12 Jun

The US-Iran nuclear deal is back on the agenda. China’s central bank is preparing for an interest rate cut

June 12, 2023

By JustMarkets

At the stock market close on Friday the Dow Jones Index (US30) gained 0.13% (+0.31% for the week) and the S&P 500 (US500) added 0.11% (+0.37% for the week). The Technology Index NASDAQ (US100) on Friday closed positive by 0.16% (+0.16% for the week). The rally in US stocks shows signs of investor confidence that the US economy is holding up despite higher interest rates. Recession risks are declining. Some investors have begun to dive into economically sensitive market areas, including mid-cap and small-cap companies, energy and industrial stocks, not just “mega-companies.” Stronger-than-expected job growth and solid consumer spending were among the indicators that bolstered investors’ economic outlook. This week, investors will keep an eye on US inflation data as well as the US Federal Reserve’s monetary policy meeting.

Equity markets in Europe were mostly down on Friday. German DAX (DE30) shed by 0.25% (-0.81% for the week), French CAC 40 (FR40) decreased by 0.12% on Friday (-1.12% for the week), Spanish IBEX 35 (ES35) lost 0.34% (-0.49% for the week), British FTSE 100 (UK100) close negative by 0.49% (-0.59% for the week).

The ECB will hold its meeting on June 15, the day after the Federal Reserve. There is little doubt that Europe’s central bank will raise key rates by a quarter point. The interest rate will reach 4%. The swap market is confident that the ECB’s decision will not be finalized and expects at least one more quarter-point hike at the end of the third quarter.

Thomas Jordan, President of the Swiss National Bank, hints at further rate hikes to combat inflation. Switzerland’s annual inflation rate fell to 2.2% in May, but that is not enough for the SNB as the bank wants to see inflation in the 0-2% range. Analysts and the market expect the SNB to raise interest rates at its June 22 meeting.

The US Treasury yields are gradually rising as the US government continues to sell huge amounts of government bonds. Gold and silver are inversely correlated to government bond yields. And with the US Federal Reserve at the end of its tightening cycle, precious metals have more fundamental catalysts for growth in the medium term.

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Oil prices fell in Asian trading on Monday, with the price of WTI dropping back below $70 a barrel after Iran’s leader said the country is open to a deal with the West on its nuclear program, albeit with some reservations. Iran is ready to make a deal only if Iran’s nuclear infrastructure is kept intact. The comments came just days after both Tehran and Washington denied reports of a possible deal. If the deal is completed, it would sharply increase oil supply in the market, sending oil prices plummeting in the face of weak demand.

Asian markets traded higher last week. Japan’s Nikkei 225 (JP225) was up by 1.26% for the week, China’s FTSE China A50 (CHA50) added 0.45%, Hong Kong’s Hang Seng (HK50) increased by 0.47% for the week, and Australia’s S&P/ASX 200 (AU200) was negative 0.32% for the week.

The Bank of Japan (BOJ) is expected to maintain an ultra-soft monetary policy this week and is forecasting a moderate recovery as strong corporate and household spending softens the blow from slowing demand overseas. The central bank may also signal that inflation is exceeding its forecasts, making it more likely to raise its price forecasts when it revises its estimates quarterly.

The Chinese yuan fell to a six-month low against the dollar as major state-owned Chinese banks began cutting interest rates on yuan-denominated deposits. The move foreshadows a broader cut in the central bank’s main lending rate later this month as it struggles to support economic growth.

S&P 500 (F) (US500) 4,298.86 +4.93 (+0.11%)

Dow Jones (US30)33,876.78 +43.17 (+0.13%)

DAX (DE40) 15,949.84 −40.12 (−0.25%)

FTSE 100 (UK100) 7,562.36 −37.38 (−0.49%)

USD Index 103.55 +0.21 (+0.20%)

Important events for today:
  • – Japan Producer Price Index (m/m) at 02:50 (GMT+3).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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