02 Jul

RBA maintains a hawkish bias. Japanese authorities are ready to conduct another intervention

July 2, 2024

By JustMarkets

At Monday’s close, the Dow Jones (US30) Index added 0.13%, while the S&P 500 (US500) Index gained 0.27%. The NASDAQ Technology Index (US100) closed positive 0.83%. Strengthening large-cap tech stocks boosted the broad market on Monday. However, concerns that the economy is losing momentum could limit the potential for further stock gains.

The ISM US Manufacturing Index for June unexpectedly fell by 0.2 to a four-month low of 48.5, weaker than expectations for a rise to 49.1. The ISM Goods and Services Price Sub-Index for June fell by 4.9 to a 6-month low of 52.1, weaker than expectations of 55.9.

Tesla (TSLA) shares rose more than 6% and led gains in the S&P 500 and Nasdaq 100 after Wells Fargo listed it as a tactical idea for the third quarter.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 0.30%, France’s CAC 40 (FR40) closed higher by 1.09%, Spain’s IBEX 35 (ES35) Index added 1.04%, and the UK’s FTSE 100 (UK100) closed positive 0.03%. The S&P Eurozone Manufacturing PMI for June was revised upward by 0.2 to 45.8 from the previously reported 45.6. The German Consumer Price Index for June (EU harmonized) declined to 2.5% y/y from 2.8% y/y in May, which was in line with expectations. ECB President Lagarde said that the ECB does not yet have sufficient evidence that inflationary threats have passed, reinforcing expectations that the ECB will postpone further interest rate cuts. Today, the Eurozone will release Eurozone inflation data for June and unemployment data for May.

WTI crude oil futures rose to around $83.5 a barrel on Tuesday, hitting a two-month-high, driven by prospects for higher demand during the summer travel season. Prognoses from the American Automobile Association showed vacation travel up 5.2% year-over-year, with auto travel alone expected to rise 4.8% from a year ago. In addition, bets on a rate cut by the US Federal Reserve are providinxg support for oil prices after a recent slowdown in US inflation sparked optimism that a rate cut is imminent.

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Asian markets traded mixed yesterday. Japan’s Nikkei 225 (JP225) was up 0.12%, China’s FTSE China A50 (CHA50) added 0.34%, Hong Kong’s Hang Seng (HK50) was not trading, and Australia’s ASX 200 (AU200) was negative 0.22%.

The offshore yuan depreciated to 7.30 per dollar, remaining at its lowest level in seven months, while weak guidance from the People’s Bank of China (PBoC) pressured investor sentiment. The Bank of China set the average rate at 7.1291 per dollar, the lowest since November 21, signaling a willingness to weaken the yuan further. The yuan’s depreciation is also supported by a stronger US dollar, driven by a sharp rise in US bond yields and speculation about Donald Trump’s possible return to the presidency.

The Japanese yen fell to 161.5 per dollar, sliding to new 38-year lows due to a sharp interest rate differential between Japan and the US. A lack of urgency from the Bank of Japan to normalize monetary policy is weighing on the currency. However, there is growing speculation that the BOJ may raise rates at its next meeting in late July. A weak yen raises the cost of imports, which adds to inflationary pressures and negatively affects household consumption. Meanwhile, Finance Minister Shun’ichi Suzuki reiterated on Tuesday that the government remains vigilant in monitoring exchange rate movements.

Minutes from the Reserve Bank of Australia’s (RBA) June meeting showed that policymakers emphasized the need to remain vigilant against upside risks to inflation, adding that a significant rise in prices could necessitate a significant rate hike. Nevertheless, the board sees an opportunity to bring inflation to the target level while maintaining stability in the economy and labor market. Markets are currently pricing in a one-in-three chance of a rate hike as early as August while ruling out the possibility of an RBA rate cut this year.

S&P 500 (US500) 5,475.09 +14.61 (+0.27%)

Dow Jones (US30) 39,169.52 +50.66 (+0.13%)

DAX (DE40) 18,290.66 +55.21 (+0.30%)

FTSE 100 (UK100) 8,166.76 +2.64 (+0.032%)

USD Index 105.82 −0.04 (−0.04%)

Important events today:
  • – Australia RBA Meeting Minutes at 04:30 (GMT+3);
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
  • – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
  • – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 16:30 (GMT+3);
  • – US Fed Chair Powell Speaks at 16:30 (GMT+3);
  • – US JOLTS Job Openings (m/m) at 17:00 (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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