May 26, 2023 - Fundamental Reminder

☆ 20:30 USD Core PCE Price Index YoY (APR) & USD Personal Spending MoM (APR) & USD Core PCE Price Index MoM (APR) & USD Durable Goods Orders MoM (APR)

22:00 USD Michigan Consumer Sentiment Final (MAY) & USD Michigan 1 Year Inflation Expectations (MAY)

Fed Governor Waller noted Wednesday that April PCE inflation and May CPI data will be the “key” to deciding whether to pause in June to raise interest rates. Economists expect PCE prices to rise 4.6% year-on-year, which is unchanged from March.

☆ Hong Kong Stock Exchange is closed for the day, the Hong Kong Stock Exchange northbound trading is closed.

Market Overview

Review of Global Market Trend

On Thursday, spot gold fell to its lowest point since March 22, eventually closing 0.83% lower at $1,940.85 per ounce as optimism around U.S. debt ceiling negotiations reduced safe-haven demand for gold and strong economic data pushed up bets on another Federal Reserve rate hike. Spot silver lost the 23 handle and ended down 1.52% at $22.73 per ounce.

The U.S. dollar index continued its upward march after breaking the 104 barrier and ended up 0.298% at 104.24. The dollar stood at 140 against the yen for the first time in six months due to widening U.S.-Japan spreads. Driven by rising expectations of a Fed rate hike, the 2-year U.S. Treasury yield, which is sensitive to the interest rate outlook, had risen by nearly 20 basis points during the day, hitting a new high in 2 and a half months. The U.S. 10-year Treasury yield closed at 3.819%.

International crude oil is off three-week highs. Both oils plunged 4% at one point after Russia downplayed the prospect of further OPEC+ production cuts. WTI crude ended down 3.31% at $71.79 per barrel; Brent crude ended down 2.65% at $76.39 per barrel.

The three major U.S. stocks were mixed, with the Nasdaq closing up 1.71%, the S&P 500 up 0.88% and the Dow closing slightly lower by about 30 points. The strong earnings report pushed Nvidia to close up more than 24%, and the stock price once hit a intraday record high.The AI sector closed sharply higher, with Palantir up nearly 5%.    

 Most of the major European stock indices closed lower, Germany's DAX30 index closed down 0.31%; FTSE 100 index closed down 0.74%; Europe's Stoxx 50 index closed up 0.14%.

Market Focus

1. U.S. Debt Ceiling - A online meeting took place Thursday night, with some on both sides of the negotiations saying they are close to a deal. Republicans are reported to have made concessions on defense openings, and the two sides are split on discretionary spending at $70 billion, with a streamlined version of the deal taking shape initially. McCarthy: No deal on Thursday, will work overtime over the weekend, the Treasury Department is already preparing contingency plans in the event of a debt ceiling breach.

2. Armenia and Azerbaijan agreed to recognize each other's territorial integrity.

3. Days after the Saudi side warned crude oil shorts, Russian Deputy Prime Minister Novak said it was unlikely that any new measures would be taken at next week's OPEC meeting.

4. Fed-Collins: may have reached or close to the point of suspension of interest rate hikes, the evening series of data that will help the Fed to raise interest rates after the release of data, the interest rate futures market pricing the Fed to July's meeting will raise rates by 25BP, the probability of a rate hike in June is 50%, by the end of the year rates will be about 37BP lower than the implied peak, to 4.95%.

5. Fitch and DBRS Morningstar put the U.S. AAA rating on negative watch, while Moody's said that in case of default, the U.S. rating will drop by 1 level to AA1.

6. Bank of Japan Governor Kazuo Ueda said the YCC may be adjusted if the balance of benefits and costs of policy changes. overnight USDJPY rose above 140, setting a new 6-month high.

Geopolitical Situation

Sanction Situation

1. The EU has frozen more than 200 billion euros ($215 billion) of Russian central bank assets since the Russia-Ukraine conflict, the latest figures show.

2. According to TASS: Russia expelled five Swedish diplomats as a retaliatory measure, the Russian Foreign Ministry said.

3. The U.S. Treasury Department issued new Russia-related sanctions targeting individuals associated with Russia's Wagner Group.  

Institutional Perspective

01

Goldman Sachs

Goldman Sachs: EURUSD is unlikely to break above near-term range.

On May 25th -- Goldman Sachs analysts note that the European and U.S. currency pairs are unlikely to rise above their near-term ranges unless there are more diverging signals in favor of the euro zone. The analysts also noted that we have consistently maintained our year-end target of 1.10, and while this level has been tested twice, we expect this oscillation to continue as the market reassesses its relative policy path. We expect that there may be more room for a stronger dollar in the near term than the market is currently pricing in, and that the dollar may not depreciate more this year than the market expects.

02

SOCIETE GENERALE

The BOJ is expected to raise its target range for the 10-year government bond yield by 50 basis points to 1% at its next meeting.

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.