06 Jul

The trade war between China and the US is worsening again. FOMC minutes point to further rate hikes

July 6, 2023

By JustMarkets

The US indices closed lower on Wednesday as minutes from the Federal Reserve’s June meeting showed appetite for policy tightening and interest rate hikes. At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.38%, while the S&P 500 Index (US500) was down by 0.20%. The NASDAQ Technology Index (US100) closed negative by 0.12% on Wednesday.

Highlights of the June FOMC minutes:

  • Nearly all participants said that inflation risks are prevalent at the moment and remain key to the outlook for the direction of monetary policy;
  • All Fed officials agreed that continued restrictive monetary policy would be appropriate;
  • The Fed expects further rate hikes but at a slower pace;
  • Fed policymakers believe a shallow recession at the end of the year is likely;
  • Some representatives favored raising rates rather than pausing at the June meeting, noting a “very tight” labor market that threatens to raise wages and inflation.

According to the FedWatch Tool, nearly 90% of traders expect the Fed to resume raising rates in July.

Stock markets in Europe were down yesterday. German DAX (DE30) was 0.63% lower, French CAC 40 (FR 40) decreased by 0.80%, Spanish IBEX 35 (ES35) fell by 1.06%, and British FTSE 100 (UK100) was 1.03% lower.

In the Eurozone, consumer inflation expectations for the next 12 months declined further, while inflation expectations for the three years ahead remained stable. Expectations for economic growth over the next 12 months have become less negative. Consumers expect lower growth in their home prices over the next 12 months.

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Gold prices ended lower Wednesday as minutes from the Federal Reserve’s last meeting showed that some central bank officials pushed for an interest rate hike in June. Gold has an inverse correlation to the dollar index and to government bond yields, so a policy tightening is a negative for the precious metals.

The OPEC+ meeting proceeds without surprises. OPEC energy and oil ministers reviewed current oil market conditions and agreed to continue current production quotas for a stable and balanced oil market. Additional crude oil inventories will be released today.

Natural gas continues to be cheaper. The hot weather in Texas and other southern US states has eased slightly, prompting market participants to push gas prices down further to $2.5. Additional natural gas inventories will be released tomorrow.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was down by 0.25%, China’s FTSE China A50 (CHA50) decreased by 1.08%, Hong Kong’s Hang Seng (HK50) lost 1.57% on the day, and Australia’s S&P/ASX 200 (AU200) close negative by 0.35%.

Janet Yellen is set to visit China in an effort to ease tensions between the two economic powers. Treasury Department officials say they don’t expect any diplomatic breakthroughs from Yellen’s trip. But the secretary of state hopes to forge closer ties with China’s new economic leaders to avoid a deeper deterioration in relations between the world’s two largest economies. This week, China announced new restrictions on exports of key minerals used in the manufacture of semiconductors and solar panels. This was China’s response to US export restrictions on China. The Biden administration has restricted the sale of advanced computer chips to China and is considering restricting China’s access to US cloud computing services.

S&P 500 (F) (US500) 4,446.82 −8.77 (−0.20%)

Dow Jones (US30)34,288.64 −129.83 (−0.38%)

DAX (DE40) 15,937.58 −101.59 (−0.63%)

FTSE 100 (UK100) 7,442.10 −77.62 (−1.03%)

USD Index 103.36 +0.32 (+0.31%)

Important events for today:
  • – Australia Trade Balance (m/m) at 04:30 (GMT+3);
  • – UK Construction PMI (m/m) at 11:30 (GMT+3);
  • – Eurozone Retail Sales (m/m) at 12:00 (GMT+3);
  • – US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
  • – US Unemployment Claims (w/w) at 15:30 (GMT+3);
  • – Canada Trade Balance (m/m) at 15:30 (GMT+3);
  • – US Trade Balance (m/m) at 15:30 (GMT+3);
  • – US ISM Services PMI (m/m) at 17:00 (GMT+3);
  • – US JOLTS Job Openings (m/m) at 17:00 (GMT+3);
  • – Canada Ivey PMI (m/m) at 17:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 18:00 (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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