Daily Market Analysis By Z Forex

[Z Forex]

Global Economic Insights: Inflation Trends, Market Volatility, and Monetary Policy Perspectives

Tokyo's core inflation rate, an indicator of price stability, showed a decrease to 2.8% from July's 3%, falling below the anticipated 2.9% forecasted by economists surveyed by Reuters. This marks the slowest growth in the city's core inflation since September 2022. The metric excludes volatile fresh food prices from the consumer price index.
Despite efforts by policymakers to stabilize the struggling Chinese stock market through major financial institutions, investor pessimism persists, leading to a decline in Chinese stocks. Additional policy measures were introduced, including relaxed mortgage policies, as reported by the official Xinhua news agency.
Philadelphia Federal Reserve President Patrick Harker expressed a view that further interest rate hikes may not be necessary, with potential rate cuts in 2024 depending on economic data. Harker highlighted feedback from business leaders in his district, who suggest that the Federal Reserve should maintain its current stance to allow the impact of previous rate increases to permeate the economy.
The German economy remained stagnant in the second quarter, as confirmed by the Federal Statistics Office. The GDP recorded no growth from the previous quarter when the country experienced a winter recession.
Market participants are closely watching the annual gathering of prominent central bankers in Jackson Hole, Wyoming. Federal Reserve Chair Jerome Powell's scheduled speech is anticipated to outline the criteria for assessing potential rate adjustments, both upward and downward, based on evolving economic conditions. Powell's address is expected to shed light on the Fed's future policy directions..

 

[Z Forex]

Chinese Stocks Surge, Evergrande's Plunge, and Global Economic Signals

Mainland Chinese and Hong Kong stocks led the regional gains as Asia-Pacific markets began the final trading week of August on a positive note. To invigorate the capital market and enhance investor confidence, Chinese authorities reduced the stamp duty on stock trades, effective from Monday. While not a massive fiscal stimulus, this move was a welcome acknowledgment from Beijing of the need for assistance. As a result, stocks saw an increase of about 2.5%, marking the second-largest daily gain of the year and underscoring the market's lackluster performance.
The shares of China Evergrande Group, the world's most indebted property developer, tumbled by up to 87% upon its reopening on Monday, its first trade since March 21, 2022. Meanwhile, Australia reported a 0.5% rise in seasonally adjusted retail sales for July compared to June, surpassing economists' expectations of a 0.3% increase according to Reuters polls.
Federal Reserve Chair Jerome Powell, speaking at his annual address in Jackson Hole, Wyoming, early on Friday, stated that central bank policymakers were attentive to signs suggesting that the economy might not be cooling as anticipated. This poses a dichotomy: while faster-than-expected economic growth benefits corporate earnings and leads to higher Treasury yields for valid reasons, the surge in yields places pressure on growth stocks, whose future earnings are evaluated against the risk-free Treasury rate, as well as on indebted companies that must refinance their obligations at elevated rates.

 

[Z Forex]

Asia-Pacific Gains, German Consumer Sentiment Decline, GBP/USD Momentum, and European Stock Surges

Asia-Pacific markets recorded widespread gains following Wall Street's successful performance on Monday. Leading the surge were Hong Kong and Mainland Chinese stocks, building upon their Monday advances.
For July, Japan's unemployment rate rose to 2.7%, surpassing both June's 2.5% and the anticipated 2.5% forecasted by Reuters-polled economists. Notably, the country's jobs-to-applicants ratio slipped from June's 1.3 to 1.29 in July, marking the third consecutive month of decline, contrary to economists' expectations of stability.
Although Japan's government suggested a potential turning point in its 25-year battle against deflation, the yen remained largely unaffected, holding close to its 10-month low from Monday.
Predictions from the GfK Institute's survey indicate a forthcoming decrease in German consumer sentiment for September. This projection results from diminishing income expectations and reduced inclination to make purchases, with the consumer sentiment index declining to -25.5 for September, down from August's slightly revised -24.6.
Concerns about supply disruptions caused by impending stoppages at two Chevron (CVX.N) liquefied natural gas facilities in Australia elevated European gas traders' apprehension, subsequently raising prices.
Later in the day, the focus shifts to US job openings. A minor decline could signal a potential slowdown in broader labor statistics due to be released on Friday.
Investors are still navigating the path of monetary policy, with Federal Reserve Chairman Jerome Powell reiterating the possibility of further interest rate hikes if inflation remains below target. Powell emphasized the Fed's dedication to combating inflation, stating that although it has decreased from its peak, it remains elevated.

 

[Z Forex]

Asian Equities Rise Amid Fed Rate Speculations, Australian Inflation Slows, and Chinese Banks Lower Mortgage Rates ​

Following a rally on Wall Street, Asian stocks advanced on Wednesday, fueled by growing optimism that the Federal Reserve had concluded its monetary tightening measures, leading traders to reduce the probability of a rate hike within this year.
In July, Australia's consumer price index experienced a year-on-year growth of 4.9%, marking a slower pace compared to June's 5.4%. This marked the third consecutive month of decelerating inflation. The inflation rate, excluding volatile items like fuel, fresh food, and holiday travel, was 5.8%, which is lower than June's revised figure of 6.1%.
Sources revealed that certain state-owned Chinese banks are preparing to reduce interest rates on existing mortgages. This move is part of Beijing's strategy to revive the property sector, which has been impacted by the debt crisis, and to fortify the struggling economy.
The most recent data on US job openings revealed a decline to levels not witnessed since early 2021. This development strengthens the argument for the Federal Reserve to halt its rate adjustments. While markets are highly confident that the Fed will maintain its current stance next month, it's the November and December meetings that are capturing the attention of investors. The Fed has emphasized its reliance on data in shaping its monetary policy trajectory.
Investors will closely watch the US economic growth data scheduled for release later on Wednesday. This data will provide further insights into the economy's resilience in the face of elevated interest rates. Additionally, there is anticipation regarding Eurozone consumer confidence figures.

 

[Z Forex]

Global Economic Outlook: Central Banks, Inflation Concerns, and Commodities Market Trends

On Tuesday, the dollar index stabilized at around 103.1, its lowest in three months, amid weak US economic data fueling expectations that the Federal Reserve might halt rate hikes and possibly cut rates next year. Investors are now focusing on the upcoming PCE prices, a preferred inflation gauge by the Fed, alongside personal income, spending data, and the ISM Manufacturing PMI for further insights. Additionally, several Fed officials are slated to speak at various events this week.
ECB President Christine Lagarde emphasized ongoing inflation concerns, stating that it's too early to declare victory over inflation. With Eurozone inflation currently double the ECB's 2% target, Lagarde's remarks come ahead of Thursday's expected release of Eurozone inflation data, with estimates around 3.9%. Despite the ECB's rate increase to 4.0%, the markets anticipate a potential mid-2024 rate cut, although the ECB has not confirmed such plans.
Bank of England Governor Andrew Bailey acknowledged the challenges in reducing inflation to the 2% target, linking recent declines to lower energy prices. He highlighted the importance of curbing inflation due to its impact on households. With the BoE Deputy Governor for Markets and Banking, David Ramsden, set to speak on Tuesday, market futures suggest a possible 25 basis point rate cut by the BoE in September 2024.
In Japan, recent data indicating progress towards sustained inflation raises speculation about a potential shift from the Bank of Japan's ultra-dovish policy in early 2024.
Gold prices remain steady above $2,000, benefiting from a weaker dollar and lower treasury yields, with the market eyeing this week's PCE data for signs of slowing inflation.
The US Dollar's negative bias, combined with the upcoming OPEC+ meeting on Thursday, raises expectations of support for crude oil prices. Speculation centers on OPEC+ possibly extending its oil production cut into 2024.
This OPEC+ meeting occurs amidst a notable decline in crude oil prices due to oversupply concerns and substantial production from non-OPEC countries, particularly the US. Additionally, China's NBS Purchasing Managers Index (PMI) data release on Thursday could impact WTI prices, especially if the data from the world's largest crude oil importer exceeds expectations.

 

[Z Forex]

Global Financial Markets: A Week of Anticipation and Adjustments Ahead of Key Policy Decisions and Economic Data​

On Monday, the dollar index fluctuated around the 104 level as investors are cautious ahead of an important week in which the Federal Reserve is due to make its last monetary policy decision of the year. Key data on inflation, retail sales, and economic activity in the US are also due, which will influence economic and interest rate forecasts. Earlier, the index rose on Friday following a strong US labor market report, suggesting that the Federal Reserve has some room to tackle inflation before considering rate cuts.

In Europe, market expectations are that the European Central Bank (ECB) will leave its main refinancing rate at 4.5% in its upcoming statement on Thursday. There are also predictions that the ECB will start cutting interest rates in March 2024. Currently, the euro is under pressure due to deteriorating economic conditions.

The Governor of the Bank of England (BoE), Andrew Bailey, pointed out last month that it was still too early to consider rate cuts and emphasized vigilance against inflation. With inflation dropping from 6.7% in September to 4.6% in October, the BoE is expected to maintain high borrowing costs at its December meeting. The pound is benefiting from the BoE's persistent hawkish stance, even amidst high recession risks.

Meanwhile, recent reports clarified that comments from Bank of Japan (BoJ) Governor Kazuo Ueda were misinterpreted, not hinting at imminent policy changes. Japan's weaker GDP report underscores the economy's fragility, tempering expectations of an immediate rate hike and affecting the Japanese yen. However, global economic uncertainties and geopolitical risks might limit the yen's losses.

Gold prices fell to a two-week low on Friday, reversing from a recent peak after the US reported stronger-than-expected employment data. The strong jobs report reduced expectations for a Federal Reserve rate cut in March 2024, supporting US Treasury yields and the US dollar, which negatively impacted gold.

Lastly, recent data showing a resilient US economy has generated optimism about crude oil demand. This optimism acts as a support for oil prices. However, skepticism about OPEC+'s recent production cuts offsetting rising supply from non-OPEC countries and declining global demand persists. Additionally, weak economic data from China, a major importer, is raising concerns over fuel demand, potentially capping significant gains in oil prices.

 

[Z Forex]

Eyes on Fed: Markets Await Policy Decision and Clues on Interest Rate Cuts

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On Wednesday, the dollar slightly rose against major currencies as traders anticipated the Federal Reserve's policy meeting conclusion for insights into potential US interest rate reductions. Fed officials are expected to provide updated economic and interest rate projections, with a focus on Chair Jerome Powell's perspective on possible rate cuts in early 2024. The US CPI edged up last month, influencing these expectations.

Recent data from the UK suggests that the Bank of England may reverse its cycle of rate hikes in 2024. This is due to a deeper industrial slowdown, a contraction in the economy, and a slowing growth in average earnings.

Meanwhile, the ECB is poised to keep interest rates unchanged at its meeting, despite the Eurozone inflation approaching the 2% target. The ECB counters early rate cut expectations by highlighting persistent price upside risks, especially from growing wages.

In Japan, the Yen is affected by reduced expectations for an immediate shift in the Bank of Japan's policy, with reports suggesting little inclination to end negative rates soon. Hopes for further policy support and stimulus from China also influence the yen.

Gold prices were range-bound on Wednesday as investors awaited the US Federal Reserve's interest rate decision. The market consensus leans towards unchanged rates this week, with a significant likelihood of a rate cut by May.

Oil market dynamics are complex, shaped by Federal Reserve policies, economic growth concerns, and revised US oil supply forecasts. The EIA's increased supply estimate for 2023 and a lowered Brent crude price forecast for 2024 reflect these changing market conditions. OPEC+ faces challenges in controlling supplies, further complicated by geopolitical tensions, such as the Yemeni attack on a Norwegian tanker, which poses risks to Middle East oil supply.

 

[Z Forex]

Global Financial Update: Fed's Hawkish Stance, ECB and BOJ Policies, and Geopolitical Tensions Impacting Markets


Recent statements from Federal Reserve officials, including Chicago Fed President Austan Goolsbee, Cleveland Fed President Loretta Mester, and New York Fed President John Williams, have downplayed the likelihood of early rate cuts in 2024, aligning with the Federal Reserve's current hawkish stance. This sentiment has been reinforced by the US central bank maintaining its policy rate between 5.25%-5.50%, with expectations of rate reductions next year. Market focus now shifts to the upcoming US PCE inflation data for deeper insights into price pressure dynamics.
In Europe, Germany's IFO business survey is lower than expected. The final November inflation reading for the Eurozone is expected to show a Consumer Price Index at 2.4%, reflecting slowing inflation and a weakening economic outlook. These developments have raised expectations that the European Central Bank (ECB) may be one of the first central banks to initiate interest rate cuts. However, ECB policymakers, including Bostjan Vasle and Peter Kazimir, caution against early easing, suggesting a more measured approach.
In the UK, the Bank of England faces expectations of multiple rate cuts next year, influenced by a drop in annual inflation to 4.6% and reduced earnings growth estimates. BoE policymaker Ben Broadbent highlights the need for further evidence of a cooling labor market before confirming victory over wage inflation.
The Bank of Japan (BoJ) maintained its ultra-easy monetary policy, keeping the short-term rate target at -0.1% and the 1% reference rate for 10-year government bond yields. The yen weakened following this decision. Governor Kazuo Ueda notes the challenges in transitioning from negative interest rates and the influence of US Fed rate cuts on Japan's economy and currency.
Geopolitical tensions, particularly in the Middle East with Houthi attacks in the Red Sea disrupting trade, have impacted global markets. These events, along with Russia's extended oil production cuts and US efforts to enforce sanctions, are influencing WTI oil prices. Upcoming industry reports like the Baker Hughes Rig Count and API and EIA data are awaited for further market direction.

 

[Z Forex]

Global Market Insights: Inflation Trends, Central Bank Policies, and Geopolitical Impact

Fed officials have countered recent market optimism following the Federal Open Market Committee (FOMC) meeting, where three rate cuts were promised for 2024, sparking a rally in the financial markets. Currently, market participants are assuming a 69% probability that the first rate cut will take place at the Fed's March meeting, followed by a 63.3% probability of a further cut in May. As a result, traders are showing caution when it comes to taking aggressive directional positions, preferring instead to wait for the release of the US Core Personal Consumption Expenditure (PCE) Price Index.
Meanwhile, the latest data from Eurostat for the Eurozone showed that inflation fell short of market expectations in November, primarily due to falling energy prices. The Harmonized Index of Consumer Prices (HICP) for the Eurozone recorded a month-on-month reading of -0.6% in November, weaker than the previous -0.5% but in line with analysts' forecasts. The annual Eurozone inflation rate remained steady at 2.4%, consistent with expectations. Notably, Core HICP figures, which exclude the volatile food and energy components, posted a 3.6% year-on-year (YoY) reading, the lowest since April 2022. Additionally, Germany's Producer Price Index (PPI) also decreased, further indicating disinflationary trends in Europe. These developments have led the market to price in more rate cuts in 2024, with a potential early cut in March.
In the UK, the Office for National Statistics reported that the Consumer Price Index (CPI) for November recorded a -0.2% MoM figure, missing the anticipated 0.1%, while the annual CPI rate dropped to 3.9% from the previous 4.6%, falling below the market consensus of 4.4%. The Core CPI, which excludes food and energy prices, declined from 5.7% in October to 5.1% in November, below the expected 5.6%. Bank of England (BoE) Deputy Governor Sarah Breeden commented that while she had no predetermined path for interest rates, a restrictive policy stance was necessary to manage inflation pressures.
The Bank of Japan (BoJ) maintained its dovish policy stance, which, combined with the prevailing risk-on sentiment, has weakened the safe-haven Japanese Yen (JPY). Data from Japan showed both imports and exports for November falling more than anticipated. BoJ Governor Kazuo Ueda reiterated the central bank's readiness to implement additional easing measures and continue monitoring the wage-price dynamics.
The growing consensus that the Federal Reserve (Fed) will shift away from its hawkish stance early next year has bolstered gold prices. US Treasury bond yields and the US Dollar (USD) are nearing multi-month lows, providing support for gold, which is a non-yielding asset.
Geopolitical tensions have also impacted oil prices, stemming from attacks on commercial vessels in the Red Sea attributed to the Iran-led Houthi militant group. In response, the United States established a task force to safeguard Red Sea commerce. However, the US is expected to increase oil production, potentially leading to significant supply growth that could surpass global demand in the coming year, which might limit the upward trajectory of crude oil prices.

 

[Z Forex]

Global Markets Respond to Policy Signals and Economic Data Amid Varied Currency and Commodity Movements
On Thursday, the dollar index stabilized around 102.4, reflecting investor caution in response to the Federal Reserve's monetary policy and the decline in stock prices. The market is awaiting the release of the final GDP for the third quarter and the core PCE index for November. The latter is expected to show a modest increase of 0.2% month-on-month, while the annual inflation rate could fall to its lowest level since 2021 at 3.3%. Despite Fed officials' comments, the dollar index is approaching its lowest level since August, with a 70% chance of a rate cut in March expected.
In Europe, ECB officials are contradicting expectations of a rate cut in early 2024, with recent comments from ECB members emphasizing the maintenance of current interest rate levels and viewing discussions of rate cuts as premature. This stance is supporting the EUR/USD currency pair.
The UK Consumer Price Index for November fell to 3.9% year-on-year, below expectations, while it fell by 0.2% month-on-month. Core CPI rose to 5.1%, below the expected 5.6%. Upcoming GDP and Retail Sales data are also in focus.
Wall Street's recent slump has strengthened the Japanese Yen, affecting the USD/JPY pair. Japan predicts a 1.6% real economic growth for fiscal 2023/24, while the BoJ maintains its ultra-loose policy, limiting the Yen's appreciation.
Gold prices are benefiting from expectations of a dovish pivot by the Federal Reserve next year. Lower yields on US 10-year bonds and a weaker equity market also support gold, though it remains in a tight trading range pending the US Core PCE Price Index release.
Unexpectedly rising US crude inventories and record production levels are dampening crude oil market sentiment. However, escalating Middle East tensions provide some support to crude oil prices, counteracting these bearish factors.

 

[Z Forex]

Dollar Stabilizes, Inflation Data in Focus, and Shifts in Retail, Oil, and Gold Markets

The dollar remained stable above a four-month low on Friday, ahead of a critical US inflation report that might influence the Federal Reserve's interest rate decisions next year. The upcoming US Core Personal Consumption Expenditures (PCE) data, a key inflation metric for the Fed, is projected to show a 3.3% annual increase, slightly lower than October's 3.5% rise. This data could impact bond markets, with a lower figure possibly justifying recent rallies, while a higher figure might challenge current market trends.
On Thursday, European Central Bank (ECB) Vice President Luis de Guindos stated it's too soon to relax monetary policy. He noted the ECB doesn't expect a technical recession in the Eurozone and would welcome EU fiscal reform to reduce market uncertainty. In recent data, Germany's Producer Price Index (PPI) for November showed a 7.9% year-over-year decrease, steeper than the anticipated 7.5% drop. Additionally, German consumer confidence improved more than expected in January.
In the UK, retail sales surged by 1.3% in November 2023, the highest increase since January, exceeding forecasts and following a stagnant October. This contrasted with the economy's unexpected 0.1% contraction in Q3 of 2023.
In Japan, the core Consumer Price Index (CPI) slowed in November, fueling uncertainty about the Bank of Japan's (BoJ) policy tightening timeline. BoJ meeting minutes from October emphasized the need to maintain their current easing policy, impacting the Japanese Yen.
Gold prices reached a peak on December 4, driven by anticipations of a shift in the Federal Reserve's policy. Despite Fed officials' efforts to downplay expectations of rapid rate cuts in the next year, investor sentiment remains unchanged.
Oil prices increased on Friday amid Middle East tensions following Houthi attacks in the Red Sea. However, Angola's decision to exit OPEC raised doubts about the organization's ability to stabilize prices. The ongoing geopolitical risks in the Red Sea are contributing to the current rise in oil prices. Additionally, consumer confidence data from France, Spain, and Italy are due later on Friday, though their impact on markets might be limited due to the holiday season.

 

[Z Forex]

Market Dynamics: Dollar Pressure, Yen Stability, and Commodity Trends Amid Interest Rate Speculation
The dollar has been experiencing pressure, hovering near a four-month low, driven by market expectations that the Federal Reserve may soon reduce interest rates. These expectations, along with modest year-end trading activities, have limited market fluctuations. The dollar's recent decline, marking its second consecutive month of losses, stems from market anticipation of Federal Reserve rate cuts next year, diminishing the attractiveness of the US currency. Currently, markets are factoring in a 79% probability of a rate cut beginning in March 2024, with expectations of over 150 basis points in reductions for the upcoming year.
The Japanese yen has stabilized around a five-month high, influenced by speculation that the Bank of Japan (BoJ) might end its highly accommodative monetary policy. Throughout most of 2022 and 2023, this policy has placed the yen under pressure, especially as other major central banks have initiated significant rate hikes. On Monday, BoJ Governor Kazuo Ueda noted an increasing likelihood of meeting the bank's inflation target and mentioned the possibility of policy adjustments if there is a sufficient prospect of sustainably reaching the 2% target.
Gold prices remained stable on December 27, amidst subdued trading during the final week of the year. However, gold is poised to record its best performance in three years, buoyed by expectations of the Federal Reserve cutting interest rates in the first quarter of 2024.
In the previous session, Brent crude and US WTI crude benchmarks saw gains exceeding 2 percent. This rise in oil prices was influenced by concerns over potential shipping disruptions in the Red Sea due to additional attacks on vessels. Moreover, the optimism surrounding potential US interest rate cuts in 2024, which could stimulate economic growth and increase fuel demand, also played a role in the positive trend observed in the previous session's oil market.

 

[Z Forex]

Global Currency and Commodity Trends: The Dollar's Decline and Market Shifts in 2023

On Friday, the dollar index remained stable above 101, yet it is poised to conclude the year with a decline. This shift in trend comes as traders increasingly speculate that the Federal Reserve might begin reducing interest rates as early as March of the upcoming year. After a 15% rise over the prior two years, the index experienced a 2% drop in 2023. As economic data started to show signs of slowing inflation in the United States, investor focus shifted toward the timing of the Fed's potential rate cuts. This speculation gained momentum following the Fed's December policy meeting, which leaned towards a more dovish stance.
While the European Central Bank and the Bank of England have shown no immediate plans to lower rates, other major central banks are expected to follow the Fed's lead in relaxing their policies, which could further weaken the dollar. The British pound against the dollar recorded a 5% annual increase, marking its best performance since 2017.
The Australian and New Zealand dollars, often seen as proxies for the Chinese yuan, were set for monthly gains of 3.5% and 3%, respectively, against the dollar. However, their yearly performance remained largely unchanged. The economic recovery in China post-COVID has been less robust than expected, affecting these currencies.
In contrast, the Japanese yen was on track to decline by over 7% in 2023, continuing its downward trend for the third consecutive year. This trend is largely attributed to the Bank of Japan's (BoJ) ongoing ultra-loose monetary policy. Despite market expectations of the BoJ moving away from negative interest rates in 2024, the central bank maintains its dovish stance. BoJ Governor Kazuo Ueda recently stated there was no urgency to shift from the current monetary policy, as the risk of inflation significantly exceeding 2% was low.
The anticipation of major central banks starting to ease rates in 2024 has sparked a 'risk-on' rally, uplifting global equity markets. Gold prices have surged 14% this year, heading for their largest annual increase since 2020. This rise is fueled by growing expectations of US interest rate cuts early next year and heightened safe-haven demand due to the ongoing conflict in Ukraine and tensions in the Middle East. Traders now see an 88% probability of the US Federal Reserve cutting rates in March, following recent data indicating cooler inflation.
Finally, oil prices are expected to conclude 2023 at approximately 10% lower, marking their first annual decline in two years. This decrease has been driven by various factors, including geopolitical tensions, production adjustments, and worldwide efforts to control inflation, leading to significant price volatility throughout the year.

 

[Z Forex]

Dollar Strengthens on Higher Yields, Eurozone PMI Beats Forecasts, Pound Faces Recession Concerns
The dollar approached a two-week high, bolstered by a combination of factors including higher US Treasury yields and a shift towards caution in risk sentiment that negatively impacted Wall Street. Trading activity in Asia was subdued due to a holiday in Japan, leading to the dollar trimming some of its earlier gains during the region's trading day. A spike in risk appetite at the end of the previous year, spurred by the Federal Reserve's dovish stance in December, had previously weakened the dollar and triggered rallies in both Treasuries and stocks.
In the Eurozone, the HCOB Manufacturing PMI for December 2023 rose to 44.4, up from November's 44.2, surpassing forecasts. The German Manufacturing PMI also exceeded expectations, increasing to 43.3 in December from 43.1. Upcoming data releases include German employment figures and the Eurozone HCOB Composite PMI, Services PMI, and December Consumer Price Index (CPI).
In the United Kingdom, recession concerns and a weakening manufacturing sector are reducing the appeal of the Pound Sterling. Growing economic pessimism and the cost of living crisis could prompt Bank of England policymakers to rethink their strategy of maintaining high interest rates.
The market reaction to the recent 7.6 magnitude earthquake in Japan was short-lived and the Bank of Japan was expected to take a hawkish turn in policy. The BoJ is expected to exit its ultra-loose policy in April after the annual wage negotiations in March, although an earlier move in January is not off the table.
Uncertainty over the Federal Reserve's timetable for rate cuts has led to a sudden rise in US Treasury bond yields, posing a challenge to non-yielding gold prices. The upcoming FOMC meeting minutes are eagerly awaited as they will provide clues on future policy direction, which will impact both the USD and gold prices.
Oil prices initially surged earlier in the week following attacks on vessels in the Red Sea by Houthi rebels and the reported presence of an Iranian warship. These events raised concerns about potential disruptions in crucial oil transportation waterways. However, optimism regarding aggressive US interest rate cuts diminished, leading to a downturn in oil markets ahead of the Federal Reserve meeting minutes and employment data release.

 

[Z Forex]

Dollar Gains Ground as Fed's Reassessment Sparks Interest Rate Cut Speculation, Central Bank Policies in Focus

The dollar edged higher on Thursday as investors reassessed their expectations for interest rate cuts from the Federal Reserve this year. This reassessment followed the release of the Fed's December meeting minutes, which expressed the belief that inflation is becoming more manageable. The minutes also raised concerns about the potential negative impact of the central bank's tight monetary policy on the economy. Recent indicators of a slowdown in the US economy have supported predictions of rate cuts by the Fed, but opinions differ on the extent and speed of these potential cuts.
In Germany, data released by the Statistics Office failed to exceed increase expectations in unemployment, with the number of unemployed rising by 5,000, compared to the previous increase of 21,000 and forecasts of a 20,000 improvement. The German unemployment rate remained steady at 5.9%. Upcoming German inflation data, particularly the Harmonized Index of Consumer Prices (HICP) for December, projected to rise to 3.8% year-over-year from 2.3%, is awaited for further market direction.
The UK Manufacturing Purchasing Managers' Index fell short of expectations in December at 46.2, leading to increased speculation that the Bank of England (BoE) could cut interest rates as early as May to counter the stagnant economy. Market prices suggest that interest rate cuts of around 140 basis points are likely in 2024. The final PMI for the services sector from the UK will also provide important economic insights.
The Japanese Yen weakened to a near two-week low against the US Dollar on Thursday. Despite this, factors like the Jibun Bank Japan Manufacturing PMI's contraction for the seventh consecutive month are anticipated to provide some support to the JPY. Expectations of a policy shift by the Bank of Japan (BoJ) relative to the Federal Reserve in 2024 could also support the yen.
Gold prices increased on Thursday as the dollar declined, with investors awaiting US jobs data to determine the Federal Reserve's monetary policy direction. Expectations of delayed interest rate cuts are exerting downward pressure on gold prices.
Oil prices rose on Thursday, building on previous gains amid ongoing concerns over Middle Eastern supply disruptions, including issues in Libya and rising tensions in the Israel-Gaza conflict.

 

[Z Forex]

Dollar Stability, Central Bank Decisions, and Commodity Market Fluctuations

On Friday, the dollar maintained stability, positioned for its best weekly performance since July, as expectations for significant and immediate interest rate reductions this year have diminished. This expectation aligns with the awaited release of the significant US Nonfarm Payrolls (NFP) data later in the day. The NFP report, crucial in determining the Federal Reserve's (Fed) interest rate decisions, is expected to significantly influence the USD's value and provide new directional momentum. Despite Federal Reserve officials predicting 75 basis points (bps) of rate cuts in 2024, market bets doubled this amount, fostering optimism and spurring a strong year-end rally in stocks and bonds.
In Europe, the euro's value today hinges on December's inflation data. A recent surge in Germany's inflation might be a regional anomaly, as the European Central Bank (ECB) had anticipated. However, declining economic activity in the EU, as indicated by the latest PMI data, could lead the ECB to consider earlier rate cuts given the prevailing macroeconomic conditions.
In the UK, corporate leaders have pressed the Bank of England (BoE) to quickly lower interest rates to aid the faltering economy. The Institute of Directors Economic Confidence Index survey reflects a decline in British directors' economic optimism for the next year, which could encourage the BoE to consider earlier rate reductions than previously planned. Although PMI data shows a rebound in services and composite, other economic aspects like the labor market continue to weaken.
The Japanese Yen is under pressure due to expectations that the Bank of Japan (BoJ) will maintain its ultra-loose policy, especially following a recent devastating earthquake. BoJ Governor Ueda expressed hope for balanced increases in wages and inflation and pledged BoJ support for the financial system post-earthquake. Market participants anticipate an end to the BoJ's negative interest rate policy in 2024, which, combined with a risk-off sentiment, could support the safe-haven JPY.
Gold is on track for its first weekly decline in four weeks. The decline is attributed to a stronger dollar and higher bond yields, fueled by reduced expectations of early Fed rate cuts. Investors are also waiting for the upcoming employment report.
WTI crude futures hovered above $72 per barrel on Friday, balancing signs of decreasing US demand with supply disruptions in Libya. Oil prices fell sharply on Thursday, following a report of a significant increase in US gasoline inventories, the largest weekly rise in over 30 years. Meanwhile, ongoing production halts in Libya's Sharara and El-Feel oil fields, which jointly produce about 365,000 barrels per day, remain a focus for traders.

 

[Z Forex]

Global Markets React to Central Bank Signals and Economic Indicators Amidst Inflationary Pressures

On Tuesday, the US dollar's rally halted as traders reassessed their expectations for potential Federal Reserve interest rate cuts throughout the year, amidst signs of slowing inflation in the United States. This reassessment was partially influenced by the New York Fed's latest Survey of Consumer Expectations, which indicated a decrease in US consumers' short-term inflation expectations to the lowest point in nearly three years as of December. An upcoming report on US inflation could provide additional insights into the Fed's capacity to lower interest rates this year.
In Germany, the Federal Statistical Office (Destatis) reported that industrial output declined by 0.7% month-over-month in November, which was more than the anticipated 0.2% and followed a 0.3% decrease in October. The figures were seasonally and calendar-adjusted. Despite the lackluster industrial data, the Euro might find some support from statements by hawkish European Central Bank (ECB) officials. However, skepticism remains about the ECB's ability to maintain higher interest rates in the face of economic headwinds. Eurostat's release of the Eurozone's November Unemployment Rate is not expected to significantly influence market sentiment due to the data's typically lagging nature.
DeAnne Julius, a former member of the Bank of England's (BoE) Monetary Policy Committee, indicated that the BoE is unlikely to start reducing interest rates in 2024. She pointed out that rising tensions in the Middle East could lead to increased energy prices and potentially trigger another inflation surge. In the UK, December's total sales growth of only 1.7%—a stark contrast to the nearly 7% growth in the previous year—reflects consumer struggles with high inflation and raises concerns over a possible recession. The current situation might make it difficult for the British Pound to continue its four-day winning streak.
The Japanese Yen gained against the US dollar for the second consecutive day after Tokyo's inflation rate remained above the Bank of Japan's (BoJ) 2% target. This inflation persistence heightens expectations that the BoJ may begin reducing its significant stimulus measures within the year. Nonetheless, the BoJ's timeline for shifting its monetary policy stance could be affected by recent government stimulus efforts following a devastating New Year's Day earthquake in Japan. The Yen's gains are also tempered by stability in the equity markets.
Gold prices recovered some of their earlier losses on Tuesday due to the dollar's general weakness, while investors await crucial US inflation data that could signal the Federal Reserve's upcoming policy direction.
Oil prices increased slightly after a dip in the previous session. This was due to concerns about a slow market, following Saudi Aramco's price reductions. However, it seems unlikely that OPEC+ will make any further cuts to output, given the significant scale of their existing production cuts.

 

[Z Forex]

Geopolitical Impacts on Currency and Commodity Markets

In December, US consumer prices rose, driven mainly by increasing rents. The monthly increase was 0.3%, with an annual rise of 3.4%, slightly higher than the 0.2% monthly and 3.2% yearly gains forecasted by economists in a Reuters poll. Despite this, traders, using the CME Group's FedWatch Tool, anticipate a 73.2% likelihood of the Federal Reserve's initial 25 basis point rate cut occurring in March, with additional cuts expected thereafter. However, Federal Reserve officials, including Chicago Fed Bank President Austan Goolsbee, remain uncertain about initiating rate cuts based on the recent data.
Meanwhile, in Europe, Christine Lagarde, President of the European Central Bank (ECB), suggested that the most challenging phase might be over, and interest rate cuts would be considered if inflation stabilized at 2%. This follows a rapid increase in eurozone interest rates in response to high inflation last year. Market traders are predicting at least five rate cuts in 2024, starting possibly in March or April. Additionally, Consumer Price Index data from France and Spain will be released shortly, with ECB's Philip Lane scheduled to speak.
The UK economy experienced a slight recovery in November, with a 0.3% rise in Gross Domestic Product, rebounding from a decline in October. This outcome, reported by the Office for National Statistics, slightly exceeded economists' expectations of a 0.2% increase. However, challenges such as adverse weather and healthcare sector strikes imply that the UK might still face a technical recession by the end of 2023. The economy would contract in the fourth quarter if GDP in December falls by 0.02% or more.
The Japanese Yen strengthened for the second day in a row against the US dollar, recovering from a one-month low following the US consumer inflation data. Factors like China's economic difficulties and escalating geopolitical tensions in the Middle East have enhanced the Yen's status as a safe-haven currency. The Bank of Japan is expected to maintain its ultra-loose monetary policy in its upcoming meeting.
Gold prices, meanwhile, continue to benefit from geopolitical tensions in the Middle East and concerns over China's economic recovery. Despite these supportive factors, gold prices remain within a narrow trading range.
Lastly, oil prices surged over 2% due to military actions by the United States and Britain against Houthi targets in Yemen. These strikes were in retaliation for the Iran-backed group's attacks on shipping in the Red Sea, which began late last year.

 

[Z Forex]

US PPI Drop Signals Potential Fed Rate Cuts, ECB and BOJ Maintain Cautious Stance

The US Producer Price Index (PPI) unexpectedly decreased in December, raising the possibility of the Federal Reserve (Fed) reducing interest rates this year. December's PPI increased by 1.0% annually, compared to 0.8% in November, as reported by the Bureau of Labor Statistics. Meanwhile, the core PPI remained unchanged for the month, with its annual increase declining from 2.0% to 1.8%. This slowdown in inflation has led investors to anticipate further monetary easing by the Fed, with expectations of up to 160 basis points in rate cuts this year. The speculation intensified following Barclays' revised prediction, which now forecasts a rate cut as early as March.
In Europe, ECB officials, including chief economist Philip Lane, emphasized the importance of additional economic data before committing to interest rate adjustments. ECB President Christine Lagarde noted that if inflation falls below 2%, rate cuts could be considered, signaling a cautious approach.
In the UK, industrial sector activity showed signs of recovery. The Office for National Statistics reported consistent Industrial Production month-over-month and an increase in Manufacturing Production annually. However, Total Industrial Output saw a slight decline. The GDP grew by 0.3% in November, following a contraction in October, supporting the Pound Sterling's strength against the USD.
The Bank of Japan (BOJ) is likely to lower its core inflation forecast for fiscal year 2024 from the current 2.8%, primarily due to falling oil prices. Despite global economic uncertainties, the BOJ is expected to maintain its 2% inflation target projection. The bank's next quarterly outlook report is scheduled for January 22–23, with predictions of continued ultra-loose policy settings.
Gold prices have risen, staying above the $2,050 mark, driven by the Middle East tensions and expectations of an early US rate cut. Oil prices have increased due to the Red Sea shipping disruptions, though concerns about demand this year have tempered the increase.

 

[Z Forex]

Dollar Strengthens, Mixed Market Movements Amid Rate Cut Speculations

On Tuesday, the dollar strengthened as investors reduced their expectations for imminent interest rate cuts by the US Federal Reserve. The probability of a 25-basis point reduction in March by the Fed is now assessed at 66%, down from 77% the previous day and 63% a week earlier. Attention is focused on upcoming remarks from the Federal Reserve's Christopher Waller, whose dovish stance in late November was a catalyst for a significant market rally at the year's end. Waller is scheduled to speak later on Tuesday.
In Germany, the Federal Statistical Office (Destatis) reported that December's Harmonized Index of Consumer Prices (HICP) remained steady at 3.8% year-over-year, aligning with market forecasts. The monthly HICP rate was also stable at 0.2%. Additionally, the headline Consumer Price Index (CPI) in December increased by 0.1% month-over-month and 3.7% year-over-year. The European Central Bank’s (ECB) chief economist, Philip Lane, indicated on Saturday that key data expected by June will guide decisions on a series of anticipated interest rate cuts. However, he cautioned against reducing rates too hastily. Despite ECB's Joachim Nagel's warning on Monday against premature rate cuts due to high inflation, markets anticipate the ECB to lower rates from record highs, potentially starting in March. Upcoming Zew Survey results from Germany and the Eurozone are also awaited.
The British Pound fell sharply in Europe on Tuesday morning after the UK Office for National Statistics (ONS) reported a sharp fall in average earnings for the three months to November. Despite difficult economic conditions at home and abroad, the UK labor market proved resilient. The wage growth, which fell short of the projected figures, is likely to strengthen the anticipation of an interest rate cut by the Bank of England (BoE) in the near future. The UK economy is facing a potential technical recession after the ONS reported a contraction for the third quarter of 2023 and the BoE expects limited growth in the final quarter of 2023 amid high interest rates and a worsening cost of living crisis. A weaker inflation outlook combined with fears of further economic difficulties could prompt BoE policymakers to reconsider their tight interest rate policy.
Bank of Japan (BoJ) Governor Kazuo Ueda emphasized the necessity to continue the ultra-loose monetary policy, awaiting more data to ascertain if inflation will persist. He stated that the negative interest rate policy would be abandoned once there is sufficient confidence in achieving sustainable 2% inflation.
Gold prices fell below $2,050 an ounce on Tuesday, breaking a three-day rising streak as the dollar and Treasury yields climbed. This movement occurred as investors dialed back their expectations for early interest rate cuts from the US Federal Reserve.
Oil prices displayed mixed trends on Tuesday. After experiencing losses in the previous session, concerns about the broader economy overshadowed ongoing tensions in the Middle East that have caused more tanker diversions.