Market Strategist
Summary: Commodities rally picked up steam again with US markets away on Independence Day holiday. This boosted NZD and AUD, despite a pause decision from the Reserve Bank of Australia on Tuesday sending a somewhat dovish surprise. China services PMI will set the tone in Asia today before FOMC June minutes become the focus in the US session later. Electric vehicle carmakers and suppliers key to watch as Tesla China reported higher June deliveries.
Cash markets in the US were closed on Tuesday for Independence Day holiday. S&P 500 futures managed to extend their recent gains getting closer to the 4,500 level again underscoring the strong sentiment in equities betting on no recession and inflation will eventually come closer to the policy target. The VIX Index remains below 14 and the US 10-year yield remains bid but still below 3.9%.
Hang Seng Index was up 0.6% and CSI300 up 0.2% as Asian equities extended their strong start of H2 amid inflation relief and expectations that global tightening cycles have peaked. China’s services PMI on the radar today and more geopolitical headlines also remain on watch after China announced a ban of critical chipmaking minerals yesterday and there are also reports that China has cancelled a trip by European Union's Borrell scheduled for next week. Meanwhile, EV sentiment remains in overdrive with Tesla now reporting a strong 20% increase in shipments from its Shanghai factory, signalling that domestic demand is in an upswing. This could bring EV players like BYD, Xpeng and Nio in focus today.
The US dollar treaded water on Tuesday as price action was restricted due to the Independence Day holiday. NZDUSD however continued to ascend, rising to 0.62 handle from lows of 0.6051 last week. Resistance at 0.6250 eyed. AUDUSD also reversed the post-RBA drop to 0.6640 and rose back to the 0.67 handle as commodity prices were higher ahead of China’s services PMI print due today. EURUSD slid back below 1.09 handle with pressure from EURGBP as GBPUSD rose above 1.27 before retreating slightly.
Oil prices gained in a thin trading session yesterday as traders contemplated further curbs in supply after the announcement that Saudi Arabia will extend its unilateral 1mb/d production cut into August. Meanwhile, Russia’s cuts have little impact on the market given it could continue to export oil to continue its war in Ukraine. China’s services PMI due today may be key for oil traders before focus shifts to FOMC minutes in the US session and labor market data in the rest of the week.
Gold prices re-tested the key $1930 level at the start of the week as dollar traded range-bounded due to the US holiday and manufacturing PMI release brought some inflation relief with the slide in prices paid component. Our technical analyst Kim Cramer has noted a bottom and reversal pattern in Gold after it bounced from 1900, and focus remains on $2000. Hawkish FOMC minutes later today may however cause some bumps, and labor market data from the US remains key this week.
China’s Caixin services PMI for June is scheduled to be released today and expected to remain in expansion at 56.2 despite softening from May’s 57.1. After the manufacturing PMI surprised on the upside this week, there are hopes that services could stay stronger as well with stimulus measures from China starting to flow through to the economy. Still, US-China tensions continue to be on a rise and keep expectations of any Chinese recovery measured. There are also reports that China has cancelled a trip by European Union's Borrell scheduled for next week, further aggravating geopolitical worries.
The RBA left the policy rate unchanged at 4.10%, which agreed with market pricing of less than 20% odds for the RBA to deliver another hike, but some half of polled analysts were looking for a hike at yesterday’s meeting. The discussion and focus in the statement was largely the same as the prior statement and the key guidance was left unchanged: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”
Total shipments of Tesla China is June were reported to be 93,860 cars from the Shanghai factory, preliminary data from China’s Passenger Car Association showed. That compares to 78,906 units shipped in June 2022 and 77,695 units in May. While PCA didn’t break out local deliveries and exports, Tesla typically focuses more on the domestic market in the last month of each quarter.
Meta plans to launch a Twitter-rivalling microblogging app called Threads, days after Twitter boss Elon Musk attracted criticism by announcing a temporary cap on how many posts users can read on the social media site. Threads is expected to be released on Thursday and will allow users to retain followers from photo-sharing platform Instagram.
The Fed on Wednesday will publish the minutes of its June 13-14 meeting when it held rates steady after 10 straight rate hikes in a unanimous decision despite some divergence appearing in Fed member commentaries ahead of the meeting. The minutes should provide markets greater clarity on the stance of the committee members. The dot plot from the June meeting indicated that two more rate increases are coming this year, including one widely expected in July.
For a detailed look at what to watch in markets this week – read our Saxo Spotlight.
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