Financial breakfast on July 13th： The strong dollar continued, US oil plummeted by nearly 8%, and the energy crisis may drag the euro below parity.
Huitong. com, July 13th-At the beginning of the Asian market on July 13th, the US dollar traded around 108.17, and the Euro hovered around parity. The energy crisis will lead to the fear of economic recession, and the economic prospect will be bleak or make the Euro lower than parity. Affected by the strength of the US dollar, the global COVID-19 blockade curbed demand, and US oil futures plunged 7.9% to settle at 95.84 US dollars/barrel.
At the beginning of the Asian market on Wednesday (July 13th), the US dollar traded around 108.17, and the Euro hovered around parity. The energy crisis will lead to the fear of economic recession, and the economic outlook will be bleak or make the Euro lower than parity against the US dollar. Affected by the strength of the US dollar, the global COVID-19 blockade curbed demand. On Tuesday, oil prices fell by more than 7%, falling below the 100 mark to a minimum of 95 US dollars/barrel. OPEC predicted that global oil demand would rise in 2023, but the speed was slower than that in 2022.
In terms of commodity closing,Brent crude oil futures fell by 7.1%, and the settlement price was reported at $99.49 per barrel, the lowest since April 11th, while US crude oil futures fell by 7.9% to $95.84, also the lowest in three months. American gold futures fell 0.4% to settle at $1,724.8.
The closing situation of US stocks,Dow Jones Industrial Average fell 0.62% to 30,981.33; The S&P 500 index fell 0.92% to 3,818.8 points; The Nasdaq index fell 0.95% to 11,264.73.
Looking ahead on Wednesday
At 16: 00, the IEA released the monthly crude oil market report, at 22: 00, the Bank of Canada announced the interest rate decision, and at 23: 00, the Governor of the Bank of Canada Mackler held a press conference on monetary policy.
List of major global markets
U.s. stocks closed lower on Tuesday, and more and more signs of economic recession made buyers leave before the inflation data was released. Earlier in the session, the three major stock indexes fluctuated slightly up and down, but later fell sharply. The consumer price report of the Ministry of Labor will be released on Wednesday, and the big banks will announce their financial results later this week.
Brent Schutte, chief investment officer of Northwestern Mutual Wealth Management Company, said, "(Investors) are waiting for the consumer price index (CPI) and corporate profits. For several months, the market has been sawing between inflation concerns and economic recession concerns almost every day. Investors are really confused, and they choose not to buy at all, "Schutte added." I haven’t heard many people say’ buy at a low price’. "
Although the CPI report is expected to show that inflation will continue to climb in June, excluding the unstable core CPI of food and energy prices, it is expected to further confirm that inflation has peaked, which may persuade the Fed to slow down its policy tightening plan in the autumn.
Paul Kim, CEO of Simplify ETFs, predicted that the year-on-year increase of CPI will reach the high end of the range of "8%-9%", and may even enter the range of 9%. With inflation so high, the Fed has only one idea.
People are worried that the Fed’s aggressive measures to control inflation, which has been at a high level for decades, may push the economy to the brink of recession. The inversion degree of the yield curve of two-year /10-year US bonds has reached the largest level since at least March 2010, which is a potential signal of recent risks and economic contraction, which aggravates concerns. The market expects the Fed to raise the key federal funds target rate by 75 basis points at the end of the policy meeting in July, which will be the third consecutive rate hike by the Fed.
The second quarter earnings season will kick off later this week, when JPMorgan Chase, Morgan Stanley, Citigroup and Wells Fargo will announce their results. According to Luft data, as of last Friday, analysts expect the profits of companies in the S&P 500 index to increase by 5.7% year-on-year, lower than the 6.8% predicted at the beginning of this quarter.
precious metal
The price of gold hit a nine-month low on Tuesday, affected by the strong dollar and the Federal Reserve’s interest rate hike bet, while investors prepared for a series of US economic data that may determine the pace of monetary policy tightening. Daniel Pavilonis, senior market strategist at RJO Futures, said: "Gold is under pressure from [investors] buying dollars in large quantities and the expectation of higher interest rates as inflation continues."
A series of American data, including consumer prices, retail sales and factory output, will provide clues about how much inflation has soared before the Fed’s policy meeting next week. Han Tan, chief market analyst of Exinity, said: "If the overall consumer price index (CPI) is higher than expected on Wednesday, it should pave the way for the Fed to raise interest rates by 75 basis points again later this month; This situation is widely considered to be unfavorable to gold. "
crude oil
Brent crude oil plunged $7 on Tuesday, closing below $100 a barrel for the first time in three months, affected by the strength of the US dollar, the global COVID-19 blockade to curb demand, and the growing concern about the global economic slowdown. In the previous month, trading in the oil market fluctuated, and investors were already selling oil positions, fearing that radical interest rate hikes to stop inflation would lead to economic downturn, thus reducing oil demand.
According to american petroleum institute (API) data, US crude oil and refined oil inventories increased last week. In the week ending July 8, crude oil inventories increased by about 4.8 million barrels, gasoline inventories increased by 3 million barrels, and distillate inventories increased by about 3.3 million barrels.
Rebecca Babin, a senior energy trader in the US Private Wealth Department of Canadian Imperial Commercial Bank (CIBC), said: "I think it is quite critical to hold on to $95 a barrel just psychologically."
Dennis Kissler, senior vice president in charge of trading at BOK Financial, said: "As consumer sentiment is still in the doldrums and the epidemic is rebounding, oil prices are under tremendous pressure."
Fatih Birol, director of the International Energy Agency (IEA), said that any price cap on Russian oil should include refined products.
In its first forecast for next year, the Organization of Petroleum Exporting Countries (OPEC) said that global oil demand is expected to rise in 2023, but the speed is slower than that in 2022. It is estimated that the demand will increase by 2.7 million barrels per day in 2023. However, there is very little idle capacity within OPEC, and most oil-producing countries use all the capacity. The us energy information administration (EIA) predicts that US crude oil production and gasoline demand will increase this year.
foreign exchange
The US dollar index fell 0.07% on Tuesday, hitting an intraday high of 108.5673. The euro rebounded against the dollar on Tuesday, after falling to a 20-year low and close to parity, as investors worried that the energy crisis in the region would trigger an economic recession. The euro fell to $1.00005 against the US dollar, the lowest since December 2002, after data showed that German investors’ confidence plummeted in July, which was lower than the level at the beginning of the COVID-19 epidemic.
Mazen Issa, senior foreign exchange strategist at TD Securities, said: "It seems that the prospect of the euro is very bleak. It is also very possible to fall below parity," adding that the euro may fall to 85-90 cents.
Issa pointed out that the Federal Reserve has raised interest rates more than the European Central Bank, and macro factors including Europe’s rapidly deteriorating current account have put pressure on the euro. The dollar benefits from the expectation that the Federal Reserve has more room to raise interest rates than other central banks, while other central banks face more challenging growth prospects.
Since the annual maintenance of Beixi No.1 pipeline, the largest single pipeline for transporting Russian natural gas to Germany, began on Monday, fears that Europe may fall into recession have increased. Governments, markets and companies are all worried that the pipeline shutdown time may be extended due to the war in Ukraine.
The euro traded at $1.0045, after rebounding from the $1 area, which some analysts attributed to technical factors related to options activities and short covering.
Neil Jones, head of currency sales at Mizuho Bank, said that the market has been "shorting" the euro, and it is expected that the euro will fall below parity, but "it has not reached that level", which led these investors to buy back the euro. Part of the reason for the rebound may also be related to the fact that the $1 area is an important psychological barrier.
Marc Chandler, chief market strategist of global foreign exchange at Bannockburn, said: "Parity is more like a psychological level than an important technical point. The important technical point is to drop to perhaps $0.96 or $0.98 as a more important technical level. "
One catalyst that may push the euro back is the high-profile US inflation data on Wednesday, which is expected to show that the US consumer price index rose by 8.8% in June.
Simon Harvey, director of foreign exchange at Monex Europe, said: "We may have to wait for the CPI in the United States, or when the maintenance plan of Beixi No.1 is coming to an end, there will be a clearer situation in the European energy market so that the euro can break through the (parity) threshold against the US dollar."
Baldin, chairman of the Federal Reserve Bank of Richmond, said on Tuesday that the Fed is expected to succeed in the fight against inflation, but the pace of progress is unpredictable.
The Australian dollar rebounded from a two-year low caused by global growth concerns caused by the epidemic. The Australian dollar rose by 0.36% in late trading to 0.6761 US dollars, which had previously fallen to 0.6712 US dollars, the lowest since June 2020. The dollar fell 0.47% against the yen to 136.78, hitting 137.73 on Monday, the strongest level in 24 years.
Market news
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OPEC predicts that the global oil demand growth will slow down to 2.7 million barrels per day in 2023, and the supply will continue to be tight.
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