Weekly Market Recap (26-30 June)

<p>Monday: Japan’s “top currency diplomat” Kanda commented on
the recent yen depreciation and said that they will respond to excessive FX
moves. In fact, he added that it’s the pace of moves that they more focused on
rather than the levels. Later on, Japan’s Finance Minister Suzuki confirmed
that they will respond appropriately if there are excessive moves. Of note, the
145.00-150.00 area in USD/JPY is where we started to see interventions last
year. </p><p>We also got the
BoJ’s Summary of Opinions from the June meeting with two particular key lines
hinting to a possible change in policy coming at the July 27-28 meeting:</p><ul type="disc"><li>There is strong
chance consumer inflation will moderate, but won't slow back below 2%, toward
middle of current fiscal year.</li><li>One member called
for early revision of YCC policy. The member said that while the BOJ
should maintain its current monetary stimulus for now, since the cost of
waiting to achieve sustainable 2% inflation is low for the BOJ’s overall
easing program. However, from the perspective of improving market
functioning, communication with investors and preventing sharp moves in
interest rates when the BOJ exits its current monetary easing, using yield
curve control is costly, the member added.</li></ul><p>The German IFO Business
Climate Index printed at 88.4 vs. 90.7 expected with the expectations index
diving to 83.6 vs. 88.0 expected. Following the last week’s PMIs, this report
reinforces the chances of a recession coming in the second half of the year. </p><p>Fed’s Williams (hawk)
said that “restoring price stability is of paramount importance”. </p><p>ECB’s Simkus (hawk) said
that “at least one more rate hike is required”. We’ve been hearing a lot from
ECB speakers about a rate hike in July being basically a done deal with more
uncertainty on the September action. </p><p>Tuesday: ECB’s Kazaks (hawk)
said that the market bets on rate cuts in 2024 are wrong as the softness in the
economy is unlikely to deal with inflation. He expects rate hikes going past
July as inflation remains too high and it’s unlikely that they will be
comfortable enough in July to pause. </p><p>ECB’s President Lagarde
(hawk)said that they are committed to reaching the inflation target no matter
what and that they can’t declare victory yet. She added that they need to bring
rates to sufficiently restrictive territory and stay there for as long as
necessary. She acknowledge that they have not yet seen the full impact of rate
hikes since July of last year. </p><p>BoE’s Dhingra (dove) said
that UK wages are responding to inflation with a lag and that the sharp drop in
PPI is promising as the CPI follows the PPI with a lag of around one to two
quarters. She added that food prices is where inflation remains most stubborn.</p><p>ECB’s Simkus (hawk) added
to his previous comments that they cannot rule out a September hike and that
they need to keep rates restrictive to reach the 2% target. </p><p>ECB’s Wunsch (hawk) acknowledged that their ability to fix inflation at exactly 2% is limited and
that if inflation was at 2.3% and the economy was weak, he wouldn’t tighten
monetary policy. He added that they will need clear signs of slowing core
inflation to pause and more action will be needed if core does not moderate. </p><p>Canada CPI Y/Y came as
expected at 3.4% vs. 4.4% prior, while the M/M reading was at 0.4% vs. 0.5%
expected and 0.7% prior. The Core CPI Y/Y missed expectations coming at 3.7%
vs. 3.9% expected and 4.1% prior, while the M/M figure came in lower at 0.4%
vs. 0.5% prior. The Canadian dollar weakened following the release.</p><p>US Durable Goods Orders
for May came in much better than expected at 1.7% vs. -1.0% expected. Core
Durable Goods Orders beat expectations as well printing at 0.6% vs. -0.1%
expected. This is a volatile report and often revised, which is why we haven’t
seen much movement in the markets after the release. </p><p>The US Conference Board
Consumer Confidence report surprised with much stronger readings than expected
coming at 109.7 vs. 104.0 expected and 102.3 prior. The present situation
index, which correlates with the labour market, jumped to 155.3 vs. 146.8
prior. The expectations index has also improved to 79.3 vs. 71.5 prior. Stocks
and Yields jumped following the release. </p><p>Wednesday: The Australia headline
CPI Y/Y printed at 5.6% vs. 6.1% expected and 6.8% prior with the M/M figure
coming at 0.0% vs. 0.3% prior. The Core CPI Y/Y though, slowed to just 6.4% vs.
6.5% prior. The Australian dollar depreciated following the release. </p><p>ECB’s de Guindos (dove)
said that a rate hike in July is set as there is more ground to be covered on
rates. This is a strong commitment and shows that the real question in on the
September hike and that weak data this month may just lead to less chances of a
move in September rather than in July. </p><p>ECB’s Centeno (dove) said
that inflation is easing as quickly as it went up and that overtightening is
not an acceptable position as he sees already the economy being hit. This is
the most dovish take we’ve heard until now, but coming from a dove is not that
much surprising. </p><p>ECB’s Muller (hawk) said
that it’s too early to say where rates will end up and that they will need to
look at the data for rate hikes beyond July. He acknowledged that the risks to
inflation are still on the upside but added that rate hikes are gradually
having an impact. </p><p>ECB’s Vujcic (hawk) said
that there is a good chance for a September hike and that they can engineer a
soft landing. </p><p>ECB’s Vasle (hawk) said
that they need to keep tightening policy at the next meeting (July) as
inflation remains persistent. He added that beyond July they’ll remain
data-dependent.</p><p>ECB’s Lagarde (hawk) said
that they will very likely hike again in July as they still have ground to
cover and they are not seeing tangible evidence of stabilising domestic
inflation. She added that the European economy is “stagnant at best” but their
baseline does not include a recession. For the September hike they will be data
dependent. </p><p>BoE’s Bailey (hawk) said
that the data showed clear persistence of inflation and that they will do what
is necessary to bring it down to target. He acknowledged that the UK has a
“very, very robust labour market” and that the economy has turned out to be
much more resilient so far. He added that for their policy they remain
“evidence driven”. </p><p>Fed’s Powell (hawk) said
that they believe there is more restrictive policy coming because if you look
at the data over the last quarter, jobs, inflation, and activity is all strong.
He acknowledged that policy hasn’t been restrictive for long and as they get
closer and closer to the goal, the risks become more in balance. He added that
they have not made a decision to hike at every other meeting and he would not
take moving at consecutive meeting off the table. He concluded that they need
to see more softening in the labour market and that services sector isn’t
particularly interest-rate sensitive. The following day, Fed Chair Powell basically repeated what he said a day earlier but added that a strong majority
of the FOMC expects it to be appropriate to hike rates two or more times
by the end of the year.</p><p>BoJ’s Ueda (dove) said
that underlying inflation is still under 2% and if they want to achieve a their
2% target they need wage inflation that is slightly or well above 2%, so
there’s still some ground to cover. He touched on the yen weakness saying that
it’s influenced by many factors including the policy of the other central
banks. Finally, he said that if they get to normalize their normal monetary
policy, then rates may go up by large margins and they will have to be careful
and carry out all kinds of stress tests.</p><p>ECB’s Villeroy (hawk)
said that inflation expectations remain anchored and that he’s confident on a
soft landing but not without some pain. He added that he expects a catch up in
real wages but no price spiral. Finally he said that they need to be patient on
the duration rates are kept high and that they are closer to terminal levels of
rates. </p><p>Thursday: ECB’s Centeno (dove)
said that they are very close to the time monetary policy may pause and that
not overreacting is a huge concern for every central bank. </p><p>Fed Chair Powell (hawk)
basically repeated what he said a day earlier but added that a strong majority
of the FOMC expects it to be appropriate to hike rates two or more times
by the end of the year.</p><p>ECB’s de Cos (hawk) said
that the September meeting decision is absolutely open. </p><p>Fed’s Bostic (neutral)
said that he doesn’t see as much urgency to move as stated by others and that
he would probably do more only if inflation seems to significantly stall. He
added that nobody should take a signal from his views that the Fed should pause
and that there are undoubtedly scenarios where they could move at two meetings
in a row. Later in the day he added that he’s not ready to rule out further
rate hikes if required but doesn’t see the need as he thinks that the policy in
place is enough to bring inflation back to the 2% target since the tightening
started last year is starting to show up in the real economy, including the
labour market. He also reaffirmed his commitment to reducing inflation, even if
it results in a rise in unemployment.</p><p>The US Q1 Final GDP
printed at 2.0% vs. 1.4% expected and 1.3% preliminary. Consumer spending
growth accelerated more than expected at 4.2%, which is the strongest in almost
two years.</p><p>The US Initial Claims
beat expectations coming at 239K vs. 265K expected and Continuing Claims
decreased further to 1742K vs. 1765K expected and 1761K prior. This suggests
that the labour market is still tight and the Fed may have more work to do as
it wants to see more softness in the jobs data. </p><p>BoJ’s Himino said that
the recent rises in Japan’s CPI are more modest compared to the US and Europe
but stronger than previously expected. He doesn’t see the risk of Japan experiencing
too high inflation. He concluded saying that they must be vigilant to signals
coming out from markets, and the impact of market moves on Japan's economy.</p><p>BoE’s Tenreyro (dove)
said that they’ve seen very little pass through of the their policy tightening
and that the data could be consistent with slightly slower decline in inflation
pressures. She cited forward looking indicators as the reason for voting for no
change at the last BoE meeting. She thinks that the tightening in the pipeline
would be sufficient to bring inflation back to, and most likely below, the
target. She concluded that the more the BoE raises rates now, the sooner and
faster the central bank will later need to cut rates. Tenreyro will leave her
position at the BoE on July 4th. </p><p>Friday: China Official
Manufacturing PMI came at 49.0 vs. 49.0 expected and 48.8 prior, while the
Services PMI printed at 53.2 vs. 53.7 expected and 54.5 prior. </p><p>UK Q1 Final GDP came at
0.1% confirming the initial estimate. </p><p>Eurozone CPI Y/Y came at
5.5% vs. 5.6% expected and 6.1% prior, while the M/M reading printed at 0.3%
vs. 0.0% expected and 0.0% prior. The focus now is more on the Core measures
and those missed expectations with the Y/Y at 5.4% vs 5.5% expected and 5.3%
prior and the M/M figure at 0.3% vs. 0.7% expected and 0.2% prior. The
unemployment rate remained unchanged at 6.5%. </p><p>US PCE Y/Y came at 3.8%
vs. 4.6% expected and 4.3% prior, while the M/M reading printed at 0.1% vs. 0.5%
expected and 0.4% prior. US Core PCE Y/Y, which is the Fed’s preferred measure
of inflation, came at 4.6% vs. 4.7% expected and 4.7% prior, while the M/M
figure printed at 0.3% vs. 0.3% expected and 0.4% prior. The Core PCE Y/Y looks
stuck above the 4% level. </p><p>Next week is a big week on the data front:</p><ul><li>Monday: US ISM Manufacturing PMI.</li><li>Tuesday: RBA Policy Decision.</li><li>Wednesday: FOMC Meeting Minutes.</li><li>Thursday: US Jobless Claims, US Job Openings and ISM Services PMI.</li><li>Friday: US NFP and Canada Jobs Report. </li></ul><p>That's all folks. Have a great weekend!</p><p>This article was written by Giuseppe Dellamotta.</p>

This article was written by FL Contributors at www.forexlive.com.