Mohicans markets：Fed officials hint at more rate hikes, OPEC+ slightly increases production, Iran nuclear talks restart

Financial Events Today

09:30 Australia's June Goods and Services Trade Account (A$100 million), value 159.65, expected value 140, published value: to be released

09:30 Australia's June import monthly rate (%), previous value 6, expected value -- , published value: to be released

09:30 Australian June export monthly rate (%), previous value 9, expected value -- , published value: to be released

16:00 Singapore's total fuel inventories for the week ended August 3 (10,000 barrels), previous value was 4331.1, the expected value -- , published value: to be released

19:00 UK central bank benchmark interest rate in August (%), previous value 1.25, expected value 1.75, published value: to be released

19:30 Number of layoffs by challenger companies in the United States in July (10,000), previous value 3.25, expected value -- , published value: to be released

20:15 Canada's total reserve assets in July (100 million US dollars), previous value 1062.82, expected value -- , published value: to be released

20:30 U.S. June trade account ($100 million), previous value -855.5, expected value -801, published value: to be released

20:30 Canada's June trade account (100 million Canadian dollars), previous value was 53.2, the expected value was 48, published value: to be released

20:30 U.S. initial jobless claims for the week ended July 30 (10,000), value 25.6, expected value 25.9, published value: to be released

20:30 The number of people who continued to apply for unemployment benefits in the United States for the week ended July 30 (10,000), previous value was 135.9, expected value was 137, and published value: to be released

23:30 U.S. Treasury Auction on August 4th 4th Week - High Interest Rate (%), previous value 2.14, expected value -- , published value: to be Released

Risk Warning:

19:00 Bank of England announces interest rate decision and meeting minutes; 19:30 Bank of England Governor Bailey holds a press conference. The probability of the Bank of England raising interest rates by 50 basis points today is more than 80%, and the voting ratio for the rate hike and Bailey's guidance on the future rate hike path will be the key. GBP/USD could take a hit if the voting ratio changes, or if there is any sign of a slowdown in rate hikes.

24:00 2022 FOMC vote committee, Cleveland Fed President Mester delivers a speech on monetary policy. Fed officials this week leaned toward hawkishness, with Mester earlier saying the U.S. economy was not in a recession, had not seen inflation cool, and was committed to keeping it under control. U.S. two-year Treasury yields hit session highs after Mester's speech.

Global Views - List of Major Markets    

Spot gold fluctuated above 1770 before the U.S. market, fell below 1760 at the beginning of the U.S. market, then rebounded, and finally closed up 0.25% at $1765.37 per ounce; spot silver fiercely competed for the $20 mark, closing up 0.39% at 20.05 USD/oz. The U.S. dollar index once approached the 107 mark, reaching a maximum of 106.84, before falling back and closing up 0.03% at 106.37; the 10-year U.S. Treasury bond yield rose sharply in the U.S. market, breaking through 2.85% for a time, and now remains around 2.7%. WTI crude oil shot up to $96.54/barrel before the U.S. market, and then fell sharply, once falling below the previous low of $90.50/barrel, hitting a new low since February 25, and finally closed down 3.17% at $90.85/barrel. Brent crude oil fell as low as $96.48 per barrel, and finally closed down 2.87% at $97 per barrel. U.S. stocks opened higher and closed higher, the Dow closed up 1.28%, the Nasdaq Composite and the S&P 500 closed up 2.59% and 1.53%, respectively. The Nasdaq 100 closed at its highest level since May 4. Most popular Chinese concept stocks and large technology stocks rose. Paypal closed up about 9%, and Amazon and Apple closed up about 4%. The Internet celebrity Chinese concept stock AMTD Digital closed down 34.48% on Wednesday at $1,100 per share. It once rose above $2,000 per share during the session, but then quickly fell, with a drop of 41% at one point, triggering a circuit breaker, with a minimum price of $975. Cut in half from the highest price of the day. European stocks generally closed up. Germany's DAX30 index closed up 1.04% at 13,589.53 points; Britain's FTSE 100 index closed up 0.54% at 7,448.90 points; France's CAC40 index closed up 0.97% at 6,472.06 points; the European Stoxx 50 index closed up 0.97% at 6,472.06 points It closed up 1.31% at 3732.95 points. Cryptocurrencies traded in a narrow range, with Bitcoin holding near $23,000; Ethereum was trading above $1,600.

International News

1. The Fed officials made hawkish remarks again, extinguishing expectations of interest rate cuts next year one after another.

2. OPEC+ agreed to increase production by 100,000 barrels per day in September, the smallest increase on record.

3. The US July ISM services index unexpectedly rose to 56.7 from 55.3 in June.

4. A new round of negotiations on the Iran nuclear deal will be held in Vienna, Austria on August 4.

5. A relevant person from the South Korean Presidential Office stated at a press conference on the morning of the 3rd that because Pelosi‘s visit to South Korea overlapped with South Korean President Yun Seok-yeol’s vacation, there was no arrangement for a meeting between the two parties.

6. OPEC+ agrees to increase production slightly in September.

7. The United States will auction $98 billion in Treasuries to refinance.

8. EIA data shows that the U.S. commercial crude oil imports excluding strategic reserves recorded 7.342 million barrels per day in the week to July 29, the highest since July 2020.

9. The average annual cost of natural gas for the average German household soared by 184%.

10. Russia may make soybean export tariffs permanent and extend canola export tariffs for a year.

11. Switzerland imposes a seventh round of sanctions on Russia, including a gold embargo.

Institutional view

1. UBS strategist: European gas crisis could send sterling to record lows

① UBS strategists believe that both the Euro zone and the UK may encounter energy supply shortages this winter, and the UK's energy expenditure is expected to rise further in October, exacerbating the inflation and cost of living crisis. In this case, the pound will fall to an all-time low this year; 

② they lowered their forecast for the GBP/USD exchange rate for the fourth quarter from 1.26 to 1.15. This almost matches the 2020 period when the epidemic caused global market turmoil, and is only a little better than the situation in 1985; 

③ This is a bold contrarian forecast, because with the Bank of England raising interest rates, most analysts expect the pound to hold sterling by the end of the year. Steady at around $1.22. UBS strategists believe that even the biggest rate hike by the Bank of England in nearly 30 years will not bring a lasting boost to the pound

2. Goldman Sachs: The Bank of England is expected to raise interest rates more decisively and initiate an aggressive quantitative tightening policy

① Goldman Sachs strategists believe that the Bank of England may take stronger action at tomorrow's meeting, raising interest rates by 50 basis points to deal with high inflation.It also appears that the Bank of England will say it will implement aggressive quantitative tightening at a rate of 10billion pounds per quarter starting in October;

② The Bank of England is likely to raise its short and medium-term inflation expectations, while downgrading its 2022 economic growth forecast. The Bank of England's policy decisions will remain data-dependent and will be willing to act aggressively if high inflation persists. Despite risks to growth, firm inflation and a tight labor market will support further policy tightening after this month's meeting

3.Barclays: If the Bank of England raises interest rates by 50 basis points, the pound is expected to rebound slightly, and the pound will be sold on a larger scale if it raises interest rates by 25 basis points

①Barclays said that a 50 basis point interest rate hike by the Bank of England on Thursday may trigger a small conditioned rebound in the pound, while a 25 basis point rate hike should trigger a larger sell-off; 

②At 19:00 on August 4th, Beijing time, The Bank of England will release its interest rate decision and meeting minutes. At 19:30, Bank of England Governor Bailey held a monetary policy press conference; 

③Barclays expects the Bank of England to raise interest rates by 50 basis points, in line with market consensus; however, the bank also said that any rebound in the pound should be short-lived , or a quick reversal as the latest BOE forecasts are expected to point to the possibility of stagflation

4. Goldman Sachs predicts EUR/USD parity in 6 months

① Goldman Sachs lowered its forecast for the Euro against the dollar, citing the challenges faced by the Euro zone economy in the winter and is expected to fall into recession. 

② Goldman Sachs co-head of foreign exchange strategy Zach Pandl said: The next six months appear to be challenging for the euro area, which may keep the euro near parity against the dollar;

③Date and time：Goldman Sachs lowered its 3-month and 6-month EUR/USD forecasts to 0.99 and 1.02 from the previous 1.05 and 1.10, respectively

5. Capital Economics: Turkish lira at risk of a sharp and disorderly fall

①The Turkish lira remains at risk of a sharp and disorderly decline as Turkey is unlikely to raise interest rates amid rising inflation. Data on Wednesday showed that Turkey's inflation rate rose to a 24-year high in July, reaching an annual rate of 79.6%;

②Capital Economics economists said Turkey's inflation may be approaching its peak as energy inflation declines and food inflation appears to be nearing a peak, but is expected to remain very high for several months. Still, Turkish President Recep Tayyip Erdogan's grip on the central bank means raising interest rates is out of the question. Any sharp sell-off of the lira is more likely to lead to draconian capital controls than rate hikes.

Precious Metals

On Wednesday (August 3) at the beginning of the Asian market, spot gold fluctuated slightly, hitting a three-day low of $1,754.90 per ounce. Overnight, many Fed officials hinted that there will be more interest rate hikes and dispelled expectations of interest rate cuts next year. Data shows that the U.S. labor market is still tight, and the market's expectations for the Fed to raise interest rates by 75 basis points in September have increased. The dollar rebounded strongly from a low in nearly a month, recording the largest one-day increase since July 11, which significantly suppressed gold prices. Gold prices on Tuesday hit a new high of 1787.91 in nearly a month (close to the strong resistance of the low on May 16), and then fell back and closed near the 1760 mark.

The price of gold was blocked and fell near the strong resistance level, which significantly increased the possibility of the price of gold returning to the downward trend. However, concerns about the geopolitical situation have intensified. The US stock market is far from its high in nearly two months. The Dow fell by more than 1%, and the price of gold remained at the Above the 1750 mark, there is still a chance for the bulls in the market outlook.

It should be noted that there is no U.S. ADP employment data released this week. On June 30, the U.S. automatic data processing company ADP and the Stanford Digital Economy Lab announced that in order to provide a more robust and high-frequency labor market and economic growth forecast report, they will Improvements to the current methodology for the preparation of ADP employment data reports. Therefore, ADP will suspend the release of July data and plan to release a new ADP employment report on August 31, 2022.

This trading day focuses on the US ISM non-manufacturing PMI in July and the monthly rate of US factory orders in June. The current market expectations are not optimistic, which is expected to provide support for the price of gold; in addition, we still need to pay attention to the speech of the Fed officials.

This trading day, we need to pay attention to the US ISM manufacturing PMI data. This week, we also need to pay attention to the RBA interest rate decision, the Bank of England interest rate decision, the US July ISM non-manufacturing PMI, and the US July non-farm payrolls report. It is expected that Fed officials will also pay attention this week. Investors will also need to pay close attention to the speeches that will come out one after another.

Fundamentals are mainly bullish

[The United States increases sanctions against Russia, and Russia accuses the United States of directly participating in the war]

[The Dow recorded its biggest one-day drop in more than a month as geopolitical tensions intensified]

The fundamentals are mainly bearish

[The tight U.S. labor market continues to drive wage growth, and inflation remains high]

[Fed officials' determination to raise interest rates remains firm, dispelling expectations of interest rate cuts next year]

[Federal Reserve Bullard: The Fed and the European Central Bank are expected to achieve a “relatively soft landing” and avoid a severe recession] 

[The dollar has rebounded from a near low]

To sum up, this week, the Fed officials are inclined to make further hawkish speeches. Investors need to pay close attention to the changes in the market‘s expectations for the Fed’s interest rate hike in September. Performance, the current market is not optimistic about the US non-agricultural and other economic data in July, coupled with the tense geopolitical situation, if the gold price can hold the 1740-1750 regional support, the market outlook still tends to fluctuate and test the resistance near the 1800 mark.

Crude

In early Asian trading on Thursday (August 4), U.S. oil traded around $91.18/barrel. Oil prices fell more than 3% on Wednesday, hitting a new low of $90.39/barrel in more than five months during the session, as demand eased. Slowly, U.S. crude oil inventories unexpectedly increased, gasoline inventories also increased, coupled with a small increase in OPEC+ production, oil prices were suppressed. In addition, the restart of negotiations on the Iranian nuclear issue also provided support for the bears.

During the day, the focus will be on the number of layoffs by challenger companies in the United States in July and the number of initial jobless claims in the United States for the week ended July 30.

Bullish factors affecting oil prices

[U.S. service sector activity unexpectedly picks up in July]

[Strong earnings expectations boosted optimism and helped U.S. stocks close higher]

[Russia conducts numerous military operations in eastern, northeastern and southern Ukraine]

Negative factors affecting oil prices

The U.S. Energy Information Administration (EIA) said on Wednesday that U.S. crude oil inventories unexpectedly rose last week due to lower exports and lower refineries, while gasoline inventories also unexpectedly rose due to slowing demand.

[OPEC+ approves a small increase in September production]

[Omicron BA.4.6 mutant strain appears in the United States]

[U.S. and Iran to resume nuclear deal talks]

To sum up, despite the slight increase in production by OPEC+, demand has slowed, and inventories have increased, and oil prices have been strong; in addition, the restart of the Iranian nuclear negotiation has also helped the bears, and the emergence of the Omicron BA.4.6 variant in the United States may further increase the spread of the epidemic , the strength of the short side is strong, and oil prices may have further downside risks.

Foreign Exchange  

Beijing time on Thursday (August 4) in early Asian trading, the US dollar index rose slightly and is currently trading around 106.46. The U.S. dollar index, which has risen sharply so far this year, has retreated recently as investors begin to reassess the aggressiveness of the Federal Reserves rate hikes.

The dollar was up 0.6% against the yen at 134.05 late in the session, with Button saying the yen's “safe haven status is being eroded, and the dollar is both a source of growth and a safe-haven asset. Considering the state of monetary policy, it's definitely giving the dollar a boost this year.” The euro was flat at $1.0165 in late trade after a survey showed that business activity in the euro zone contracted slightly in July for the first time since early last year as consumers cut back on spending amid a cost-of-living crisis , the economic outlook is bleak. Sterling fell 0.1% against the dollar late at $1.2145. The Bank of England will hold a policy meeting on Thursday and is expected to raise interest rates for the sixth time in a row. According to Refinitiv data, money markets are now expecting a rise in the meeting on Thursday. With a greater than 90% chance of a 50 basis point rate, the Bank of England is trying to push inflation down from a 40-year high of 9.4%.

Big events to watch on Thursday: Bank of England announcement of interest rate decision and meeting minutes, Bank of England Governor Bailey holding monetary policy press conference.

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