10 July 2023 Weekly Analysis
GCMAsia Weekly Report: July 10 – 14
Market Review (Forex): July 3 – 7
US Dollar
The U.S. dollar index against a basket of six major currencies slumped at the end of the week at 101.87 after the weaker-than-expected labor data showed on Friday.
Last week, investors turned their attention to the closely watched crucial economic data such as ISM Purchasing Manager Index (PMI) which included manufacturing and service sector reading, labor market data to show the labor market conditions, and Fed’s meeting minutes. Early in the week, investors are closely monitoring the Fed’s meeting minutes to get some cues for determining the future tightening moves from the central bank. Unsurprisingly, the Fed continues to issue a hawkish, although most members maintain the current monetary rate at 5.25%. On the other hand, the ISM manufacturing and service sector PMI reading continues to remain divergent. The ISM Manufacturing PMI in Jun remains in contraction as the reading stood at 46.0, lower than the economist expectations and prior readings, While the service PMI grew to 53.9 higher than market expectations of 51.0 and the previous month reading at 50.3. AS service PMI continues to grow for 6 months and accounted for two-thirds of GDP, it provided more room for Fed to further rate high.
Nonetheless, the labor market is easing after the nonfarm payroll in Jun showed a weaker than economists’ expectation. The Nonfarm Payroll eased to 209K lower than the expected 225K and the prior reading of 306K. Despite the ADP Nonfarm data rising to 497K higher than the 228K expected, the dollar slipped after weaker-than-expected Nonfarm Payroll data.
USD/JPY
The pair of USD/JPY extended its gains last week while closing its market price at 142.10, after the Japanese Yen strengthened as Japan’s base salaries jumped to 28 years high since 1995. Global financial markets have been monitoring closely Japan’s wage data, as Bank of Japan (BoJ) Kazuo Ueda cited pay growth as a critical factor in deliberations about the shift in policy. Economist comments that if inflation is sustainable at around 2% and nominal wages increase from 3% to 3.5%, these conditions would fuel the hopes that BOJ could end its ultra-loosen monetary policy. However, separate data on Friday showed household spending down to -4.0% from -4.4%, lower than market expectations of -2.4%. The high inflation effect weighed on household spending. Some economists comment that BoJ should maintain its ultra-loosen monetary policy to accelerate household spending and real wage growth.
EUR/USD
The pair of EUR/USD extended its gains last week while closing its market price at 1.0965. Early in week, euro area manufacturing data slipped, reflecting a tightening monetary policy from European Central Bank (ECB) weighs on the manufacturing market. Markit Economics published a survey on Monday that showed all four of the euro zone’s biggest economies in contraction condition. As Spanish and French manufacturing PMI released a higher-than-expected PMI reading which stood at 48.0 and 46.0 respectively, versus the economist forecast of 47.7 and 45.5. While the Italian and German manufacturing PMI slipped to 43.8 and 40.6, lower than market expectations of 45.3 and 41.0. As a result, the euro manufacturing PMI slipped to 43.4 from 44.8 in June. Although some countries’ manufacturing PMI is higher than market expectation, the reading below the 50 thresholds indicates a contraction condition. German manufacturing firms reported deeper production cuts in response to the weakening of demand. A firm in Spain also commented that the weakness in the manufacturing sector is likely to continue for a few more months.
GBP/USD
The pair of GBP/USD extended its gains last week while closing its market price at 1.2845. The Pound Sterling edged lower after the business momentum slowed in June showing a sign of vulnerability despite the business facing lower inflation. UK’s Service sector fell to 53.7 from 55.2, in line with market expectations, while the UK composite PMI also dropped to 52.8 from 54.0, in line with economists forecast. UK business momentum growth was reduced to a three-month low after the S&P Global survey showed a slower pace of business growth. According to S&P Global surveys, servicer providers experienced deceleration in overall input price but the cost pressure remains the most sustainable since the first survey began in July 1996. Salary payment continued to surge at the highest, offset by a decline in energy prices. Despite the inflation in the UK being eased, the Bank of England’s (BoE) unexpectedly rising interest rates from 4.50% to 5.00% weighed on consumer demand. Some economists expected that BoE rate rises will push the UK economy into recession later this year after quarter one GDP only grew by 0.1%.
Market Review (Commodities): July 3 – 7
GOLD
The gold price range bound between the range of 1900 and 1930 and closed at the end of the week at 1925.40. Early in the week, gold price edged up after the US manufacturing PMI in June presented in contraction moves as the data recorded at 46.0 versus the expectations of 47.2. However, the gold prices revised it trend after the ISM service PMI and ADP labour data upbeat the market expectations and grew to 53.9 and 497k respectively, while the economist expects 51.0 in service PMI and 228K in labour data Labor force survey results are different, ADP non-farm data is measured by an independent agency, non-farm employment data is measured by the US Labor government. Non-farm payroll was reduced to 149K from 259K, lower than economists estimated as they expected the labor changes down to 200K The gold price rebounded from the week lower after the weaker labor data was released and prompted the Fed to pause on its monetary policy after July.
CrudeOIL
The crude oil extended its gains last week while closing its market price at 73.65 as Saudi Arabia one of the largest crude oil export countries announced that they will extension of voluntary production cuts by 1 million barrels per for another month including August. Shortly, Russia Deputy Minister Prime Minister Alexander Novak also announced that Moscow would cut its oil production export by 500 thousand per day in August. The following actions by OPEC+ amount to 1.5% of global supply and up to 5.16 million barrels per day (bpd). However, the manufacturing sector from all the biggest countries showed a contraction condition as Purchasing Manager Index (PMI) below the threshold level of 50 indicating demand for crude oil in the manufacturing sector slowed. Besides, most of the central banks continue tightening their monetary policy to return the inflation target range to 2% to 3%, weighing on crude demand.
Weekly Outlook: July 10- 14
For the week ahead, investors would continue to focus on crucial events such as US CPI, Core CPI and PPI this week in order to determine further monetary policy direction. Besides that, the tensions between the US and China will also be in the eyes of investors.
As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.
Highlighted economy data and events for the week: July 10 – 14
| Time | Market | Event | Actual | Forecast | Previous |
| Monday – 10 July 2023 | |||||
| 09:30 | CNY | CPI (MoM) (Jun) | – | 0.0% | -0.2% |
| 09:30 | CNY | PPI (MoM) (Jun) | – | -5.0% | -4.6% |
| Tuesday – 11 July 2023 | |||||
| 14:00 | EUR | German CPI (MoM) (Jun) | – | 0.3% | 0.4% |
| Wednesday – 12 July 2023 | |||||
| 00:00 | CrudeOIL | EIA Short-Term Energy Outlook | – | – | – |
| 04:30 | CrudeOIL | API Weekly Crude Oil Stock | – | – | -4.382M |
| 10:00 | NZD | RBNZ Interest Rate Decision | – | 5.50% | 5.50% |
| 20:30 | USD | Core CPI (MoM) (Jun) | – | 0.3% | 0.4% |
| 20:30 | USD | CPI (YoY) (Jun) | – | 3.1% | 4.0% |
| 22:00 | CAD | BoC Interest Rate Decision | – | 5.00% | 4.75% |
| 22:30 | CrudeOIL | Crude Oil Inventories | – | -2.156M | -1.508M |
| Thursday – 13 July 2023 | |||||
| 11:00 | CNY | Trade Balance (USD) (Jun) | – | 93.90B | 65.81B |
| 14:00 | GBP | GDP (MoM) (May) | – | -0.4% | 0.2% |
| 16:00 | CrudeOIL | IEA Monthly Report | – | – | – |
| 20:30 | USD | Initial Jobless Claim | – | 249K | 248K |
| 20:30 | USD | PPI (MoM) (Jun) | – | 0.2% | -0.3% |
| Friday – 14 July 2023 | |||||
| 22:00 | USD | Michigan Consumer Sentiment (Jul) | – | 65.5 | 64.4 |
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