📰 Macro-News round-up
📊 #MarketNews
💼 The employment data released on Friday hit the Federal Reserve’s speech. Not only did nonfarm payrolls come out much better than expected, but also the unemployment rate fell to 3.8% and labor participation rose to 62.7%. In addition, hourly earnings improved by 0.3% month-over-month.
📈 Once again, the scenario that we have been raising for months in these reports is coming true. Expectations of a Fed rate cut are moving away from our forecasts. The market is now discounting a September rate cut. As we said, they are moving the rate cut date forward. Strong US economic data are not compatible with the need to cut interest rates. The most shocking scenario would be that they end up announcing that there will be no rate cut this year.
💹 Following the good labor market data, the DXY index surged right away but later gave up some of its early gains, closing up 0.2 points at 104.3. Showing that the dollar remains strong, even though it is showing a timid behavior in the market. The asset that is reacting much more clearly is the US 2-year bond. It has broken the 4.75% barrier. Rising bond yields are incompatible with a rate cut. Every basis point up that this bond rises tells us that a rate cut is far off the horizon.
📉 However, with respect to employment, it would also be fair to point out that, while part-time employment increased to an all-time high, full-time employment declined for the fourth consecutive month, reaching its lowest level since January 2023. This suggests there may be concerns about the quality of new positions being added.
🇯🇵 Japan: The Current Account Balance falls below expected levels. The USDJPY is practically at 152. The BOJ gave investors mixed signals when it hiked rates a few weeks ago and insisted that monetary policy was still supportive. If the dollar strength prevails, and Japan does not show a heavy hand on its exchange rate, the USDPJY could be headed for highs not seen since April 1990. USDJPY at 160!
🇨🇳 China: On Friday we commented on Janet Yellen’s visit to China, citing her concerns about oversupply in world markets caused by Chinese exports, particularly in the renewable energy and electric car market. Beijing’s trade minister discounted as “baseless” US worries that a spike in low-cost Chinese exports may endanger international markets. According to state-run Xinhua news agency, commerce minister Wang Wentao stated on Sunday while travelling to Paris that “the accusations of ‘overcapacity’ by the United States and Europe are groundless.” Wang stated that established supply chains and innovation, not subsidies, were the reasons behind the fast expansion of Chinese electric car manufacturers.
📣 China lectures the U.S. on capitalism: Premier Li Qiang, her counterpart, advised Yellen after a meeting, that Washington should approach the issue of production capacity “objectively” and from a “market-oriented” standpoint, according to Xinhua.
⚔️ War: Despite the threats and the heightened state of alert, an Iranian attack on Israel has not taken place. However, the price of crude oil, after breaking the price barrier of $88 per barrel, has not retreated and remains bullish, currently trading above $90 per barrel. Gold, too, is showing spectacular strength, having made a new high which has surpassed $2350. Geostrategic factors and global risks are undoubtedly playing a decisive role in the current scenario.
📈 Markets: Nevertheless, equities remain elevated, with slight pullbacks from last week, but still at strong levels, at least for the time being. The mini SP500 at 5245 points. Nasdaq100 remains above 18,000 points and the Dax 40 remains above 18,250 points, slightly lower than last week.
