May 17, 2023 - Fundamental Reminder

☆ At 07:00, 2024 FOMC member and Atlanta Fed President Bostic and 2023 FOMC member and Chicago Fed President Goolsbee will participate in a panel meeting on the economic outlook and monetary policy. Earlier, Bostic argued that a rate cut this year is not the basic expectation and may need to continue to raise rates but prefer to pause; Goolsbee said its last meeting was torn between raising rates or not.

☆ At 17:50, BoE Governor Bailey will speak at the annual meeting of the British Chamber of Commerce (BCC). Watch out for his views on the pace of future BoE rate hikes.

☆ At 22:30, USD EIA Crude Oil Stocks Change (MAY/12)

The market is currently expecting it to decrease by 1.3 million barrels. The API Crude Oil Stock Change for the week released this morning recorded an increase of 3.629 million barrels, compared to the expected decrease of 1.3 million barrels.

Market Overview

Review of Global Market Trend

On Tuesday (May 16), as the U.S. debt ceiling negotiations impasse hit risk appetite, and the U.S. retail sales data in April turned positive, the dollar index approached a five-week high, rising as high as 102.77, and finally closed up 0.166% at 102.62. The EURUSD turned lower after rising above the 1.09 mark, and the GBPUSD fell about 0.5% and lost ground to 1.25.

U.S. bond yields significantly higher, 10-year U.S. bond yields reached a maximum of 3.573%, closing back to 3.541%, up nearly 1% during the day; two-year U.S. bond yields rose more than 10 basis points, standing steady above the 4% mark and once rose above 4.10%. Both rose for three days to a new two-week high.

Spot gold made an unsuccessful attempt to stand at 2020 during the day and began to plunge shortly after the retail sales data was released, falling through the $2,000 integer psychological barrier and losing $1,990 for the first time in two weeks, eventually closing down 1.46% at $1,988.95 per ounce. Spot silver closed down 1.5% at $23.75 per ounce.

Crude oil turned lower after rising nearly 1% intraday, with WTI crude losing the $71 mark and closing down 1.12% at $70.62 per barrel; Brent crude lost the $75 mark and closed down 1.27% at $74.72 per barrel.

U.S. stocks extended their losses in late trading and closed lower across the board, with the Nasdaq closing down 0.18%, the Dow closing down 1.01% and the S&P 500 down 0.64%. The Nasdaq China Golden Dragon Index closed down 0.5%, with MISSFRESH surging 50% and Futu Holdings Limited and TIGR.US closing down 4.4% and 7.3%, respectively. PACW.US essentially erased the previous day's gains, closing down 14.5%.      

Due to the uncertainty of the progress of the U.S. debt ceiling, coupled with poor economic data, European stocks collectively closed lower, Germany's DAX30 index closed down 0.09%; Britain's FTSE 100 index closed down 0.34%; France's CAC40 index closed down 0.16%; Europe's Stoxx 50 index closed down 0.04%; Spain's IBEX35 index closed down 0.09%; Italy's FTSE MIB index closed down 0.13%.      

Market Focus

1. Debt Ceiling - McCarthy said after a second round of meetings with Biden that the two sides are still far apart, but a deal could be reached by the weekend. Biden cancelled his planned visit to Australia after the G7 summit in Japan and returned home to meet with McCarthy again over the weekend, and Biden was optimistic about reaching a deal. After the meeting, the US one-year CDS spread fell back to 155BP.

2. U.S. retail sales rose 0.4% month on month in April, which was less than the 0.8% estimate.

3. JPMorgan Chase CEO Dimon: JPMorgan Chase is unlikely to acquire more troubled banks.

4. EU finance ministers held a meeting and did not agree on the 11th round of sanctions against Russia.

5. Biden vetoed a bill to restore tariffs on solar panels in four Southeast Asian countries.

6.Japan's Topix index closed 0.6% higher at 2127.18 points, which was the highest level since August 1990.

7. Federal Reserve - Vice Chairman of Financial Supervision Barr: commercial real estate vacancy rate pushed up the risk, take full responsibility for the Fed's regulatory failures during his tenure. Logan: Tighter tightening does not mean less commitment to inflation targeting. Goolsbee: disagree with the use of market expectations to set policy, has not yet made a decision on the June resolution, it is too early to talk about rate cuts. Williams: The economy is expected to continue to grow this year and inflation is gradually moving in the right direction. Meister: data suggest that interest rates have not reached a sufficiently restrictive level to determine whether the next step is to raise or lower interest rates, and have not reached the level of suspension of interest rate increases.

Geopolitical Situation

Conflict Situation：

1. According to CNN, the head of Ukraine's Kiev City Military Administration said Kiev was hit by “unusually intense” air strikes, using drones, cruise missiles and possibly ballistic missiles. The vast majority of enemy targets over Kiev were detected and destroyed.

2. British Ministry of Defense Intelligence: In Bakhmut, Ukraine, Russian Wagner forces continue to make progress in clearing Ukrainian positions. Over the past four days, Ukrainian forces have made tactical progress in holding their flanks steady in Bakhmut, which has worked in their favor.

3. Ukrainian Deputy Defense Minister: Over the past few days, Ukrainian forces have recaptured about 20 square kilometers around Bakhmut.

4. The Russian Defense Ministry said that Russia has conducted high-precision naval and air strikes against Ukrainian forces and ammunition depots, and the goal was achieved. Russian forces destroyed Kiev's Patriot air defense system.

5. In response to Kiev's announcement that it had intercepted six Russian Dagger hypersonic missiles, the Russian defense minister said the number of interceptions reported by the Ukrainian side was three times the number of Russian launches.

6. Ukrainian Army Chief of General Staff: Ukraine shot down all 18 Russian missiles last night.

Sanction Situation：

  1. The EU foreign policy chief called for a crackdown on India's resale of Russian oil.

2. Russian deputy foreign minister said some Central Asian countries have signaled that they can join Western sanctions against Russia.

3. EU finance ministers met and did not agree on an 11th round of sanctions against Russia.

4. The U.S. House of Representatives passed a bill on a ban on Russian uranium imports.

MHMarkets

Institutional Perspective

01

Goldman Sachs

Goldman Sachs believes that the chances of Biden and congressional leaders agreeing on the debt ceiling are very low at this point. This seems to apply to all current meetings, and the odds of reaching an agreement only improve when the deadline is approached. Goldman Sachs' core expectation remains that the Treasury's cash balance will fall to its lowest level between June 8 and 13.

02

SOCIETE GENERALE

The feeling of overvaluation of the US dollar will not be easily shaken off

On May 12th, Kit Juckes, Chief Global Foreign Exchange Strategist at Societe Generale, said that the intraday trend of the US dollar was acceptable, but its valuation was not. The rebound in the yen is only a matter of waiting for the Bank of Japan to take action. The current global economic or geopolitical conditions are insufficient to justify the US dollar holding onto most of its gains from 2021 to 2022. On a daily basis, positions, yield trends, geopolitical uncertainties, and economic data trends all indicate that the US dollar may remain within a narrow range for a period of time. However, the feeling that the US dollar is overvalued is not easy to get rid of. The rebound in the yen is just a matter of waiting for the Bank of Japan to take action, and this feeling is also the same.

03

MUFG

【Mitsubishi UFJ: Turkish Lira May Extend Decline if Erdogan Wins Election】

On May 15 -- The Turkish lira could weaken further if Turkish President Recep Tayyip Erdogan fails to win an absolute majority (support) in Sunday's election, which would make him the clear favorite for re-election in the May 28 runoff, Mitsubishi UFJ said. Lee Hardman, a foreign exchange analyst at Mitsubishi UFJ, said in a report that the continuation of unconventional policy settings, a rising current account deficit, rising inflation and lower foreign exchange reserves will all lead to a weaker lira after the elections are over and the dust has settled. He said the depreciation trend of the lira slowed down before this year's election, leaving room for “recovery of (previous) weakness”. The dollar is currently up 0.2% against the Turkish lira, to around 19.6596.