Mohicans markets ：Federal Reserve Officials Make Hawkish Remark Again Economic Recession and Increasing Production drag on Oil Prices

Todays Financial Events

☆ At 21:00 this evening,the 2024 FOMC voting member and president of Richmond Fed Balkin will attend a panel.Investors can pay attention to his views on the U.S.inflation and his views on the pace of subsequent Fed rate hikes.

Institutional Viewpoint

Global Views - List of Major Markets

On Thursday August 18, spot gold gave back most of its gains from a high of $1,772.30,falling about $17 at one point and breaking below the $1,760 mark. It finally closed down 0.18% at $1,758.49 per ounce. Spot silver closed down 1.24% at $19.54 per ounce.The U.S. dollar index pulled up sharply in the U.S.session and broke through the 107 mark. It ended up 0.78% at 107.50. The 10-year U.S. bond yield eased a bit,but remained at a high of 2.886%.Crude oil started its rally.WTI crude oil started to swing upwards in the European session and extended its gains further in the U.S.session and recovered the $90 mark.It finally closed up 3.54% at $90.37 per barrel.Brent crude closed up 3.86% at $96.50 per barrel.

The U.S. Dow rose 0.06%, the S&P 500 rose 0.23% and the Nasdaq rose 0.21%. The oil and gas and solar sectors performed better.Department stores,biomedicine and WSB concepts were generally lower.The U.S.stocks closed higher on Thursday as an upbeat sales forecast from Cisco helped boost technology stocks.However,data showed the U.S. economy remains relatively strong.Investors are still assessing the Fed Meetings Minutes in July released on Thursday. Their initial reading was that the minutes supported a less aggressive stance by the Fed. But the minutes did not clearly imply the pace of interest rate hikes and showed that policymakers are committed to continue to raise interest rates to curb inflation. 

European stocks generally closed higher,and Germany‘s DAX index closed up 0.52% at 13697.41 points. Britain’s FTSE 100 index closed up 0.35% at 7541.85 points.Europes Stoxx 50 index closed up 0.57% at 3777.38 points.

Precious Metals

Gold retreated on Thursday, August 18, Beijing time,and came under pressure from a stronger dollar.While declines in Treasury yields kept losses in check,investors were looking for more economic clues that could influence a rate hike.Investors continued to understand the Fed Meetings Minutes in July released the day before.The minutes showed that the Fed woud raise rates further.But it also showed that officials are beginning to acknowledge more clearly the risk of raising interest rates too much and inhibiting economic activity.

The decline of the U.S.Treasury yields may be the reason of driving the modest recovery in non-sin rate gold.This is because the rate hike has largely been digested by the market.But the Fed may counter the idea that the rate hike cycle may be over at the upcoming Jackson Hole symposium because “it is too early to declare victory against inflation.”

Meanwhile, data showed that the U.S.initial jobless claims fell last week,and the previous week's data was revised down significantly.This suggests that labor market conditions remain tight despite the slowdown in momentum caused by rising interest rates.In addition,the Fed's Daley said that hike a 50 or 75 basis point rate in September would be “reasonable”.In the physical market,Swiss gold exports to large Asian countries rose in July to the highest since December 2016. 

crude oil

Oil prices rose more than 3.5 percent on Thursday,August 18,Beijing time,because positive U.S.economic data and strong U.S.fuel consumption offset concerns that slowing economic growth in other countries could weaken demand.

Oil prices rose more than 1% in the previous trading day.Although Brent crude oil once fell to its lowest point since February because there are signs of a slowdown in some places.According to Edward Moya, senior market analyst at data and analysis firm OANDA,oil prices rebounded after another round of impressive U.S. economic data boosted optimism about the improving demand outlook for crude oil. OPEC will not allow the recent pullback in oil prices to continue. The U.S.initial jobless claims fell last week and the previous figure was revised sharply.This suggests that labor market conditions remain tight despite a slowdown in economic momentum due to rising interest rates.       

On Thursday, the secretary general of OPEC Haitham Al-Ghais, told Reuters that policymakers, lawmakers and under investment in the oil and gas industry are the causes of high energy prices, not OPEC. Ghais said at the next meeting in September that OPEC+ including other producers such as Russia, when necessary, can cut or increase production. It all depends on how things go. EIA data showed that the U.S. crude oil inventories fell by 7.1 million barrels in the week ended August 12th. However, expectations were for a drop of 275,000 barrels, as exports hit a record 5 million barrels per day. On Wednesday, open interest in the U.S. crude futures fell to its lowest point since January 2015 as investors worried that the central bank would continue to raise interest rates thereby cutting back on risky assets such as commodities.

Foreign Exchange

Beijing time on Wednesday, August 17, the US dollar index surged to a one-month high.As Fed officials talked about the need for further rate hikes, and investors reassessed minutes from the Fed's July meeting as more hawkish than initially read.

Data on Thursday showed that the number of Americans filing for unemployment benefits fell last week, and data for the previous week was revised down sharply.A report released by the Federal Reserve Bank of Philadelphia also highlighted strong demand for labor. The report showed that manufacturing employment in the mid-Atlantic region soared in August. But the housing market is becoming sluggish. Existing home sales fell 5.9% to a seasonally adjusted annual rate of 4.81 million units in July, the lowest level since the coronavirus lockdown in May 2020, according to the National Association of Realtors.

The euro touched $1.0078, its lowest since July 18. USD/JPY rose to 135.90, its weakest level since July 28. Sterling traded as low as 1.1920, its lowest since July 22.

International News

1.On August 18, local time, Judge Bruce Reinhardt of the U.S. District Court for the Southern District of Florida released several documents related to the FBI‘s search of Trump’s Mar-a-Lago estate. According to newly released documents, the FBI is investigating Trump for potential crimes, including “deliberately retaining defense information,” “hiding or erasing government records,” and “obstructing federal investigations.”

2.Yesterday, a number of Fed officials continued to put eagles on the line. “Eagle King” Bullard said that he is still inclined to raise interest rates by 75 basis points in September, and believes that the US economy has not yet passed the most serious stage of the inflation surge. Kashkari, the 2023 voter, also said more needs to be done to reduce inflation.In 2022, the FOMC voted George to be “slightly dove”. She believes that the reasons for continuing to raise interest rates are still strong, but how fast to raise interest rates is an issue that the Fed will continue to debate, and believes that the Fed has done a lot.Earlier on Thursday, San Francisco Fed President Daly said she was open to raising rates by 50 or 75 basis points next month and that officials would not rush to change course next year. That overturned investor bets that the Fed would cut rates by the end of 2023.

3. The U.S. Philadelphia Fed manufacturing index unexpectedly rose in August for the first time in three months, but the outlook for the future remained weak.Data from the Federal Reserve Bank of Philadelphia on Thursday showed that the current assessment of manufacturing rose to 6.2 from -12.3, above all economists' forecasts. However, a measure of sentiment for the next six months was below zero for the third straight month.The order index rose about 20 points to a negative 5.1, indicating that orders, while still falling, have slowed. Shorter lead times indicate that the supply chain is normalizing.

4. U.S. existing-home sales fell for a sixth straight month in July, suggesting high borrowing costs and weakening demand are driving a rapid decline in the housing market.According to data from the National Association of Realtors, the annual rate of contract transactions in July fell by 5.9% to 4.81 million contracts, the lowest level since May 2020. U.S. existing-home sales have fallen nearly 26% since January, the biggest six-month drop since 1999, underscoring the housing market's wobbly effects from rising mortgage rates and prices.

5. The number of Americans filing for unemployment benefits fell for the first time in three weeks. Initial jobless claims fell by 2,000 to 250,000 in the week ended Aug. 13, data from the Labor Department showed on Thursday. The drop in initial jobless claims showed labor demand remained healthy as companies tried to attract and retain workers amid persistent labor shortages. However, several employers have been laying off staff or freezing hiring due to the uncertain economic situation. That's likely to continue as the Fed moves aggressively to raise interest rates.

6. European Central Bank executive Schnabel said in an interview that “compared to July, inflation concerns have not changed,” which opened the door for the ECB to raise interest rates by another 50 basis points. In addition, she acknowledged the possibility of a recession in the euro zone. “In July, we decided to raise rates by 50 basis points because we were concerned about the inflation outlook. Now the concerns have not eased and the inflation outlook has not changed. There is no other way but to raise rates by another 50 basis points,” she said.

7. According to the German inland shipping agency WSA, the upper Rhine in Germany has reopened to allow cargo transport ships to pass, and the barge that failed on Wednesday has been towed away.In addition, the water level in the Kaub section of the Rhine is expected to rise to 67 centimeters on August 22.

8. Affected by tight energy supply, the settlement price of European natural gas futures rose to a record high yesterday.The benchmark contract settled 6.7 percent higher at 241 euros a megawatt hour, breaking a record set in early March shortly after the start of the conflict between Russia and Ukraine and about 11 times higher than the same period in previous years.On August 14, the volume of natural gas sent to the European unified natural gas network was 786 million cubic meters, a 2-year low. As of August 15, gas reserves in European gas storage facilities reached 75% of storage capacity. More than 78.7 billion cubic meters of gas are stored in the repository. In addition, Germany may temporarily reduce the value-added tax on natural gas to 7%.

9. EU imports of goods from Russia have fallen this year, but the value of imports has risen due to higher commodity prices, including oil. In the first half of 2022, EU imports from Russia increased by 78.9% year-on-year, according to Eurostat.

10. Australia is considering cutting natural gas exports to fill the domestic energy shortage. Australia is also one of the world's largest natural gas exporters, which may further increase global supply pressure.

11. Russia has asked buyers of the Sakhalin 2 LNG plant to pay Gazprom, leaving customers including Japan and South Korea in a dilemma between sanctions and gas purchases. At least two buyers are checking with their legal teams whether payments can be made to Gazprom without violating any sanctions, according to people familiar with the matter.

12. OPEC's secretary-general said yesterday that OPEC is “relatively optimistic” about the oil outlook for 2023 and is eager to extend the agreement with Russia and other non-OPEC producers.

13. On the 18th local time, according to the news released by the Moscow Exchange, the trading volume of RMB delivered on the Moscow Exchange the next day surpassed that of the US dollar for the first time. As of 12:46 Moscow time, the trading volume of RMB reached 29.3 billion rubles, that of US dollars was 28.8 billion rubles, and that of euros was 35.3 billion rubles.

14. The International Monetary Fund said that against the backdrop of soaring oil revenues,Saudi economic growth is expected to reach 7.6 percent this year, up from 3.2 percent in 2021.

15. Its gold exports surged, with Swiss gold shipments rising to 186.2 tonnes in July from 84 tonnes in June, up 122% month-on-month, data from the Swiss Federal Customs Service showed. Among them, gold exports to China increased by 147% to 80.1 tons.

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