Articles

The ‘core-core’ rate of inflation in May (core-core is that excluding food and energy, it’s the closest to the US measure of core inflation) inched up on the month. Expectations I had seen for this were for a 2.2% rise, which is the result.

As I posted earlier:

• the BoJ is dissatisfied with the nature of the inflation in Japan. Higher inflation, says the BoJ, is mainly due to ‘cost-push’ inflation pressure from rising input prices and the weak yen. The BoJ want ‘demand-pull’ inflation from consumers increasing spending after wage rises. They are still waiting for that as the wage boosts seen in spring feed through. The Bank is under pressure to normalize policy further so they may have to become less fussy on the nature of the inflation they are seeing. The BoJ next meet on July 30 and 31 and a plan on further trimming JGB buys is expected.

USD/JPY is barely changed after the data, around 157.20.

This article was written by Eamonn Sheridan at www.forexlive.com.

The GfK consumer confidence survey hit -13 in July

• expected -12, prior -14
• highest since September 2021
• subindex measuring consumers’ willingness to make major purchases jumped 7 points, an encouraging result

Joe Staton, GfK’s client strategy director:

• “July’s consumer confidence poll suggests a note of
  caution as people wait to see exactly how the UK’s new
  government will affect the wider economy and their personal
  finances”

GBP/USD is little changed after its weak performance overnight (alongside others it should be said, the USD gained notably):

This article was written by Eamonn Sheridan at www.forexlive.com.

Info via Reuters:

• Several people close to President Biden say that they believe he has
  begun to accept the idea that he may not be able to win in November
  and may have to drop out of the race- New York Times

Surely it must be time to just rip the band aid off and get it over with?

—

Meanwhile, via Twitter

This article was written by Eamonn Sheridan at www.forexlive.com.

UBS increasing their year-end price target to 5,900 for the S&P 500.

• previously at 5,600
• And their June 2025 target to 6,200

Trying to dig up a little more on this. UBS seemingly unfazed by the sliding action the past few days.

Here’s a daily chart … for some perspective on the ‘slide’ I refer to ….

This article was written by Eamonn Sheridan at www.forexlive.com.

• ECB leaves key rates unchanged in July monetary policy decision, as expected
• Lagarde opening statement: Q2 growth was likely slower than Q1
• Lagarde Q&A: Question of what we do in September is wide open, will be data dependent
• ECB sources: Officials consider if only one more cut is feasible in 2024
• Biden may be about to drop out – report
• US initial jobless claims 243K vs 230K estimate. Highest level since August of last year.
• US July Philly Fed +13.9 vs +2.9 expected
• Fed’s Goolsbee: I feel ‘a lot better’ about multiple months of improvement in CPI
• Fed’s Logan: We’re making progress in getting banks ready to use the discount window
• Washington Post: Biden needs to seriously consider his viabilty
• US June leading indicators -0.2% vs -0.3% expected
• IMF says Fed should wait until at least late 2024 to cut rates
• Von der Leyen re-elected at European Commission but vote split highlights tensions

Markets:

• US 10-year yields up 5.2 bps to 4.198%
• WTI crude oil down 59-cents to $82.27 per barrel
• S&P 500 down 0.8%
• Gold down $15 to $2442
• USD leads, JPY lags

It’s anything but a ‘summer market’ at the moment as volatility stays high, including a 10% jump in the VIX today. That also extended to FX, where the US dollar recovered some of its losses against the yen and then tracked higher as part of a broad USD move. Yields helped to prod the dollar recovery as did an ECB that warned of downside risks to growth.

In truth, the ECB decision was a bit of a dud with rate cut probabilities for September little moved around 65%. The euro tracked 40 pips lower in steady selling that accelerated late with the dollar bid.

The initial jobless claims headline grabbed some attention and sparked worries about the US jobs market but a second look revealed that the number was goosed by the hurricane in Texas and should reverse in the week ahead.

Talk is starting to circulate about next week’s US GDP report with the consensus at 1.7%. The risks may be to the upside for the US dollar given that the Atlanta Fed tracker is running a percentage point higher.

The commodity currencies also came under pressure late as the stock market ran into trouble. Gold and oil fell as there are concerns about global growth in the backround. China’s announcements from the third plenum didn’t offer any details on improving the ailing economy and the official summary doubled down on a state-led, tech-centric focus. We could see some specific policies in the coming days though.

Cable suffered its first real drop this month after failing above 1.3000.

This article was written by Adam Button at www.forexlive.com.

Newswires conveying the latest scuttlebutt, citing unnamed “sources familiar with the matter”

• Biden is taking calls to step aside as
  the Democratic presidential candidate seriously
• multiple
  Democratic officials think an exit is a matter of time
• “His soul searching is actually happening, I know that for a
  fact,” said one of the sources, who requested anonymity.
• “He’s
  thinking about this very seriously.”

***

I seem to be posting some derivation of this news

EVERY

DAY!

Surely we must be getting close to Biden bailing?

This article was written by Eamonn Sheridan at www.forexlive.com.

The selling in US equities were more widespread today and came with a healthy bit of intrigue about President Biden’s future.

• Dow Industrial Average average -1.3%
• S&P 500 index -0.8%
• NASDAQ Comp -0.7%
• Russell 2000 -1.9%
• Toronto TSX Comp -0.5%

The numbers aren’t pretty but all indexes closed modestly above the session lows, in part due to some late buying, particularly in beaten-up chip stocks. Nvidia finished the day up 3.1%.

This article was written by Adam Button at www.forexlive.com.

On the agenda today we have Federal Reserve Bank of San Francisco President Mary Daly participating in a ‘fireside chat’ at a conference co-sponsored by the Federal Reserve Bank of Dallas and Federal Reserve Bank of Atlanta. Federal Reserve Board Governor Michelle Bowman will speak at the same event later, on “Accountability and Reform”.

Also on the session is June inflation data from Japan. All three of the measures (screenshot below) are expected to remain above the Bank of Japan’s 2% target. However, the BoJ is dissatisfied with the nature of the inflation in Japan. Higher inflation, says the BoJ, is mainly due to ‘cost-push’ inflation pressure from rising input prices and the weak yen. The BoJ want ‘demand-pull’ inflation from consumers increasing spending after wage rises. They are still waiting for that as the wage boosts seen in spring feed through. The Bank is under pressure to normalize policy further so they may have to become less fussy on the nature of the inflation they are seeing. The BoJ next meet on July 30 and 31 and a plan on further trimming JGB buys is expected.

ps. More on cost-push and demand-pull below under the calendar.

• This snapshot from the ForexLive economic data calendar, access it here.
• The times in the left-most column are GMT.
• The numbers in the right-most column are the ‘prior’ (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.

***

Cost-push inflation and demand-pull inflation are two types of inflation that arise from different economic factors. Here’s a comparison between the two:

Causes:

• Cost-Push Inflation: Cost-push inflation occurs when there is an increase in production costs, such as wages, raw materials, or energy prices. These cost increases lead to a decrease in the supply of goods and services, causing prices to rise.
• Demand-Pull Inflation: Demand-pull inflation occurs when there is an increase in aggregate demand for goods and services. This increase in demand outpaces the economy’s ability to supply goods and services, resulting in upward pressure on prices.

Key Drivers:

• Cost-Push Inflation: The main drivers of cost-push inflation are factors like rising labor costs, increased production costs due to higher commodity prices, or government regulations leading to increased costs for businesses.
• Demand-Pull Inflation: Demand-pull inflation is driven by factors such as increased consumer spending, government spending, investment, or expansionary monetary policies that stimulate aggregate demand beyond the economy’s productive capacity.

This article was written by Eamonn Sheridan at www.forexlive.com.

Good morning, afternoon and evening all. Any charts, technical analysis, trade ideas, thoughts, views, ForexLive traders would like to share and discuss with fellow ForexLive traders, please do so:

This article was written by Eamonn Sheridan at www.forexlive.com.

There is a wild story about China published by Newsweek today. It University of Wisconsin-Madison researcher Yi Fuxian who says China’s official population numbers are wrong and that the 1.41 billion population estimate is off by nearly 10%.

Citing births and deaths data, he says the true figure is about 130 million people smaller.

“Economically, China’s local governments have a strong incentive to inflate population figures,” Yi said. “More residents mean larger fiscal transfers from the central government, including funds for priorities like education, pensions, and poverty alleviation.

Others note that no other researchers have come to the same conclusions from similar data sets.

Whatever the truth, the report highlights the persistent lack of faith in Chinese data and that its demographics are worsening. By 2050, the median Chinese will be over 50.

This article was written by Adam Button at www.forexlive.com.

Liz Truss rose to the top of UK politics. Unfortunately, all she will be remembered for is being the shortest-serving UK Prime Minister ever, in large part due to a budget drafted by her Chancellor of the Exchequer Kwasi Kwarteng.

On September 23, 2022 Kwarteng announced a mini-budget that proposed abolishing the 45% rate of income tax and the proposed Health and Social Care Levy, cutting stamp duty and the basic rate of income tax and cancelling rises in National Insurance contributions and corporation tax.

It was a poorly-timed announcemnt, in part because global and UK bonds were already recoiling due to high inflation. The result was fatal.

I maintain that it was more circumstance than the details of the budget that caused the break in the bond market, including pension funds with liability-driven investment programs.

But perception is reality in politics and it will be a long time before Truss’ folly is forgotten.

That’s the message from Keir Starmer’s new government, which tomorrow will introduce the Budget Responsibility Bill. It will introduce a “fiscal lock”
in an effort to make sure that any government announcement making “significant and
permanent tax and spending changes” would be subject to an independent
assessment by the Office for Budget Responsibility.

It’s similar to the US CBO and should be some reassurance for the pound and gilt market.

This article was written by Adam Button at www.forexlive.com.

The US dollar has further strengthened as stocks continued to sag.

The Russell 2000 is at the lows of the day, down 1% while the Nasdaq and S&P 500 are modestly above the lows and under some pressure.

There isn’t a clear catalyst for the dollar strength with yields in the middle of today’s session. Today’s weekly US jobless claims were high, which should weaken the US dollar, but they were likely skewed higher by the Hurricane in Texas and should reverse next week.

There could be some dollar-buying pressure coming through the euro. Lagarde highlighted downside risks to growth in the eurozone and that’s weighed somewhat on the euro today.

The move is more broad-based though with commodity currencies in particular under pressure.

There are a chorus of reports highlighting the President Biden is being pressured to drop his re-election campaign and that could be having an effect as well.

This article was written by Adam Button at www.forexlive.com.