Mohicans markets ：Fed Rate Hike Expectations Ease Sterling May Usher in A Political Storm

Financial Events Today

☆22:00 The initial value of the University of Michigan's consumer confidence index for August will be announced, and the market expects it to be 52.5, higher than the previous value of 51.5. 

☆ According to market sources, the US House of Representatives will resume today to discuss the “Inflation Reduction Act”. 

☆The water level of the Rhine River in Germany is expected to drop to 40 cm today, and key locations are expected to be almost impassable. The Rhine Group CEO said the low water levels on the Rhine River would cause problems with coal transportation, delaying plans to restart coal-fired capacity.

Global Views - List of Major Markets

On Thursday, August 11, spot gold approached the 1800 mark, but failed to break above it, and then adjusted downward, and finally closed down 0.12% at $1,789.54 per ounce. Spot silver fluctuated downward and finally closed down 1.38% , at $20.31 per ounce. 

In terms of two oils, WTI crude oil rose 3% during the day, but failed to break above the $95 mark, and finally closed up 2.73% at $94.07 per barrel. Brent crude oil closed up 2.24% at $99.25 per barrel.

The U.S. dollar index once fell below the 105 mark, and then recovered some of the lost ground in the day, and finally closed down 0.114% at 105.13. The 10-year U.S. Treasury yield moved to around 2.90%, up 20 basis points from Wednesday's low, and finally closed up 0.05%. The inversion of the 2-year/10-year U.S. Treasury yield curve narrowed. 

US stocks closed, the three major stock indexes opened higher and moved lower, the Dow closed up 0.08%, the Nasdaq closed down 0.58%, and the S&P 500 closed down 0.07%. Most popular Chinese concept stocks rose. Xiaopeng Motors rose more than 7%, Tencent Music rose more than 6%, and Bilibili rose more than 4%. European stocks were mixed. 

Germany's DAX30 closed down 0.05%, Britain's FTSE 100 closed down 0.55%; France's CAC40 closed up 0.33%; the European Stoxx 50 closed up 0.21%.

Precious Metal

In early trading hours on Friday, August 12, as gold prices traded at the 1788 line, the U.S. producer price index in July tracked the headline consumer price index, both from the previous 11.3% and 10.4% % of the market forecast fell to 9.8% year-on-year. Nonetheless, the monthly PPI fell to its lowest level since May 2020, falling to -0.5% compared to expectations of 1.0% and 0.2% previously, which in turn points to more easing concerns about inflation.

In addition to the recent easing of inflation woes, US Weekly's dovish section on unemployment benefits also paints a picture of an improving employment scenario, tracking recent employment numbers in the world's largest economy, which in turn helps build risk sentiment. Still, initial U.S. unemployment benefits fell to 262K for the week ended Aug. 6, compared with expectations for 263,000, and a downward revision of 248K.

On the same line, so did the headlines surrounding China. Reuters, relying on sources, mentioned that U.S. President Joe Biden reconsidered steps to impose tariffs on China after Taiwan responded.

Against this backdrop, Wall Street started the day on a positive note before the close, while the U.S. 10-year Treasury yield was up 10 basis points at the latest to 2.88%. Notably, S&P 500 futures were up around $4,215, and Treasury yields were still firmer by the time of publication.

1.Gold prices remain subdued as bears attack key short-term support lines.

2.The inaction of the market in the light calendar limits the immediate movement of XAU/USD.

3.Inflation, Fed and China are in focus after the recent stream of risk-positive data.

4.Preliminary reading of Michigan Consumer Sentiment Index for August important for clear direction.

All in all, gold sellers are in the driver's seat and may retain control, but need to be verified from key US data.

Crude

In early trading on Friday, August 12, U.S. oil traded around $94.00 per barrel. Oil prices rose more than 2% on Thursday, hitting a one-week high of $95.02 per barrel, as the International Energy Agency raised this year's Oil demand growth forecast, high temperature in Europe to stimulate oil demand, coupled with the help of geopolitical tensions, oil prices are expected to hit the 100 mark.

Bullish Factors Affecting Oil Prices

[IEA raises forecast for global oil demand growth in 2022]

[Geopolitical tensions escalate, Ukrainian nuclear power plant is attacked]

[Goldman Sachs expects Brent crude oil to reach as high as $130 a barrel]

Negative Factors Affecting Oil Prices

[U.S. producer prices unexpectedly fell in July]

[U.S. initial jobless claims rose again] [9 companies will buy oil from U.S. strategic reserves]

[OPEC lowers its forecast for oil demand growth in 2022 for the third time]

On the whole, oil prices have been boosted by the IEA's increase in global oil demand growth forecast in 2022, coupled with the high temperature in Europe to stimulate oil demand, natural gas and electricity prices have soared to record highs, stimulating some countries to switch from natural gas to oil, coupled with the Russian-Ukrainian conflict. Continuing to promote the rise of geopolitical tensions, oil prices are expected to hit the 100 mark.

Foreign Exchange

In early trading hours on Friday, August 12, Beijing time, the US dollar index rose slightly and is currently trading around 105.12. Data at 20:30 Beijing time on Wednesday, August 10, showed that the U.S. CPI monthly rate in July was the same as the previous value after seasonal adjustment, and was not as hot as expected. Investors cut expectations for the Fed to raise interest rates by 75 basis points for a third straight month in September.

After the release of the monthly CPI report, the U.S. dollar index recorded its biggest one-day drop in five months on Wednesday, closing down 1.02 percent at 105.23. Traders revised their forecasts to factor in the possibility that U.S. inflation has peaked. Fed funds futures traders are now pricing in a 58% chance of a 50 basis point rate hike by the Fed in September and a 42% chance of a 75 basis point hike. The U.S. dollar index continued to slide on Thursday, falling as much as 0.57% earlier in the session, but then recovered most of its lost ground and finally closed up 0.03% at 105.15.

Some analysts pointed out that if the governments of the euro zone countries provide strong support for households and businesses, and the price of natural gas falls next year, the output value of the euro zone is expected to shrink by 0.3% in the fourth quarter and 0.2% in the next quarter, and GDP for the whole year of 2022. growth will slow to 3.3%. Investors are also concerned that the euro zone faces significant risks after the September Italian elections. Sterling may face a new round of storms as Britain's next prime minister proposes changes to the central bank's mandate.

International News

1. OPEC expects the global oil market to fall into oversupply this quarter. The Organization of the Petroleum Exporting Countries expects the global oil market to fall into oversupply this quarter, while lowering its demand outlook and raising its non-OPEC supply forecast. According to OPEC's latest monthly report, it lowered its third-quarter crude output forecast by 1.24 million bpd to 28.27 million bpd. That's about 570,000 bpd lower than OPEC's 13-member output in July. OPEC's Vienna-based research unit lowered its forecast for global crude oil demand this quarter by 720,000 bpd, while raising its non-OPEC supply forecast by 520,000 bpd. The average crude oil consumption in this quarter is expected to be 99.93 million barrels per day.

2. The monthly rate of PPI in the United States recorded -0.5% in July, the first decline since the beginning of the epidemic. In addition, the slowdown in the growth rate of the U.S. CPI in July announced on Wednesday has contributed to the markets expectations for peak inflation.

3. The IEA's monthly report showed that global oil supply reached its highest post-pandemic level in July at 100.5 million barrels per day. The compliance rate of OPEC countries‘production cuts was 523%, and Russia’s was 719%.

4. At present, there are significant downside risks to the global economy. It is expected that the global oil market will fall into oversupply this quarter, and the forecast for the growth rate of global crude oil demand this year has been lowered to 3.1 million barrels per day due to 3.36 million barrels per day.

5. Hungary's Ministry of Industry and Technology said that oil from Russia once again flowed to Hungary through the “Friendship” pipeline, and Hungary began receiving oil from Russia on the morning of the 11th.

6. According to Dow Jones, the European Union is proposing to make concessions to Iran to restart the nuclear deal.

7. The U.S. EIA natural gas inventories recorded 44 billion cubic feet in the week to August 5, compared with an expected 39 billion cubic feet and the previous value of 41 billion cubic feet.

8. Freeport LNG, the largest U.S. natural gas exporter, has withdrawn its initial declaration of force majeure following an explosion in June that could cost its buyers billions of dollars, according to three sources familiar with the matter. U.S.-based Freeport LNG more than doubled its gas deliveries, agency data showed.

9. Turkey and Russia have reached an agreement in principle on the purchase of Russian natural gas in rubles. The specific situation, timetable, price, etc. will be determined in the near future.

10. The Zaporozhye nuclear power plant was shelled again on Thursday, with Russia and Ukraine both accusing the other side.

11. Two key U.S. lawmakers have asked the National Highway Traffic Safety Administration to brief the Tesla safety investigation, according to the letter. The federal investigation, along with recent reports, has uncovered “disturbing safety concerns” with Tesla's Autopilot and Full Self-Driving features, the two lawmakers said.

12. It is not ruled out that the Federal Reserve will raise interest rates by 75 basis points for the third consecutive time at the September FOMC meeting, and will pay close attention to the non-farm payrolls and CPI data in August. Daly insisted that the federal funds rate should rise to just below 3.5% by the end of the year.

Institutional Currency View

1. TD Securities: Euro rally is a selling opportunity

① Mark McCormick, head of foreign exchange strategy at TD Securities, wrote in a report that now is the time to short the euro against the dollar and target parity. Despite the improving market backdrop, risk assets are not out of the woods. The peak of US inflation and the related “end of the search for the Fed's terminal interest rate” are important factors for predicting the peak of the US dollar, and now is not the time to be bearish on the US dollar.

② Investors may sell the euro at 1.0345, target parity, and stop loss at 1.055.

2. ANZ is bullish on the NZD

①The market's reaction to the news that US inflation may have peaked opened the door for the New Zealand dollar to strengthen further.

②ANZ economists said they expect the New Zealand dollar to gradually rise in the coming months.

3. ING: The upside of EUR/USD may be limited, and the upside of Europe and the United States may be limited

①Because the Fed is still committed to raising interest rates, and the energy supply problem in Europe is still a negative factor for the euro. ING analyst Chris Turner said in a research note that weaker-than-expected U.S. inflation data triggered a drop in the dollar, but the decline would not last as Fed officials have reiterated their plans to raise interest rates further.

② At the same time, the dry conditions and low water levels of the Rhine will bring challenges to the transportation of coal and other goods, thus keeping European gas prices high. This factor remains an outright bearish for the euro. 1.0350-1.040 may prove to be the top of the August trading range in Europe and the US.

4. ING: GBP/USD will fall back to 1.20, EUR/GBP may drop slightly below 0.84

① A weaker dollar gave GBP/USD a respite yesterday, but the pair stalled below resistance at 1.2300. ING economists expect GBP/USD to struggle to break through the 1.23 level and fall back to 1.20.

② Investors are advised to stop losses on short positions above 1.2300. However, analysts expect EUR/GBP to retreat slightly below 0.84, confounding GBP pessimists at 1.2192-0.1%.

5. Goldman Sachs: EUR/USD will fall to parity again in coming months

① Goldman Sachs economists believe that the Fed will raise interest rates by 50 basis points at its next meeting. EUR/USD is expected to fall towards parity again. Goldman Sachs economists still think the Fed's next meeting will reduce the rate hike to 50 basis points, but expect the rate hike may be more advanced.

② However, given that the market expects the Fed to cut interest rates next year, there are still upside risks to inflation and rate hike expectations in the coming months.

6. Commerzbank: Downside risks to the pound remain high

①While the foreign exchange market still seems to believe that the US economy is likely to have a soft landing, the UK may face the risk of a hard landing. Commerzbank economists expect the pound to struggle to rise. The Bank of England said on August 4 that it expected a more prolonged recession in the UK from the end of this year. Rising energy costs are a key reason for the Bank of England to sharply raise its inflation forecast.

② Of course, the Bank of England also wants to keep inflation under control. However, everything depends on how Europe's energy crisis develops. But the BoE's rate hike course is not set in stone, so downside risks to the pound remain high.

Statement | Disclaimer

Disclaimer: The information contained in this material is for general advice only. It does not take into account your investment goals, financial situation or special needs. Mohicans Markets has made every effort to ensure the accuracy of the information as of the date of publication. Mohicans Markets makes no warranties or representations regarding this material. The examples in this material are for illustration only. To the extent permitted by law, Mohicans Markets and its employees shall not be liable for any loss or damage arising in any way, including negligence, from any information provided or omitted from this material.The features of Mohicans Markets products, including applicable fees and charges, are outlined in the product disclosure statements available on the Mohicans Markets website and should be considered before deciding to deal with these products. Derivatives can be risky and losses can exceed your initial payment. Mohicans Markets recommends that you seek independent advice.

MohicansMarkets, (Abbreviation: MHMarkets or MHM, Chinese name: Mai hui), Australian Financial Services License No. 001296777.