MHMarkets：August 11, 2023 - Fundamental Reminder

☆16:00 IEA Monthly Crude Oil Market Report

This comes as OPEC's monthly report expects healthy oil market fundamentals in the second half of the year.

☆20:30 USD PPI Data (JUL)

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

☆Closing Reminder: The Tokyo Stock Exchange in Japan will be closed for one day due to the Mountain Day. 

Market Overview

Review of Global Market Trend

On Thursday, spot gold rose to an intraday high of $1,930.19 on the back of weaker-than-expected inflation data, but then reversed course and accelerated below the $1,920 mark, where it rebounded but remained stuck. It ended down 0.09% at $1,912.58 per ounce. Spot silver remained stuck at the $23 mark and ended up 0.16% at $22.70 per ounce.

The dollar index fell and then rose, falling below 102 after the CPI data was released and reaching an intraday low of 101.78, but then strongly recovered all its losses and turned higher to end up 0.14% at 102.61. U.S. Treasury yields recovered, with the two-year yield falling and then rising to close at 4.850%. The yield on the 10-year Treasury note rose above the 4.1% mark to close at 4.121%.

Crude oil pulled back on Friday. WTI crude oil rose to an intraday high of $84.89 before starting its slide, ending down 1.87% at $82.82 per barrel; Brent crude fell more than 1%, ending down 1.32% at $86.27 per barrel.

The three major U.S. stock indexes closed higher and lower, with the Dow Jones Industrial Average up 0.15%, the Nasdaq index, which rose more than 1.6% at one point, eventually closing up 0.12% and the S&P 500 up 0.03%. The Nasdaq China Golden Dragon Index closed up 0.68%, with Alibaba, which reported renewed growth, leading the gainers with a 4.6% gain, JD.com and Pinduoduo up 2% and 1.5%, respectively. WeWork, which hit a record low, rose as much as 150% before paring gains to 38%.

Major European stock indexes closed in the red, with Germany's DAX30 up 0.91%, Britain's FTSE 100 up 0.41% and the Euro Stoxx 50 up 1.55%.

Market Focus

1. US Inflation Rate in July came in lower than expected at 3.2%, but still up 0.2% from June; Core CPI slowed to 4.7%. The data slightly dented the Fed's rate hike expectations, but gains in risk assets such as precious metals and stocks were completely erased by the end of the U.S. session.

2. Daly: Inflation Rate was mostly in line with expectations, but it does not prove that inflation is under control. Still a long way from discussing rate cuts, Fed Huck: Progress made on reflation. Nick Timiraos: Inflation picks up but moderate price pressures may keep Fed on hold.

3. WeWork, which hit a record low, jumped as much as 150% overnight.

4. Ecowas announced the activation of a regional standing force to respond to the Niger crisis.

5. MSCI's flagship index adjusted 29 Chinese stocks, including petrochina Capital and Bull Group, to be included.

6. Opec Monthly Report: Maintain global crude oil demand growth forecast at 2.44 million BPD in 2023; Opec production fell by 836,000 barrels a day in July after voluntary cuts by Saudi Arabia.

7. The U.S. will allow South Korea to pay Iran $6 billion for oil and release Iranian prisoners held in the U.S. in exchange for the eventual release of five Americans held in Iran. But the United States says it will continue to enforce all sanctions against Iran.

Geopolitical Situation

Food Situation：  

1. According to Interfax: Russia may raise its grain export forecast for this year.

2. The Ukrainian government raised its grain production forecast for 2023 to 56.4 million tons.

3. According to TASS: Russia will provide free grain to Africa in the near future.

Institutional Perspective

01

Goldman Sachs

Gurpreet Gill, Global Fixed Income Macro Strategist, Goldman Sachs Asset Management: The CPI data reinforces my view that July could mark the end of the Fed's rate hike cycle. Overall, the underlying details of the July CPI inflation data are consistent with the current progress in the fight against inflation.

02

SOCIETE GENERALE

Societe Generale: expects US Core CPI to rise 0.3% m/m, and a level of 0.4% or perhaps higher would mean chaos.

August 10-- We expect U.S. core CPI to rise 0.3% month-over-month in July, up from 0.2% in June, economists at Societe Generale said. That's not a disaster, but it's not ideal either, and not what a data-dependent Fed wants to see. It could help U.S. bond yields regain ground lost earlier in the week during a period of heightened risk aversion. A 0.4% or higher YoY increase or implies a chaotic scenario that could include a hawkish repricing of the Fed, a sell-off of U.S. Treasuries (and German Bunds), swap payouts, risk aversion in equities/credit/high-beta FX, and a strong U.S. Dollar, among other things. And a monthly rate of 0.2% or lower would be the Goldilocks scenario: equity and FX market risk appetite, and bullish flattening of 2yr/10yr US bonds.

03

MUFG

【MUFG: Japan's First Trade Surplus in Nearly Two Years, Which is Expected to Support the Yen】

August 10, MUFG said that over time, Japan's shift to a trade surplus will become a “key” factor in supporting the yen exchange rate. Earlier this week, Japan released data showing that the country's first trade surplus since October 2021, the size of the largest since July 2021, too. Derek Halpenny, head of global market research for Europe at MUFG, noted that “the fading of the negative energy price shock is a crucial fundamental shift for the yen.” As Japan's energy supply is mostly dependent on imports, last year's energy price spike on the yen exchange rate and Japan's current account pressure, but in the wake of a sharp decline in natural gas imports, the corresponding pressure has ceased to exist, which means that the dollar against the yen to further higher space or has been limited.