Morning Market Brief - Friday, 14th July
Asian stocks are on track for their best week this year, buoyed by a cooling in U.S. inflation, which has led to speculation that the Federal Reserve might pause rate hikes after this month.
The dollar has reached a 15-month low against major peers, while U.S. Treasury yields remain near multi-week lows following a significant weekly drop.
Gold prices are poised for their biggest weekly gain since April, as market expectations for further U.S. interest rate hikes have diminished, causing the dollar to weaken. Spot gold remains steady at $1,961.79 per ounce, while U.S. gold futures have seen a slight rise to $1,965.80. The decline in the dollar index has made gold more affordable for overseas investors, contributing to the upward trajectory of gold prices.
Forex traders and investors are closely monitoring the gold market, given the opportunities it presents for trading and hedging strategies. Understanding forex dynamics in relation to gold trading is crucial for making informed decisions in this dynamic market.
Oil prices are set to register their third consecutive weekly gain for the first time since April. The rise is driven by supply disruptions in Libya and Nigeria, as well as hopes of increased crude demand due to easing U.S. inflation.
Brent crude futures have added 5 cents to reach $81.41 per barrel, while U.S. West Texas Intermediate crude futures rose 9 cents to $76.98 per barrel. Protests in Libya alone could result in a daily loss of over 250,000 barrels of oil from the market. Additionally, Saudi Arabia and Russia, the world's largest oil exporters, have agreed to deepen oil cuts, providing further support to crude prices.
The Organization of the Petroleum Exporting Countries (OPEC) has upgraded its oil demand forecast for 2023, with expectations of a 2.2% growth in 2024. The National Bank of Australia predicts that if this forecast materializes, oil prices could exceed $100 per barrel. Furthermore, the softening value of the U.S. dollar continues to boost commodity prices.
U.S. consumer prices rose modestly in June, with the smallest annual increase rate in over two years. Producer prices also barely rose, reaching the smallest annual increase in nearly three years. These indicators have given hope to the markets that the U.S. Federal Reserve might be closer to ending its rapid monetary policy tightening campaign.
Global stocks are heading for their best weekly gains since November, as investors anticipate the nearing end of the U.S. monetary tightening cycle. The yen has rallied for a seventh consecutive day, while Asian shares, particularly in South Korea, Australia, and Hong Kong, have advanced. The MSCI ACWI Index has experienced a weekly rally of over 3%. Optimism regarding stronger efforts to boost the Chinese economy has buoyed market sentiment.
In Japan, stocks have fluctuated, while the yen continues its winning streak. Speculation about a potential policy tweak by the Bank of Japan (BOJ) has prompted investors to unwind their positions in Japanese government bonds (JGBs), strengthening the yen. Hideo Hayakawa, a former executive director at the BOJ, believes that the central bank will likely adjust its yield curve control program at this month's policy meeting due to stronger-than-expected inflation.
The U.S. dollar has slipped for the sixth consecutive session, resulting in the worst week for the dollar's strength index since November. Meanwhile, treasuries have remained relatively stable in Asia. The offshore yuan has ticked higher, and the People's Bank of China Deputy Governor, Liu Guoqiang, reassured that China has ample foreign exchange reserves and will prevent wild swings in the yuan exchange rate. Liu added that while the short-term movement of the currency cannot be accurately predicted, it remains aligned with its fundamentals.
The latest U.S. inflation report has provided encouragement to global markets, indicating easing price pressures in the U.S. economy. Tech megacaps led gains in the U.S. on Thursday, with the S&P 500 surpassing 4,500 and the Nasdaq 100 up over 1.5%. Yields on two-year treasuries dropped by 12 basis points, influenced by disinflation trends. While core inflation in the U.S. still exceeds the central bank's 2% target, the resignation of Fed Bank of St. Louis President James Bullard, who previously advocated for aggressive interest rate hikes, has boosted market sentiment. The start of the second-quarter U.S. earnings season is eagerly awaited, with expectations that U.S. companies will meet the low consensus bar. Tesla, Inc. stock remains a top long-term holding for many investors, given its recent record deliveries and growth potential in various segments.
Overall, global stocks are experiencing positive momentum, driven by optimism about the Chinese economy, easing U.S. inflation, and the potential end of the U.S. monetary tightening cycle. Stay informed about the latest developments in gold prices, oil markets, and key factors influencing forex dynamics to make informed trading decisions.
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Author: Kyriacos Kyriacou, experienced trader, broker, and educator in forex. He has a B.A. in Economics from Liverpool University and an M.S. in Marketing from Surrey University
