The USD is the strongest and the NZD is the weakest as the NA session begins

The USD is the strongest and the NZD and AUD are the weakest as the North American session begins. The U.S. economy continues to display resilience amid concerns over a potential recession. Data yesterday showed an unexpected rise in new durable goods orders for key U.S.-manufactured goods and a surge in new single-family home sales in May. In addition, U.S. consumer confidence rose to its highest in nearly one-and-a-half years in June. Although the Federal Reserve paused interest rate hikes earlier in the month, it indicated that two more rate hikes could be necessary this year. The positive data has led investors to increase the likelihood of a July rate hike to 77% from 74.4% the previous day, suggesting a potential increase in the Federal interest rate range to 5.25%-5.50%.

Overnight, the Australian Consumer Price Index (CPI) rose by 5.6% in the year to May 2023, compared to 6.8% the previous month and lower than the 6.1% estimate. Core measures for the month remained above 6% but it was the headline that the market responded to (for both the AUD and NZD). While the monthly CPI print has caveats, the data does not cover the entire ‘basket’ that the quarterly CPI does for example, we don’t get the more reliable quarterly data until late in July. The Reserve Bank of Australia meets next week, July 4, and it would appear the data today is enough for the Bank to leave its cash rate unchanged at this meeting.

In the US, the Biden administration is considering new restrictions on exporting AI chips to China amid concerns about potential misuse in weapon development and hacking. This move could affect chip manufacturers like Nvidia and AMD, which reportedly will require them to obtain licenses before shipping their chips to China. The government is also looking at limiting the leasing of cloud services to Chinese AI companies to further control access to advanced technology. The stop of the shipments by Nvidia and other chip companies to customers in China may come as early as July, the report said. Nvidia gets about a fifth of its revenue from China. The decision aligns with the U.S.’s increasing view of AI as a national security matter. Nvidia shares are trading $406.50 down -2.93% down on the day. AMD shares are also lower in pre-market trading at $107.52 down -2.62% on the day. Traders today will be monitoring a panel discussion at the European Central Bank’s annual forum in Sintra, Portugal, featuring key central bankers including Federal Reserve Chair Jerome Powell, ECB President Christine Lagarde, BOEs Bailey and Bank of Japan Governor Kazuo Ueda. Last week, Powell’s hawkish commentary on interest rates interrupted a Wall Street rally that had pushed major indexes to notable highs. Lagarde underscored the persistence of high inflation, asserting that it would necessitate continued rate hikes. BOE raised rates by a surprise 50 bps last week. Meanwhile, Japan’s divergent monetary policy has resulted in the yen hitting a nearly 15-year low against the euro and an eight-month low against the dollar, raising speculation that Japan may intervene to bolster its currency, as it did last October, effectively dropping the dollar from a peak of 151.94 to a low of 144.50 within hours.

In the European session the following comments were made by ECB bankers:

  • ECB’s Vasle states that he needs persuasion to believe a rate hike beyond July is not necessary.
  • ECB’s Scicluna comments that decisions about rates post-July will be considered in their meeting, while acknowledging the importance of being mindful about the impact of rate hikes.
  • ECB’s Vujcic indicates that there’s no reason to announce actions for September now, though he acknowledges a strong possibility of a rate hike in September.

Japan’s Finance Minister, Shunichi Suzuki, stated overnight that the exchange rate should ideally be stable. He has observed one-sided movement in the current market and assured that the government will respond appropriately to any excessive moves if required. He did not comment on the specifics of the foreign exchange levels. The USDJPY is trading to a new high for the year (and high going back to November) in early US trading.

Overall US stocks are mixed with the Dow industrial average up modestly while the S&P and NASDAQ index are lower on the chip news and in anticipation of the central banker’s speech today. US yields are tracking lower by about 3 basis points across the curve. Crude oil is little changed after private data showed a draw of -2.408 million barrels late yesterday. The expectations are for -1.757 million barrels when the EAI data is released at 10:30 AM. Gasoline stocks saw a draw of -2.85 million barrels versus expectations of -0.126 million at the release later today.

A snapshot of the markets currently shows:

  • Crude oil is trading near unchanged at $67.70
  • Spot gold is trading down $-6.39 at $1907.26
  • Silver is down $0.19 at $22.63
  • Bitcoin is trading at $30,306 near the start of the US session

In the premarket for US stocks, the major indices are trading mixed in premarket trading

  • Dow Industrial Average is trading up 15.26 points after rising 212.03 point yesterday. The Dow snapped a 6 day losing streak yesterday
  • S&P index is trading down 8.4 points after yesterday’s 49.59 point rise
  • NASDAQ index is trading -58 points after surging at 219.89 point yesterday

In the European equity markets, the major indices are trading higher

  • German DAX up 0.73%
  • France’s CAC up 0.75%
  • UK’s FTSE 100 up 0.63%
  • Spain’s Ibex up 0.75%
  • Italy’s FTSE MIB up 0.57% (delayed)

In the Asian Pacific market today, Japan and Australia is indices fell. China was closed for holiday:

  • Japan’s Nikkei rose 2.02%
  • Australia’s S&P/ASX 200 index rose 1.10%
  • China’s Shanghai composite index rose 1.23%

In the US debt market yields are marginally lower

  • 2-year yield 4.732% -3.1 basis points
  • 5-year yield 4.000% -3.5 basis points
  • 10-year yield 3.733% -3.5 basis points
  • 30-year yield 3.811% -2.8 basis points

In the European debt market, benchmark 10-year yields are lower the head of the central bankers:

This article was written by Greg Michalowski at Source