Mai hui MHmarkets: June 16, 2023 - Fundamental Reminder

☆ 11:00 JPY BoJ Interest Rate Decision

☆ 14:30 JPY BoJ Governor Kazuo Ueda Press Conference

☆ 19:45 USD Fed Waller Speech

☆ 21:00 USD Fed Balkin Speech

☆ 22:00 USD 1 Year Inflation Expectations (JUN) & USD Michigan Consumer Sentiment Prel (JUN)

Market Overview

Review of Global Market Trend

Last night the ECB raised interest rates by 25 basis points as expected, and the market raised bets that the central bank will raise rates by another 50 basis points, which boosted the euro and led to a big dive in the dollar index. Although the subsequent US retail sales data showed that US consumer demand was still strong, the U.S. Dollar Index did not stop falling, almost falling below the 102 threshold, closing down 0.74% at 102.16.

U.S. bond yields also fell sharply, with the 10-year U.S. bond yield falling from 3.79% to 3.72%; the two-year U.S. bond yield once fell nearly 16 basis points from the daily high, falling from 4.69% to 4.65% during the day.

Spot gold fell to $1,924.9 per ounce before the ECB interest rate resolution, then pulled up sharply as both the U.S. dollar and U.S. bond yields dived, and once stood at the $1,960 mark during the session, closing up 0.86% at $1,958 per ounce. Spot silver once fell to near $23, then recovered most of the lost ground, closing down 0.13% at $23.88 per ounce.

Crude oil received a boost from the diving dollar index and high risk sentiment, with WTI crude oil regaining the 70 mark, closing up 2.69% at $70.52 per barrel, and Brent crude oil closing up 2.78% at $75.61 per barrel. The news that the Netherlands may shut down Europe's largest natural gas field this year due to earthquake risk led to a spike of more than 30% in Dutch natural gas futures, the continent's benchmark, before giving back most of its intraday gains.

The three major U.S. stock indexes opened lower and higher, with the Dow closing up 1.26%, the S&P 500 closing up 1.22% and the Nasdaq closing up 1.15%. Microsoft closed up 3.2%, with a total market cap of about $2.6 trillion and a cumulative gain of more than 45% so far this year. The Nasdaq China Golden Dragon Index closed up 2.1%.     

European stocks mostly closed lower, Germany's DAX index closed down 0.13%; Britain's FTSE 100 index closed up 0.34%; France's CAC 40 index closed down 0.51%; Spain's IBEX 35 index closed down 0.04%; Italy's FTSE MIB index closed down 0.22%.

Market Focus 

1. Several government agencies, including the U.S. Department of Energy, were hacked.

2. Microsoft's total market capitalization came to about $2.6 trillion, a record high, and rose more than 45% this year.

3. The Netherlands may shut down Europe's largest natural gas field this year due to earthquake risk, European natural gas futures once rose more than 30%.

4. The Federal Reserve 2024 FOMC member Bostic in the May meeting last year before the “silent period” within the violation of a number of transactions, is now under investigation.

5. low-risk appetite funds back into the bond market, the Fed's overnight reverse repo tool use size for the first time in a year below 2 trillion dollars.

6. Japan's holdings of U.S. debt increased by $39.3 billion to $1.127 trillion in April. China's holdings of U.S. debt decreased by $400 million in April to $868.9 billion.

7. Australian government bond yield curve (3y/10y) is inverted for the first time since the 2008 financial crisis. New Zealand confirmed yesterday that it is in recession.

8. The European Central Bank raised interest rates by 25 basis points as expected, the eighth consecutive rate hike, and borrowing costs have since risen to a 22-year high. Lowered economic growth expectations to 0.9% and 1.5% for this year and next year respectively. Raised inflation expectations for the next three years. Hinted that there will be further interest rate hikes in the future.

Geopolitical Situation

Conflict Situation

1. According to Russia Today: Drone strikes hit Crimea.

2. According to the Ukrainian state news agency, the Russian military launched 13 Shahd drones to attack Odessa in the middle of the night, and Ukrainian air defense forces shot down all of them.

3. The General staff of Ukraine's armed forces said yesterday that Russian troops lost 580 soldiers, 12 tanks, 14 armoured vehicles, 10 artillery pieces and other equipment. Over the past week and a half, Ukrainian armed forces have advanced around 3km on the front line.

4. The Russian Defense Ministry released a war report saying that Russian forces used long-range, air-based precision guided weapons to strike Ukrainian drone production bases. Russian forces have repeled multiple rounds of Ukrainian attacks, hitting tanks, armored vehicles, self-propelled artillery and other targets. Russian forces shot down two Ukrainian Su-27 fighter jets and a number of drones, and intercepted a number of Havas rockets.

5. According to TASS: Belarusian border guards shot down Ukrainian drones in the Gomel region.

Assistance Situation

1. Japan is in discussions with the U.S. about supplying artillery ammunition to Ukraine to boost its stockpile, according to the Wall Street Journal.

2. Norwegian government: Norway and Denmark agreed to donate an additional 9,000 artillery shells to Ukraine. Norway provided the shells and Denmark provided the fuses and firing ammunition.

3. According to Ukraine Pravda: The Pentagon expects the Ukrainian army to complete its training program for Abrams tanks by the end of the summer. The end of the training roughly coincides with the expected delivery of 31 M1A1 Abrams tanks to Ukraine in the fall.

4. Ukraine's central bank: Ukraine has received about $20 billion in financial aid from Western partners so far in 2023.

5. The United States, the United Kingdom, the Netherlands and Denmark issued a joint statement that they would provide hundreds of short - and medium-range anti-aircraft missiles and related systems to Ukraine.

Energy Situation

1. According to Interfax: the Caspian Oil pipeline is planned to transport about 60-61 million tons of oil in 2023.

2. Senior U.S. Treasury official: No immediate proposal to change $60 per barrel price ceiling for Russian oil.

3. Russia will cut its oil export tax to $15.6 per metric ton on July 1. 

Institutional Perspective

01

Goldman Sachs

【Goldman Sachs: Expect final 25-basis-point ECB rate hike in July】

June 15 - The European Central Bank's interest rate decision tonight was widely expected given the still-resilient labor market, strong core inflation and hawkish comments from the ECB, Goldman Sachs Asset Management said. While economic activity remains resilient, tight monetary policy appears to be impacting financing conditions and underlying inflationary pressures have started to ease, Goldman Sachs said. Macroeconomic strategist Gurpreet Gill believes the ECB is in the final stages of tightening, predicting a final 25 basis point rate hike in July, taking the final rate to 3.75%. 

02

SOCIETE GENERALE

SOCIETE GENERALE: The ECB needs “ take a strong stand ” tonight to keep supporting the euro.

June 15 - Societe GENERAL says THE European CENTRAL Bank needs “tough talk” tonight to avoid a failure of the euro rally. Notably, markets are now pricing in another 50 basis point rate increase by September, though views on a third increase are divided. Societe General said it would take an improving economic outlook in Europe to push the euro above the 1.15-1.20 range at the end of the year and early next year. Signs of improving economic data in Europe could have a bigger impact on the euro outlook in the coming weeks, while the ECB could also just sound hawkish tonight, the bank said.

03

MUFG

【MUFG: Dollar gains may be limited as Fed rate hikes come to an end】

June 15 - The dollar's rally after the Federal Reserve paused today may not last long unless U.S. economic activity and inflation data released later exceed expectations, Mitsubishi UFJ said. The bank's currency analyst Lee Hardman said the Fed should soon end rate rises as evidence of disinflationary pressures continues to build. While another rate increase is likely in July, “we remain unconvinced” that a second increase is warranted, as weaker data on economic activity and inflation could prompt the Fed to signal that policy tightening has been sufficient.