Mai hui MHmarkets: July 4, 2023 - Fundamental Reminder

☆ 12:30 AUD RBA Interest Rate Decision

The market expects it may raise the interest rate by 25 basis points to 4.35% to curb the high inflation. However, a Reuters survey of economists shows that the decision to raise or not to raise interest rates is still a close call.

☆ Market closure reminder: Due to the U.S. Independence Day, the New York Stock Exchange is closed for one day; ICE's Brent crude oil futures contract trading ends early at 01:30 GMT on the 5th; CME's precious metals and U.S. crude oil futures contract trading ends early at 02:30 GMT on the 5th.

Market Overview

Review of Global Market Trend

On Monday, spot gold shocked higher, before the U.S. market with a huge influx of buying orders began to pull up sharply, and in the less-than-expected U.S. manufacturing PMI data released continued to rise, the highest intraday touch 1931.02, the end of the retracement of some of the gains, and finally closed up 0.17% at $1921.58 per ounce, up about 5% in the first half of this year. Spot silver failed to challenge the 23 mark, eventually closing up 0.62% at $22.9 per ounce.

The U.S. dollar index showed an inverted V trend during the day, eventually closing up 0.058% at 102.98. U.S. Treasury yields continue to consolidate at high levels, the U.S. 2-year Treasury yield closed at 4.94%, the 10-year U.S. bond yield closed at 3.854%.

International crude oil rose and then fell as concerns about the global economic slowdown and continued Fed tightening outweighed supply cuts announced by major oil exporters Saudi Arabia and Russia in August. WTI crude oil once lost the key 70 mark and eventually closed down 0.37% at $70.08 per barrel; Brent crude closed down 0.31% at $74.86 per barrel.

U.S. stocks were closed early, with the Dow closing up 0.03%, the S&P 500 closing up 0.11% and the Nasdaq closing up 0.21%. Nasdaq China Golden Dragon Index closed up 2.13%, Tesla jumped nearly 7%, Q2 production and sales are exceeding expectations.   

European shares of the main stock index mixed, Germany's DAX30 index closed down 0.41%, the British FTSE 100 index closed down 0.06%, the European Stoxx 50 index closed down 0.02%.

Market Focus

1. Turkish stock indexes hit a new all-time high.

2. Palestine announced a halt to all contacts and meetings with Israel.

3. Nasdaq refiled its BlackRock Bitcoin ETF application with the SEC.

4. U.S. 2Y/10Y Treasury yields invert the deepest since 1981 to 109.50 bps.

5. According to the Financial Times: Apple is set to cut production of its head-up display device Vision Pro to no more than 400,000 units in 2024.

6. Turkey's state-owned banks are reported to have spent about $1 billion on exchange rate intervention on Monday. The country's central bank officials said the sale of dollars was only to provide liquidity and did not constitute an intervention in the exchange rate.

7. Saudi Arabia extended its 1 million bpd oil production cut to August, while Russia announced a 500,000 bpd cut in August and Algeria cut 20,000 bpd in the same period. International oil prices turned lower even after a short-lived stimulus surge.

Geopolitical Situation

Conflict Situation

1. Russian Defense Ministry: Russian forces repelling several Ukrainian attacks in the directions of Dijman and Donetsk, and thwarting the actions of two Ukrainian detection and sabotage teams.

2. General Staff of the Ukrainian Armed Forces: The Ukrainian forces have struck Russian control points, personnel and equipment concentration areas, artillery positions and air defense facilities; Ukrainian armed forces continue to advance in the direction of Bahmut.

3. According to the Interfax news agency, the FSB has foiled an assassination attempt on the Russian-appointed leader of Crimea.

4. Russian media: Russian Defense Minister Sergei Shoigu said that the June 23-25 provocation had no impact on Russia's actions in the special military operation zone (Ukraine). The plan to destabilize the situation in Russia failed.

5. Zelensky: Last week was difficult on the front, but we are making progress.

Assistance Situation

1. Saudi Arabia extended its voluntary production cuts by 1 million barrels a day for one month, followed by Russia, which announced an additional 500,000 barrels a day of oil production cuts and pledged to reduce oil exports by 500,000 barrels a day in August.

2. Algeria's Ministry of Energy: In support of Saudi Arabia and Russia's efforts to balance and stabilize the oil market, it will cut oil production by an additional 20,000 barrels between August 1 and August 31; The voluntary cuts will be added to the 48,000 barrels of cuts decided in April.

3. Russian Ministry of Finance: Russian Urals crude oil prices averaged $55.28 / BBL in June, down from $87.25 / BBL a year earlier and below the price ceiling set by Western countries.

4. Market news: Ukraine seeks to store 14.7 billion cubic meters of gas ahead of winter.

5. State Energy Company of Ukraine: One of the power supply lines of Zaporizhzhelan Nuclear Power Plant has resumed operation.

Institutional Perspective

01

Goldman Sachs

Goldman Sachs (GS.N) is in talks with American Express (AXP.N) about the latter taking over its Apple (AAPL.O) credit card and other businesses with Apple, according to people familiar with the matter.

02

SOCIETE GENERALE

SOCIETE GENERALE: The RBA will struggle to raise interest rates for three consecutive months and no important changes to its policy statement are expected

July 3 - We expect the RBA to keep its cash rate unchanged at 4.10% at its July 4 policy meeting, following two quarter-point rate hikes in May and June, Societe General notes, as in our view it would be difficult for policymakers to implement three consecutive months of rate hikes following May's sharp drop in inflation. We maintain our base scenario expectation that the RBA will opt for “pause” in July with no meaningful changes to the policy statement and expect the terminal rate to be 4.35%. If there is a rate hike and/or a hawkish change in the policy statement, the chances of a terminal rate above 4.35% will increase. 

03

MUFG

MUFG：The RBA needs to be hawkish or the Aussie dollar will come under pressure

July 4 - Interest rate markets are currently pricing in a 4 basis point rate hike at the Reserve Bank of Australia's July policy meeting. We agree with current market pricing and expect the RBA to keep rates on hold tomorrow. If the RBA keeps rates on hold as we expect, then the market's attention will quickly shift to the RBA's future interest rate guidance. Markets expect the RBA to raise rates by about 40 basis points by the end of the year, with the next hike expected in August or September. The current price action highlights expectations that the RBA will be hawkish, otherwise the Australian dollar will come under pressure.