JASPER’S MARKET SQUAWK 11-07-2023

Markets Barely Rebound Ahead of Key Data

With little on the economic calendar, equities trended slightly higher in recovery mode from Friday’s reaction to employment figures. The dollar came under pressure, allowing major pairs to get a boost.

Chart: EURUSD

Key Factors For Today

• Equities rebound as markets anticipate key data
• Dollar weakness bolsters major pairs before crucial CPI
• Fed rate path adjustments influence markets, bolster Dow
• Yen strengthens for third session amid intervention concerns
• ECB officials discuss rate hikes, EURUSD reclaims $1.10
• BOE’s Bailey insists on tightening, Cable at 15-month High
• Oil prices react to IEA chief’s comments and various factors

Markets Adjusting to Fed Rate Path, Dow Bolstered Up

The New York Fed June survey of consumer expectations showed that inflation is expected to be at 3.8% a year from now, down from the 4.1% in the prior survey. A series of Fed speakers affirmed the case for more rate hikes this year. June Manheim wholesale used car prices -4.2% monthly, -10.3% annually, the largest drop since the pandemic, in a sign that inflation pressure might be easing. The Atlanta Fed updates its GDPNow forecast, expecting the economy to grow at 2.3% annualised in Q2. Dow gained 0.56% to 33980, facing strong resistance at 34k and 34130 unless bears take control of 33790.

Yen Marks 3-day Streak Against Dollar on Intervention Fears

The yen continued its strengthening move, gaining the most among its G-7 peers, without any significant data releases, as investors weigh the possibility that the BOJ could intervene if it stays weak for too long. The dollar fell for the third session against the Japanese yen, with 140.00 as the next major support and 142.00 resistance.

ECB Officials Talk Up Rate Hikes, EURUSD Reclaim $1.10

Eurozone Sentix investor confidence was below expectations at -22.5 compared to the -17.5 forecast, but investors seemed to rally around comments from ECB officials talking up more rate hike possibilities. ECB official Constantinos Herodotou (Cyprus) said that tightening was the only way to deal with inflation but did allow that high rates wouldn’t be permanent. ECB official Joachim Nagle (Germany) reiterated that inflation remains too high. Neither directly referenced how likely a rate hike in September would be. EUR/USD reclaimed $1.10 after putting in a 3-day winning streak and continues its ascend early Tuesday. $1.1035 is short-term resistance below $1.1058, while support under the round support remains at $1.0960.

BOE’s Bailey Insists on Tightening, Cable at 15-Month High

In the annual Mansion House gathering of financial leaders in the UK, BOE governor Andrew Bailey reiterated that inflation is unacceptably high but refused to entertain the possibility of raising the BOE’s rate target. He also warned that wages were rising faster than inflation targets. However, he also repeated the expectation that inflation would fall quickly. Cable got a boost, supported partially by a weaker dollar, putting in a 15-month high at $1.2870. The winning streak may continue towards $1.30 unless the bears step up their game and can recapture $1.28.

Oil Prices Impacted by China, IEA Chief Comments

Crude prices fluctuated following the drop in inflation in China and comments from the head of the IEA, Fatih Birol, who said that demand for crude remains strong and sees tightness in the market for the second half of the year. Birol’s outlook was based on higher demand expectations from emerging markets, including China. An explosion in an off-shore Pemex platform reportedly cut Mexico’s daily output by around 700K, and it wasn’t initially clear when full capacity would be restored. WTI’s initial spike to $74.10/bbl was rejected, with prices falling to a close at $73.20/bbl, down 0.87%. The next notable levels are $74.70/bbl and $72.00/bbl.

On The Docket

• German Inflation Rate
• UK Jobs
• German and EA Zew
• Fed Bullard Speech
• API Crude Oil Stock Change
• RBNZ Interest Rate Decision

FX 1-Day Relative Performance (USD)

• Aussie 0.18% up, while Kiwi unchanged
• Euro 0.16% higher, pound at +0.13%
• Yen is up by 0.36%, Franc only by 0.11%
• Canadian dollar 0.14% higher
• Gold is up by 0.16%, Silver 0.39% higher
• Crude and Brent up by 0.55% and 0.46%
• Natural gas fell by 0.34%