May 24, 2023 - Fundamental Reminder

☆ 10:00 NZD RBNZ Interest Rate Decision (MAY/24) & 11:00 NZD RBNZ Press Conference

The market generally expects the New Zealand Fed to raise interest rates by 25 basis points to 5.50%, but recent developments have increased the risk of an unexpected rate hike by the central bank as its budget is seen as a factor driving inflation.

☆14:00 GBP Inflation Rate MoM (APR) & GBP Retail Price Index MoM (APR)

ABN AMRO says inflation data will be the big thing that makes or breaks the pound this week, and if the CPI report, as expected, shows inflation cooling enough to convince the Bank of England to suspend tightening in June, then the downside risk to the pound is quite high.

☆ 22:30 USD EIA Crude Oil Stocks Change (MAY/19) & USD EIA Strategic Petroleum Reserve Inventory (MAY/19)

With inventory data confirming improved demand, this may provide an upside catalyst for oil prices.

☆ BOE Governor Bailey will speak at 17:30 and 21:00 respectively. Bailey's speeches are after the release of CPI data, at which time investors can observe his stance on inflation.

Market Overview

Review of Global Market Trend

On Tuesday, spot gold V-shaped rebounded, hitting an intraday low of 1954.28; however, due to the lack of progress in debt ceiling negotiations and data indicating that the U.S. manufacturing sector is back in contraction, gold prices reversed their intraday losses and eventually closed up 0.29% at $1975.09 per ounce. Spot silver pulled up sharply before the U.S. session, but failed to recover all of its intraday losses, eventually closing down 0.88% at $23.45 per ounce.

The U.S. dollar index extended its rally, hitting a new high since March 20, eventually closing up 0.281% at 103.54. U.S. Treasury yields rose and fell, with the U.S. 10-year Treasury yield closing at 3.701%.

International crude oil shuddered higher, with U.S. crude and Brent crude both rose more than 2% at one point, as the tightening outlook for the gasoline market and a warning from the Saudi energy minister raised concerns about another surprise OPEC+ production cut. WTI crude closed up 1.99% at $73.8 per barrel; Brent crude closed up 2.24% at $77.73 per barrel.

The three major U.S. stock indexes closed lower collectively, with the Dow closing down 0.69%, the Nasdaq closing down 1.26% and the S&P 500 down 1.12%. Popular Chinese stocks generally closed lower, with NetEase down more than 5%, Bilbili and Vipshop down more than 4%, and iQIYI and Alibaba down nearly 4%.  

 European stocks across the board, Germany's DAX30 index closed down 0.44%; the FTSE 100 index closed down 0.1%; the European Stoxx 50 index closed down 0.99%.

Market Focus

1. Debt Ceiling - Republicans: Major differences remain on spending, no new negotiations scheduled at this time. McCarthy: still believe we can reach an agreement before the deadline, did not talk to Biden on Tuesday. It is reported that the Treasury Department has asked the agencies on whether they can postpone some of the payments due, and the Democrats are willing to help McCarthy consolidate his position as Speaker of the House in order to reach a debt deal that may attract opposition from Republican hawks.

2. Saudi energy warned investors betting on falling oil prices to “beware”.

3. U.S. media: Florida Governor DeSantis will announce his candidacy in the 2024 U.S. presidential election in a conversation with Musk on Thursday morning GMT.

4. Powell participated in a closed-door meeting on Tuesday. Participants said Powell revealed the message that the situation is improving, but there are still concerns about inflation. No hint of how to act in June.   

Geopolitical Situation

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

Concerns about slowing growth continue to linger as semiconductor exports remain weak, Societe Generale economists Suktae Oh and Kiyoung Seong said. The Bank of Korea's current cycle of rate hikes may actually be over, as its policy focus is shifting from fighting inflation to promoting economic growth.

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.