Mai hui MHmarkets: July 27, 2023 - Fundamental Reminder

☆ 20:15 EUR ECB Interest Rate Decision

ECB is expected to raise interest rates by 25 basis points.

☆ 20:30 USD Initial Jobless Claims (JUL/22) & USD GDP Growth Rate QoQ Flash (Q2) & USD Real Consumer Spending QoQ Flash (Q2) & USD Core PCE Prices QoQ Flash (Q2)

☆ 20:45 EUR ECB President Lagarde Press Conference

☆ 22:30 USD EIA Natural Gas Stocks Change (JUL/21)

☆ The following day at 01:00 Fed Discussion on Proposed Rules and Rule Adjustments

Market Overview

Review of Global Market Trend

Early this morning, the Fed raised interest rates by 25 basis points as scheduled. Powell said at the press conference afterwards that if the data allowed, it would raise interest rates in September, but it was willing to stop raising interest rates before inflation fell to 2%. There would be no interest rate cut this year. That means July could be the last increase. The dollar index pulled back sharply on Powell's dovish comments, closing down 0.29% at 101.03.

Treasury yields extended losses during Mr. Powell's remarks, with the yield on the two-year note, which is more sensitive to monetary policy, falling as low as 4.82% to 4.85% from 4.89% during the day, while the yield on the 10-year note fell as low as 3.85% to close at 3.87%.

Spot gold rose as much as $10 ahead of the rate decision, nearly gave up intraday gains after the announcement, then extended gains during Powell's remarks, rising as high as $1,978.4 an ounce to settle up 0.38% at $1,972.24 an ounce. Spot silver briefly topped $25 and closed up 1% at $24.93 an ounce.

Crude oil corrected after a four-day winning streak, with WTI crude down 0.5% at $78.89 a barrel and Brent crude down 0.35% at $82.62 a barrel.

The Dow Jones Industrial Average closed up 0.24%, tying its longest winning streak on record for 13 days, while the S&P 500 rose 0.02% and the Nasdaq fell 0.12%. The Nasdaq China Golden Dragon Index closed up 2.82%, while Xpeng Motor gained 26%. ChatGPT concept stocks opened higher, Google A closed up about 6%, NetEase Youdao closed up more than 5%, Alibaba, Zhihu closed up more than 2%.

Major European stock indexes mostly closed in the red, with Germany's DAX30 down 0.50%, the U.K. 's FTSE 100 down 0.19% and the Euro Stoxx 50 down 1.04%.      

Market Focus

1. The Fed raised interest rates by 25BP to a 22-year high as scheduled in the early morning, leaving plenty of flexibility for further increases. Mr. Powell reiterated his determination to fight inflation and his expectation of no interest-rate cuts this year, saying he could cut rates while shrinking the balance sheet and that the bank's economists no longer expect a recession.

2. California's power grid issued an emergency alert on Wednesday night.

3. Fitch upgraded Brazil to “BB” with stable outlook.

4. The Baltic Dry index had its biggest one-day gain in nearly five months.

5. Meta Q2 revenue and Q3 revenue guidance beat expectations, up sharply after hours. The metaverse division fell into a “black hole”, racking up losses of $21.3bn.

6. Catalyzed by the Fed's interest rate decision, gold and US stocks fell after a surge overnight, US Treasury yields fell about 4BP, and the Dow Jones Industrial Average equalized its longest streak of 13 consecutive gains. As of this morning, markets are pricing in a 40% chance of another Fed rate hike, followed by a standard rate cut in Q2.

Geopolitical Situation

Conflict Situation

The Russian Defense Ministry informed on the 26th that progress was made in the direction of Honliman, with Russian troops advancing almost 3 kilometers in Sergeyev in the Luhansk region. Over the past day, Russian troops have repulsed Ukrainian offensives in several directions. In addition, the Russian air defense forces intercepted a number of “Hymas” rockets and “Storm Shadow” cruise missiles. The General Staff of the Ukrainian Armed Forces released a war report on the 26th, said that in the past 24 hours, the Ukrainian air force, rocket and artillery units of the Russian army personnel and equipment concentration areas, electronic warfare equipment and air defense systems to carry out strikes to destroy the Russian army, a Ka-52 helicopters and a number of drones. The Ukrainian Defense Ministry's press center said on the same day that Russia has intensified combat training for the Black Sea Fleet's surface units and naval aviation. The Ukrainian Defense Ministry believes that Russia is practicing a blockade of the Black Sea waters.

Institutional Perspective

01

Goldman Sachs

 【Tom Malafronte, Goldman Sachs partner and head of leveraged finance trading, is reportedly leaving the bank】

July 27 -- Goldman Sachs Group Inc.'s top leveraged finance trader and partner Tom Malafronte plans to leave the bank at the end of this year, according to people familiar with the matter. He joined Goldman Sachs in 2013 from Credit Suisse Group and was promoted to head of leveraged financial trading in the U.S. in 2019, according to industry records. He brought in about $300 million in trading revenue in 2016 under a trading firestorm that made him one of the most successful traders among major Wall Street banks that year.

02

SOCIETE GENERALE

【Societe Generale: ECB expected to raise rates by 25bp in both July and September】

July 27-- Societe Generale said it expects the ECB to continue its tough stance and raise rates by another 25bp in July. However, it may be too early to provide firm guidance for further rate hikes in September, especially with more data coming out (including Eurozone Q2 GDP, July and August PMI, and inflation data) and new economic forecasts on the horizon.

03

MUFG

MUFG: USDJPY has retraced more than half of its losses as expectations of a YCC adjustment by the BOJ are dampened.