MHMarkets:U. S. GDP shrinks, aggressive interest rate hike expectations cool, markets wait for June core PCE data

Fundamentals：

Data on Thursday showed the U.S. economy unexpectedly shrank in the second quarter, with consumer spending growing at the slowest pace in two years and business spending falling, raising the risk of a recession. The data came a day after the Fed raised interest rates by another 75 basis points in a bid to quell inflation. The Fed's actions, combined with previous actions in March, May and June, have raised the target range for the overnight benchmark rate from near zero to 2.25%-2.50%. It was the fastest pace of monetary policy tightening since former Federal Reserve Chairman Volcker battled double-digit inflation in the 1980s.

The U.S. economy shrank again in the second quarter, fueling speculation that the Federal Reserve will not raise interest rates as aggressively as previously expected. Standard Chartered's Graham said: “The mid-August jobs market report will be crucial and will determine whether a 50bps rate hike is needed later in the year (as the market expects) or whether the pace of monetary tightening will slow. to a 25bp hike (as we expected). We think there is enough economic evidence to support a 50bp hike at the next monetary policy meeting on Aug. 5, but after that, economic activity slows , and further evidence that the labor market is cooling, should support a slower pace of rate hikes (25bps each in September, November and December).”

On the disk performance:

The three major U.S. stock indexes rose across the board on Thursday, with the Dow closing up 1.37% and the Nasdaq up 1.08%. Big tech stocks rallied across the board. Apple rose 3.42%, Amazon rose 5.37%, Netflix rose 6%, Google rose 7.66%, Facebook rose 6.55%, and Microsoft rose 6.69%.

In early Asian trading on July 29, Beijing time, the US dollar index rose slightly and is currently trading around 106.21. The dollar had fallen after the Federal Reserve raised interest rates by 75 basis points on Thursday, with comments from Fed Chairman Jerome Powell fueling hopes of a slower path to rate hikes. The U.S. dollar index closed down 0.30 percent at 106.17 on Thursday.

The dollar fell to a six-week low of 134.19 against the yen on Thursday before closing down 173% at 134.22. USD/JPY is on track for its biggest one-day percentage drop since March 2020. In the U.S. Treasury market, the two-year yield, which reflects interest rate expectations, fell to a three-week low, down 22 basis points from a peak hit on Wednesday.

The euro fell as much as 0.8% to a low of 1.0113 against the dollar on Thursday, before turning higher before closing up 0.03% at 1.0195. EUR/USD fell to 0.9951 on July 14, the lowest since December 2002, weighed down by fears of an energy crisis in the region. At present, the energy crisis in the euro area is still ongoing, which has become a major factor putting pressure on the euro.

Sterling hit a high of 1.2190 against the dollar on Thursday, before paring gains to end up 0.19% at 1.2175.

However, investors are reminded that they also need to pay attention to the performance of European and American stock markets. The US economy shrank again in the second quarter, fueling speculation that the Federal Reserve will not raise interest rates as aggressively as previously expected. July Chicago PMI.

Technical：

Dollar:

The U.S. dollar index continued to fall, testing the support of the 106 mark many times, and finally closed down 0.28% at 106.18; the 10-year U.S. bond yield fell below 2.7% and finally closed at 2.671%. The dollar tumbled 1.6% against the yen on Thursday, its biggest one-day drop since March 2020.

The dollar slipped 0.1% against a basket of major currencies to 106.25 on Thursday; the dollar fell to a six-week low against the yen on Thursday, tracking losses in U.S. bond yields after data showed the U.S. economy shrank again in the second quarter, boosting sentiment. Speculation that the Fed will not raise rates as aggressively as previously expected.

Focus on resistance: 107 to 107.7 area Focus on support: 105 to 106 area.

Gold:

At the beginning of the Asian market on Friday (July 29), spot gold fluctuated in a narrow range and is currently trading around $1,754, holding most of the overnight gains. The price of gold rose more than 1% on Thursday, and spot gold once hit a new high of $1,756.96 per ounce in nearly three weeks. On the one hand, the less aggressive tone of Federal Reserve Chairman Powell pushed gold prices up, on the other hand, the U.S. economy shrank, and U.S. bond yields continued to fall. The dollar fell to a more than three-week low, further boosting gold's safe-haven appeal.

This trading day focuses on the core PCE data in the United States in June, which is the most important inflation indicator for the Fed. The market is currently expected to be flat at 4.7% in May, which is also the lowest point since November last year. If it is in line with expectations or worse than expected, it may be It will slightly reduce expectations for aggressive rate hikes by the Fed. However, if it is stronger than expected, it may drag down the performance of gold prices slightly. However, the market expects that the PCE in the United States will increase by 6.8% year-on-year in June, which is expected to refresh the high point in nearly 40 years, and needs to be vigilant. In addition, it is necessary to pay attention to the performance of the second quarter GDP data of the German euro zone and the monthly rate of personal spending in the United States in June.

At present, the short-term bullish signal has strengthened, and the price of gold is expected to continue to oscillate up. Pay attention to the resistance near the low of 1786.70 on May 16. If the resistance can be broken, it is expected to further rise to the vicinity of the 1800 mark.

Pressure: 1765----1786 Support: 1735----1720

Crude:

In early Asian trading on Friday (July 29), U.S. oil was at $99.49 a barrel; oil prices fell nearly 1% on Thursday, as concerns that a global recession could hit energy demand offset a decline in U.S. crude inventories and The impact of a rebound in gasoline consumption, but geopolitical tensions still support oil prices.

During the day, we will focus on the annual rate of the PCE price index in the United States in June and the Chicago PMI in the United States in July. Overall, the U.S. economy is on the verge of recession, and demand concerns weigh on oil prices; however, the European energy crisis may become more severe, and geopolitical tensions continue to boost oil prices, and oil prices may fluctuate around the 100 mark; near the weekend, pay attention to the geopolitical situation and the monkeypox epidemic spread.

From a technical point of view, the trend of crude oil on Thursday was a lure. After breaking through the 99 resistance zone in the intraday, it fell again to form a bull trap. And this means that there is a possibility of the end of the rally, so our view in today's trading is to short the rallies. It is recommended to pay attention to the first-line resistance of $98/barrel, and the risk control level is above $98.50/barrel. Note below the support at 96.20, 95.30, and 94.50.

(The above analysis only represents the analyst's opinion and does not provide any investment advice, and does not assume any responsibility for any loss or damage caused by any direct or indirect transaction risks, losses or gains related to any personal investment.)