May 25, 2023 - Fundamental Reminder

☆ 20:30 USD Initial Jobless Claims (MAY/20) & USD GDP Growth Rate QoQ 2nd (Q1)

☆ 22:00 USD Pending Home Sales MoM (APR)

☆ The Hong Kong Stock Exchange is closed for the day due to Buddha's Birthday, and northbound trading is closed.

Market Overview

Review of Global Market Trend

On Wednesday, with the dollar higher and with hawkish comments from Fed Governor Waller and the minutes of the May meeting dampening market expectations for its June press, spot gold sank nearly $30 from its daily high to end down 0.88% at $1,957.33 per ounce. Spot silver narrowly missed the 23 mark, eventually closing down 1.59% at $23.05 per ounce.

The U.S. dollar index moved further upward, approaching the 104 mark, eventually closing up 0.377% at 103.93. U.S. Treasury yields surged across the board, with the U.S. 10-year Treasury yield closing at 3.744%, due to the risk of debt default. The yield on U.S. Treasury bills due in early June rose above 7% on Wednesday, which was up more than 100 basis points during the day.

International crude oil closed higher for the third consecutive day. Due to the unexpectedly large reduction in U.S. crude oil inventories, WTI crude oil extended its intraday gains to 2% and narrowed in late trading, eventually closing up 0.5% at $74.25 per barrel; Brent crude oil stood at the 78 mark, eventually closing up 1.1% at $78.47 per barrel.

The three major U.S. stock indexes closed lower across the board, with the Dow closing down about 250 points initially, the Nasdaq closing down 0.61%, and the S&P 500 down 0.73%. The new energy vehicle sector fell in general, NextEV closed down over 9%, Faraday Future fell over 8%, Niu Technologies fell over 6%; Xiaopeng Motors closed down over 5%, Q1 results were lower than expected, and fell over 12% at the beginning of the session.

Major European stock indices collectively fell heavily, with Germany's DAX30 closing down 1.92%; Britain's FTSE 100 closing down 1.75%; and the Euro Stoxx 50 closing down 1.81%.      

Market Focus

1. Debt Ceiling - US Treasury Secretary avoids revealing actions after potential default, McCarthy says talks are making slight progress but remain divided, may be able to reach agreement in principle over the weekend. The House will adjourn for the long weekend and will receive 24H advance notice to return if needed, and representatives from both sides will continue negotiations this morning BST. U.S. Treasury yields due in early June rose above 7% on Wednesday, which was up more than 100BP+ intraday.  

2. Canada and Saudi Arabia will exchange new ambassadors to fully restore diplomatic relations.

3. Florida Governor DeSantis officially announced his candidacy for president in 2024.

4. The New Zealand Federal Reserve raised interest rates by 25 basis points to 5.5% as expected, while saying it expects 5.5% to be the peak of the current round of interest rates.

5. US EIA crude oil inventory change for the week to May 19 recorded -12.456 million barrels, which was the largest drop since November 2022.

6. UK CPI fell back to a single-digit annual rate in April, still beating expectations for a rise in the chain and recording a nearly 30-year high in core CPI. The market is pricing in the country's central bank to raise rates by at least 25BP in June.

7. Federal Reserve - May meeting minutes: officials are divided on whether to raise rates further or not (the minutes suggest a relatively large number of hawks), which was unlikely to cut rates. Some participants said the Fed “should be ready to use its liquidity tools” to offset the damage caused by a possible default. Waller: he does not support stopping rate hikes, June rate hike or skip in July to raise depending on the next three weeks of data. Bostick said that do not want to be trapped in a particular pace of interest rate adjustment (June skip/raise), it is best to consider a rate cut only next year.

Geopolitical Situation

Conflict Situation

1. Russian Defense Ministry: The warship Ivan Hurs was attacked by a Ukrainian naval drone in the Bosphorus region.

2. Russian Defense Minister: Russia will deal with attacks like the one on the Belgorod region in a “quite severe” manner.

3. Russian forces destroyed several U.S. and Polish-made combat vehicles during a strike against Ukrainian militants infiltrating into the Belgorod region on June 22.

4. Ukrainian Deputy Defense Minister Mariar: Russian troops are trying to apply pressure to the flanks and keep shelling on the outskirts of Bakhmut, where Ukrainian troops still control parts of southwestern Bakhmut.

5. The General Staff of the Armed Forces of Ukraine informs that the Ukrainian troops repelled several Russian attacks in the direction of Bakhmut, Avdeyevka and Kupyansk.

Assistance Situation

1. According to Kiev Independent: Ukrainian Air Force denied the claim of European Commission Vice-President and Foreign Minister Borrelli that several European countries, including Poland, have started training Ukrainian pilots to use US-made F-16 fighter jets.

2. Senior sources at EBRD: the bank expects to invest 1.5 billion euros in Ukraine in 2024.

3. Norway's defense minister: will support the training of Ukrainian pilots in F-16 fighter jets, has not yet decided whether to donate F-16 fighter jets to Ukraine.

4. EU discusses a plan to transfer profits generated from frozen 196.6 billion euros of Russian assets to Ukraine.

5. EU members' defense ministers meet in Brussels to discuss military aid to Ukraine, among other topics.

6. The U.S. State Department approved the sale of $285 million in military equipment to Ukraine, including a NASAMS short- and medium-range missile air defense system and supporting equipment.

Institutional Perspective

01

Goldman Sachs

Goldman Sachs: Dollar has 'more upside'.

Goldman Sachs Group analysts Michael Cahill and Lexi Kanter said the U.S. credit conditions have not tightened as initially feared, and economic activity in Europe has failed to meet the strong expectations earlier this year, so the dollar's upside in the near term may be greater than the market expects, and the total depreciation of the dollar this year will be more limited than the market generally believes. The dollar index has gained more than 1.7% so far in May as the market adjusted its expectations for the timing of a Fed rate cut, and the debt ceiling impasse has enhanced the dollar's safe-haven appeal. Analysts said the dollar may only slowly fall back from its highs, with some volatility during the period. With insufficient factors to ensure continued euro appreciation and a less divergent policy path from the Federal Reserve and European Central Bank, analysts are holding the EUR/USD exchange rate at 1.10 at the end of 2023.

02

SOCIETE GENERALE

If the Bank of Japan's monetary policy turns in June, the yen is expected to rise 7% in the near term.

03

MUFG

Mitsubishi UFJ: The dollar was dragged down by two factors.

Jin10, May 22, Mitsubishi UFJ Bank said that Fed Chairman Jerome Powell's speech on Friday did not strongly oppose market expectations for a rate cut before the end of the year, nor did it give a strong signal for a rate hike at the June meeting. Since then, the dollar has fallen after the U.S. interest rate market lowered expectations for a Fed rate hike in June, which now only reflects a hike of about 2 basis points. Another setback for the dollar was the collapse of U.S. debt ceiling talks, although the breakdown was short-lived as President Joe Biden said the call with House Speaker McCarthy was going well.