MHMarkets：September 14, 2023 - Fundamental Reminder

☆At 20:15, the ECB will announce its interest rate decision, and the money markets show a more than 60% chance of an ECB rate hike.

☆At 20:30, the U.S. will report initial jobless claims for the week ended September 9, with markets expecting 225,000.

☆At 20:30, the U.S. will release the monthly retail sales rate for August, which is known as the “Scary Data”. Markets expect it to slow sharply to 0.2% from 0.7% in the previous month.

☆20:30 USD PPI (AUG)

☆At 20:45, ECB President Christine Lagarde will hold a news conference.

Market Overview

Review of Global Market Trend

The dollar index rose and then fell on Wednesday, buoyed by the slightly better-than-expected CPI data. It flirted with the 105 mark in pre-market trading before giving up most of its gains to end up 0.21% at 104.76. In U.S. Treasury yields, the two-year yield rose as high as 5.081% during the day, but has since fallen below the 5% mark to close at 4.971%. The yield on the 10-year Treasury note also eased, closing at 4.254%.

Spot gold eased on the dollar's intraday strength and fell below the 1,910 mark before settling down 0.3% at $1,908.12 an ounce. Spot silver settled down 1% at $22.83 an ounce.

The three major U.S. stock indexes were mixed, with the Dow Jones Industrial Average down 0.2%, the Nasdaq up 0.29% and the S&P 500 up 0.12%. Popular Chinese stocks closed down broadly, with NIO down 4.6% and Xpeng Motor down more than 3%. Daily fresh closed up more than 18%.

European stocks were in the green across the board, with Germany's DAX30 index closing down 0.39%, Britain's FTSE 100 index down 0.02% and Europe's Stoxx 50 index down 0.44%.

Market Focus

1. The US Inflation Rate YoY n.s.a rose for two consecutive months in August; The Core Inflation Rate YoY n.s.afell for June in a row. Bets for a Fed rate hike by November rose after the data.

2. Money markets are fully pricing in a 25 basis point ECB rate hike by the end of the year, with a probability of around 65% on Thursday.

3. The monthly rate of UK GDP recorded -0.5% in July, the largest decline since December 2022.

4. IEA monthly report: Saudi production cuts may increase oil price volatility; Global oil inventories fell to a 13-month low in August.

5. Arm confirmed pricing its IPO at the top of the range at $51 a share, with trading expected to begin Thursday.

Geopolitical Situation

Conflict Situation

1. Russia says Ukraine struck Sevastopol with 10 cruise missiles. Russia's defense Ministry says two warships damaged in a Ukrainian missile attack will be repaired. Ukraine says Russia's large landing ships and submarines are likely to be badly damaged beyond repair.

2. The Ukrainian air force said Russian drones were primarily targeting port infrastructure in the Odessa region. In the early hours of Wednesday, Ukraine destroyed 32 of 44 drones launched by Russia.

3. Ukrainian local government: Air defense forces destroyed a drone in Russia's Tver region.

4. Ukraine said Russian drones had struck an area near the port of Izmail.

5. Russia's Defense Ministry said the aviation unit of the Black Sea Fleet had detected and destroyed three unmanned boats belonging to the Ukrainian armed forces in the Black Sea.

6. Mayor of Sevastopol, Russia: A Ukrainian airstrike caused a fire at the Sevastopol shipyard, injuring 24 people.

7. Ukraine said the ports of Renny and Izmail were continuing to operate despite the attack.

Food Situation

1. Ukraine's deputy prime minister said the monthly grain export potential from Danube ports has been reduced by almost half a million tons because of the Russian attack. Ukraine's food exports to Asia, Africa and Europe have fallen by almost 3 million tonnes a month since July 18.

2. The European Commission said it didn't begin extending its temporary restrictions on Ukrainian agricultural imports, which are set to expire on Sept. 15.

3. Hungarian Agriculture Minister: Hungary, Romania, Slovakia and Bulgaria will also ban Ukrainian grain imports if the EU does not extend restrictions on some Ukrainian agricultural products.  

Institutional Perspective

01

Goldman Sachs

【Goldman Sachs：Higher interest rates will not stop the ruble from falling further】

September 13 - The Russian central bank's recent rate hikes are unlikely to meaningfully alter the ruble's medium-term trajectory, which in their view depends primarily on current account conditions, Goldman Sachs economist Clemens Grafe said in a note. It believes the central bank “will not raise interest rates any time soon” and expects inflation to peak at close to 9% in early 2024, meaning that even at 12% today, rates will ultimately not be restrictive enough. Monetary policy needs to remain tight for a considerable period of time. Moreover, the output gap, now clearly positive, will continue to generate inflationary pressures, which require a substantial tightening of monetary and fiscal policy. The central bank has front-loaded interest rate increases, but whether that is enough will depend on the finance ministry's ability to sustain its recent tightening into next year.

02

SOCIETE GENERALE

【SOCIETE GENERALE：Turkey is expected to raise interest rates by 600bp in Q4】

Sep 13 - Societe General expects Turkey's central bank to raise its main interest rate to 31% in September, followed by another 600 BPS of monetary tightening in the fourth quarter and a final 200 BPS increase to 40% in the first quarter of 2024. The lira “could weaken further” for the rest of the year, analysts including Phoenix Kalen said in a note, predicting the currency would end the year at 30. They said that while interest rates are likely to rise steadily in the coming months, they are still set to fall sharply in real terms due to surging inflation. The normalization towards a more flexible financial environment in Turkey is positive in the medium to long term, but in the short term, the lira is likely to weaken further. In addition, they expect Turkey's fundamentals to improve next year with a gradual return to orthodox policies, and the depreciation of the lira to slow further in 2024.

03

MUFG

【MUFG：Gold demand from emerging markets could push prices higher】

September 8 - Gold prices did show signs of stabilizing earlier this week after suffering their biggest drop in more than a month. Russia and Saudi Arabia extended their agreement on production cuts into December, sending oil prices soaring, helping to push Treasury yields higher and in turn the index higher. Looking ahead, in addition to rising recession fears in emerging markets, gold demand from emerging market central banks has continued to show strength this year, driven by rising geopolitical tensions and reserve diversification interests. That suggests gold is poised to move higher, though it could be a slow climb rather than a sustained surge. A recent survey of fund managers suggests they are optimistic about gold prices in 2024.