The JPY is the strongest and the USD is the weakest as the North American session begins

The JPY is the strongest and the USD is the weakest as the North American session begins. The USD is weaker ahead of a number of employment releases today. The ADP employment data which will be released at 8:15 AM. US jobless claims, the JOLTS employment data, and Services ISM PMI data will also be released today (including the employment component). The US jobs report will be released tomorrow at 8:30 AM ET with expectations near 220K.

The USD is lower despite the FOMC meeting minutes yesterday that showed that although the Fed was unanimous in keeping rates unchanged in June, there were some who felt a raise was warranted in June, considering the economy hadn’t slowed significantly. These officials argued that the economy’s activity had surpassed earlier expectations and inflation was not clearly on track to meet the committee’s 2% target. The minutes used terms like “resilient” frequently to describe the U.S. economy, financial markets, and banking system. The June meeting officials suggested two more increases this year would help shape public expectations about the need to increase rates to bring inflation down to the Fed’s 2% target. The minutes also hinted at a potential challenge in maintaining unity in future decision-making, given differing opinions among the officials. While some argue the Fed should pause and let current policies work, others see an urgent need for further increases. Ahead of the minutes’ release, investors saw an 88% chance that the Fed would raise rates to between 5.25% and 5.5% this month, which would be a 22-year high.

Later near the US close yesterday, New York Federal Reserve Bank President John Williams expressed concerns with the current state of inflation, affirming that combating it is a chief responsibility of the Federal Reserve. He noted progress on inflation, but still finds price pressures too high, despite pandemic factors driving inflation easing. He highlighted the economy’s continued demand for labor and resilience in the housing market, which came as a surprise to him. Despite this, he thinks the economy has weathered rate hikes fairly well. He proposed it’s an open question of how quickly inflation will decrease next year. He also mentioned that a slower pace of rate increases makes sense currently, but future actions will be dependent on incoming data. Finally, Williams fully backed the Fed’s decision to keep rates steady in the June FOMC meeting. He also suggested that if the markets anticipate quicker progress on inflation than the Fed, it wouldn’t be a problem.

The overall tone of his comments suggests that he believes the Federal Open Market Committee (FOMC) is not done with rate hikes yet, with a 25 basis point rate increase predicted for the upcoming meeting later this month.

Today in Europe:

  • German Factory Orders (month-on-month): Orders increased by 6.4%, significantly outperforming expectations of 1.1% and prior results of 0.2%. This indicates a robust growth in manufacturing orders for Germany.
  • United Kingdom Construction PMI: The UK’s construction industry has contracted slightly, with the Purchasing Managers’ Index (PMI) falling to 48.9 from last month’s 51.6, missing the expectation of 50.9. A figure below 50 indicates a contraction in the construction sector.
  • Eurozone Retail Sales (month-on-month): Retail sales remained stagnant with 0.0% growth, matching last month’s figure but missing the forecast of a 0.2% increase.

BOE’s Bailey was chirping and said:

  • He anticipates a substantial decrease in inflation but warns that the transition could be difficult for borrowers.
  • He refrains from providing a specific date when interest rates will start to decrease.
  • He noted that actions taken by regulators, especially in the fuel market, will assist in reducing inflation.
  • He brings attention to evidence suggesting some retailers might be overcharging customers, indicating a concern about possible unfair market practices impacting inflation.

U.S. Treasury Secretary Janet Yellen is set to embark on a four-day visit to China in an attempt to ease the recent strain in relations between Washington and Beijing, heightened by disagreements over semiconductors and Taiwan. This visit comes after China implemented export controls on critical chipmaking materials, a move it claims is for protecting “national security and interests.” Despite Yellen’s planned meetings with senior Chinese officials, there is limited optimism about substantial improvements in the strained relations.

Crude oil is higher helped by the private API data released late yesterday. That data showed:

  • Crude oil inventories had a drawdown of -4.382 million barrels, which was more than the expected decrease of -2.0 million barrels.
  • Gasoline inventories decreased by -1.615 million barrels, significantly more than the expected decrease of -0.1 million barrels.
  • Distillates increased by 0.604 million barrels, which was slightly more than the expected increase of 0.5 million barrels.

The EIA data for the week will be released at 11 AM today, a day later due to the July 4 holiday on Tuesday.

Also on the calendar today:

  • At 8:15 am, the forecast for the ADP Non-Farm Employment Change is 228K, down from the last months estimate of 278K. The data is a prelude to the US jobs report which will be released tomorrow with expectations of around 224K (vs 339K last month).
  • At 8:30 am, Unemployment Claims are expected to be at 245K, up from the last week’s claim of 239K. The claims took a turn back to the downside last week after hovering around 262K for 3 weeks straight.
  • Also at 8:30 am, the Trade Balance is forecasted to be -$69.0B, narrower than the previous figure of -$74.6B.
  • At 8:45 am, FOMC Member Logan is expected to speak.
  • At 9:45 am, the Final Services PMI is projected to remain unchanged at 54.1.
  • At 10:00 am, the ISM Services PMI is forecasted to be 51.0, slightly higher than the previous reading of 50.3. The employment component last month came in at 49.2.
  • Also at 10:00 am, JOLTS Job Openings are predicted to be 9.93M, lower than the last report of 10.10M.
  • At 11:00 am, Crude Oil Inventories are projected to decrease by 2.0M barrels, significantly less than the previous draw of 9.6M barrels.

A snapshot of the markets currently shows:

  • Crude oil is trading up $0.33 or 0.46% at $72.12
  • Spot gold is trading up $9.98 or 0.52% at $1924.44
  • Silver is up $0.06 or 0.27% $23.17
  • Bitcoin is trading at $31,185. The price was trading at $30,485 near 5 pm yesterday

In the premarket for US stocks, the major indices are trading lower. The major indices moved modestly lower yesterday as traders reacted to higher rates and tighter Fed ahead.

  • Dow Industrial Average is trading down -162 points after yesterday’s -129.83 point decline
  • S&P index is trading down -19.75 points after yesterday’s -8.77 point decline
  • NASDAQ index is trading down -59 points after yesterday’s -25.13 point decline

In the European equity markets, the major indices are trading sharply lower:

  • German DAX is down -1.20%
  • France’s CAC is down -1.83%
  • UK’s FTSE 100 is down -1.23%
  • Spain’s Ibex is down -1.02%
  • Italy’s FTSE MIB is down -0.93% (delayed)

In the Asian Pacific market today, markets closed higher

  • Japan’s Nikkei fell -1.70%
  • Australia’s S&P/ASX 200 index fell -1.24%
  • China’s Shanghai composite index fell -0.54%

In the US debt market yields are higher in early US trading

  • 2-year yield 4.965% +1.5 basis points
  • 5-year yield 4.29% +3.5 basis points
  • 10-year yield 3.969% +2.4 basis points
  • 30-year yield 3.948% +0.4 basis points

In the European debt market, benchmark 10-year yields are higher. The UK 10-year yield is pushing toward its October 2022 high yield of 4.632%. The German 10-year yield is scraping near the highest going back to March 10 near 2.556%.

This article was written by Greg Michalowski at Source