The dollar moving lower supported the price of oil (WTI Crude, +2.22%), silver (SI, +0.95%) and gold (GC, +0.58%) futures but it also helped the stocks to rally on a wide front. The moves were prompted by China’s decision to cut the banks’ reserver requirements which makes it easier for them to provide loans for the businesses. With China being the second biggest economy in the world and a major player in, among other things, the commodities markets dovish moves like this have a spillover effect outside the Chinese economy and a (bullish) sentiment impact in the world markets. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
USDCAD (-0.71%) traded lower on Friday as the widespread dollar weakness and the positive Canadian Employment Change (230.7K vs. 172.5K expected, -68.0K prior) eroded the USDCAD bids. The unemployment rate came in at a much-improved level but was in line with the consensus expectation at 7.8% (7.8% expected, 8.2% prior). USD lost against the other major currencies also, with CHF (+1.15%), GBP (+0.82%), AUD (+0.74%) and NZD (+0.66%) all gaining significantly against the greenback.
The S&P 500 (+1.13%), Dow Jones Industrial Average (+1.30%) and the Nasdaq Composite indices closed at record highs on Friday. The rally was led by the financial (+2.89%) and the energy (+2.13%) sectors together with other cyclical sectors. The turnaround was quite sharp after the indices had suffered losses earlier in the week. All eleven S&P 500 sectors finished the day up. Among the TIOmarkets equity CFDs, the best performers were FCX (+5.22%), GM (+4.82%), AIG (+4.48%), MET (+3.83%) and JD (+3.77%). The five worst performers were BIIB (-2.99%), BAX (-1.11%), CHTR (-0.95%), LLY (-0.90%) and CTXS (-0.60%). The performance skew was clearly in the favour of the bulls as can be seen from the return percentages. Among the five biggest losers there was only one stock that had moved approx. three percentage points while the winners moved between +3.77% and +5.22%.
There are no major economic data releases in the calendar for today. The next significant risk event is the US CPI data release on Tuesday after which the traders will focus on Wednesday on the New Zealand rate statement, the CPI report from the UK, the US PPI and the Canadian rate decision. For more information and details see the TIOmarkets economic calendar here.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The FED||The Fed has now changed the tune and is moving away from the ultra-accommodative monetary policy. Currently, the expectation is that the first-rate hike would take place in the second quarter of 2022.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus and the Biden administration is negotiating with the Senate Republicans to introduce a $1.2 trillion infrastructure stimulus plan.|
|Yields||After trending higher since the beginning of August 2020, the Treasury yields have been moving lower since March 2021. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Employment||Even though the June NFP report came in better than anticipated (+850K) the total is still 6.8 million jobs lower than at its peak in February last year. However, the Fed has said earlier recently that believes that the US is on a path to a very strong labour market as indicators of activity and employment continue to improve.|
|Inflation||The year on year headline CPI change was 5% but not all inflation gauges agree with such a high number. The trimmed-mean inflation CPI index published by the Cleveland branch of the Federal Reserve Bank, rose only 2.6% y/y (0.4% m/m)|
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Market News & Facts
- Dutch Covid-19 cases up eight-fold in a week
- China state media: more economic support on the way
- Japanese June PPI 0.6% m/m (0.6% expected)
- Lagarde: ECB policy guidance to change
- UK GDP m/m +0.8% (1.5% expected)
- Record high coronavirus cases in South Korea
- Sidney stays in lockdown as cases increase
- Analyst consensus: BOC to taper by 1 bn CAD next week
- Chinese CPI 1.1% y/y (1.3% expected)
- ECB inflation target to 2%
- PBOC $23 billion intervention to buy USD against yuan
- The US JOLTS job openings for June 9.209M (9.310M expected)
- Japan’s extra stimulus estimated at $180 bn
- Westpac forecasts RBNZ will hike rates in November
- US ISM Services PMI for June 60.1 (63.5 expected)
- UK construction PMI for June: 66.3 (64.2 previous)
- PBOC: warns against institutions providing cryptocurrency services
- RBA’s Lowe is not considering rate increases in 2023
- The UK Prime Minister lifts Covid restrictions
- OPEC+ meeting postponed
The Next Main Risk Events
- USD – CPI and Core CPI m/m
- USD – 30-y Bond Auction
- NZD – RBNZ Rate Statement
- GBP – CPI y/y
- USD – PPI and Core PPI m/m
- CAD – BOC Rate Statement
- USOIL – US Crude Oil Inventories
- CAD – BOC Press Conference
- USD – Fed Chair Powell Testifies
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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