Mai hui MHmarkets: July 6, 2023 - Fundamental Reminder

☆ 17:00 EUR Retail Sales MoM (MAY)

The expected value is 0.2%, the previous value is 0.

☆ The U.S. releases a series of employment data:

19:30 USD Challenger Job Cuts (JUN) & 20:15 USD ADP Employment Change (JUN)

& 20:30 USD Initial Jobless Claims (JUL/01) & 22:00 USD JOLTs Job Openings (MAY)

Economic data focus on the USD ISM Non-Manufacturing PMI (JUN) at 22:00.

☆ 23:00 USD EIA Strategic Petroleum Reserve Inventory Change (JUN/30)

☆ At 20:45, 2023 FOMC voting member and Dallas Fed President Logan participates in a discussion at the Central Bank Research Association (CEBRA) 2023 Annual Conference.

☆The 2023 World Congress on Artificial Intelligence will be held in Shanghai from July 6 to 8.

Market Overview

Review of Global Market Trend

On Wednesday, spot gold gave back all of its intraday gains and ended down 0.51% at $1,915.18 per ounce as the minutes of the Fed's policy meeting last month reinforced expectations that interest rates will remain higher for longer. Spot silver surged higher and eventually closed up 0.81% at $23.14 per ounce.

The U.S. dollar index oscillated upward, extending gains in the U.S. session to close up 0.233% at 103.36. The benchmark U.S. 10-year Treasury yield jumped to a near four-month high, closing at 3.933%.

International crude oil extended gains. WTI crude rose to a two-week high as traders chased gains in Brent crude the day before on the latest OPEC+ production cut plan after the holiday, eventually closing up 1.1% at $71.78 per barrel; Brent crude closed up 0.55% at $76.44 per barrel.

U.S. stocks oscillated slightly throughout the day, with the Dow closing down 0.38%, the S&P 500 closing down 0.2% and the Nasdaq closing down 0.18%. The new energy car sector was strong, with Peng Motors up about 6%, Nikola up 4.3%, Azera up about 2% and Tesla up nearly 1%, with a total market value of nearly $900 billion. 

Major European stock indexes closed lower across the board, Germany's DAX30 index closed down 0.63%, the FTSE 100 index closed down 1.03%, the European Stoxx 50 index closed down 0.92%.  

Market Focus

1. Minutes of the Fed's June meeting: a small number of officials supported the suspension of interest rate hikes after compromising, and staff still expect the U.S. economy to fall into recession at the end of the year.

2. U.S. New York City office idle space hit a record high in Q2.

3. German cabinet supports net new debt of 16.6 billion euros in the 2024 budget.

4. LME will lower the daily price limit for aluminum and copper direct contracts to 12% on July 24.

5. International Atomic Energy Agency: No traces of mines or explosives were found at the Zaporozhye nuclear power plant.

6. Japan's number of families with children fell below 10 million for the first time, and the proportion of “elderly caregivers” reached a record high.

7. The Associated Press said Iran abandoned its intention to seize two oil tankers after the U.S. military responded. Iranian side denied the report.

8. OPEC-UAE: will not join additional production cuts at this time, Kuwait said it did not ask OPEC+ to increase its quota, and Azerbaijan declined an invitation to join OPEC. Workshop 8: Ministers reviewed the market situation and agreed to continue consultations with non-OPEC countries. 

Geopolitical Situation

Conflict Situation

1. Ukrainian police have reported an explosion at a courthouse in the capital Kyiv.

2. Russian Defense Ministry: Russian forces repelling multiple Ukrainian attacks in Donetsk, Dijman, Southern Donetsk and Zaporizhzhny over the past day, hitting Ukrainian personnel and military equipment such as tanks and armored vehicles in the fighting.

3. General Staff of the Ukrainian Armed Forces: The Ukrainian army strikes the Russian manpower and equipment concentration areas, command posts and other targets; Ukrainian forces have made some gains in the direction of Bachmut, keeping pressure on Russian forces to the north and south of the city.

Institutional Perspective

01

Goldman Sachs

Goldman Sachs downgraded ICBC (01398.HK) and ABC (01288.HK) to sell

Goldman Sachs published a research note saying that similar to the 2013-2015 cycle, banks will strive to maintain dividends at the beginning of a downward cycle, and then give priority to capital and risk buffers over dividend targets when dividends, capital and provisions do not balance well. It expects China's banks to face similar challenges and repeat dividend payout patterns in 2023-2025. Goldman cut its pre-provision earnings forecasts for big banks by 5% and 6% for this year and next, while taking into account the risk of lower dividends, cutting its price targets by an average of 1%. Downgraded Agricultural Bank of China (01288.HK) to sell from neutral, with a target price of HK $2.45 from HK $2.62, saying that Agricultural Bank faces a significant risk of dividend reduction. Industrial and Commercial Bank of China (01398.HK) was downgraded to sell from buy with a target price of HK $3.55 each.

02

SOCIETE GENERALE

【SOCIETE GENERALE：The low EUR/USD implied volatility seems to ignore the risks facing the euro area economy】

“Given the economic instability in the euro zone, the low level of implied EUR/USD volatility looks like a sign of complacency,” Olivier Korber, FX derivatives strategist at Socgen Bank, said in a note. Implied EUR/USD volatility has fallen to the level of realized volatility, seemingly reflecting market complacency as the euro area recently faced a series of negative economic surprises and entered a technical recession. Implied volatility may now rise with the impact of a sharp rise in interest rates. Mechanically tightening monetary policy comes at the expense of future growth, the strategist said. Three-month implied volatility for the euro/dollar is around 6.425%, down from 8.6% at the start of the year, according to Refinitiv data.

03

MUFG

MUFG：Whether the dollar has further weakness will become clearer in July

July 5 - The dollar index fell 1.4% in June and whether the greenback will weaken further, or to what extent, should become clearer in July, MUFG economists report. Us PCE data at the end of June slowed further, raising the possibility that the Fed could extend its pause on rate hikes if US job market and CPI data also show signs of weakness. In that case, the Fed's tightening cycle could come to an end, which could help drive the dollar weaker. Even if the Fed hikes rates in July, the dollar's scope for appreciation in the second half of the year is still limited as markets are close to fully pricing in this expectation and most other G10 currencies' central banks expect further hikes.