is falling back to the 2% target in order to support more than two rate cuts this year. Another board member Simkus has a different opinion, believing that unless there are unexpected economic events, there will be two more rate cuts this year.
7. Tesla's delivery volume exceeded expectations, and its stock price soared to a more than 5-month high
Tesla Inc (TSLA.O) on Tuesday reported second-quarter vehicle deliveries that beat expectations as its price cuts and stimulus measures boosted demand.
Data showed that Tesla delivered 422,405 Model 3 and Model Y vehicles in the second quarter, as well as 21,551 other models, including Model S sedans, Cybertrucks and Model X high-end SUVs. Deliveries fell 4.8% from the same period last year, but increased 14.8% from the previous quarter. In terms of production, Tesla produced 410,831 vehicles from April to June. Tesla's stock price rose 8% on the day of the announcement to a more than five-month high, and its market value returned to above $720 billion.
8. French election: Le Pen may not win a majority in the second round
The latest polls show that the National Rally led by Marine Le Pen may be "far from enough" to win a majority in the second round of elections to be held this Sunday. The French Institute of Public Opinion (Ifop) said that the far-right group is expected to win 210 to 240 seats in the 577 seats of the National Assembly. This means that the far-right party will lack the 289 MPs needed to easily pass bills and promote its agenda. Marine Le Pen said that even if it fails to obtain an absolute majority, the National Rally will seek to form a new government.
9. The British Labour Party won the election and former Prime Minister Sunak resigned
In the British House of Commons election, the Conservative Party suffered a crushing defeat and the Labour Party won an overwhelming victory. On July 5 local time, King Charles III of the United Kingdom accepted the resignation of Prime Minister Sunak. Subsequently, Labour Party leader Keir Starmer met with King Charles III at Buckingham Palace and was appointed by the king to become the new British Prime Minister and will be responsible for forming a cabinet.
The Conservative Party's seats were reduced to 118 in this election, far behind the Labour Party. It was a historic defeat and marked the end of its rule since 2010.
10. US officials revealed: Israel and Kazakhstan are expected to reach a ceasefire
A senior U.S. official said that U.S. President Biden and Israeli Prime Minister Benjamin Netanyahu discussed the draft Israeli-Hamas ceasefire agreement in a 30-minute phone call. Hamas' response has advanced the process and may provide a basis for resolving the hostage issue and a ceasefire in Gaza. "We have made a breakthrough in a key deadlock."
However, the official warned that an agreement "will not be reached in a few days." It is reported that ceasefire negotiations may be held in Doha, but there are still differences between Israel and Hamas on key terms. The Israeli Prime Minister's Office said Netanyahu reiterated to Biden that Israel will only cease fire after all its goals are achieved.
11. The EU will implement temporary tariffs on electric vehicles and make a final decision in 4 months
The European Commission announced that it will formally impose temporary anti-subsidy duties on pure electric vehicles imported from China from July 5, with a maximum period of four months. Compared with the data disclosed in advance on June 12, the temporary additional tax rate determined this time has been reduced. Within these four months, the additional tariffs must be voted on by EU member states and a final decision must be made. If the additional tariffs are finally passed, the new tax rate will be applicable for 5 years.
12. Japanese stock market hits new record high
Japanese stock indexes continued to rise during the session on Friday, with the Nikkei 225 index breaking through the March high to hit a record high; the Topix index also hit a record high. Insurance and banking stocks have been among the best performing sectors since the index bottomed out in mid-April, as the market expects the Bank of Japan to raise interest rates, thereby improving their profitability. The market currently expects a 50% chance of a rate hike by the Bank of Japan on July 31.
Japanese Finance Minister Shunichi Suzuki said the weak yen is pushing up import costs and affecting prices, and that stock prices are determined by the market, but he will closely monitor stock and foreign exchange trends. Due to the plunge in the yen, the Japanese Government Pension Investment Fund has lost its position as the world's largest pension fund.
The article is forwarded from: Jinshi Data
