Welcome to our daily market update for Wednesday, July 5, 2023. While the U.S. markets enjoyed a closure in observance of the Independence Day holiday yesterday, global investors find themselves delicately balancing the inflationary impact of surging oil prices with optimistic prospects that central banks will exercise cautiousness in tightening their monetary policies, thus avoiding a potential recession.
World Stocks Hold Steady as U.S. Federal Reserve Pauses Rate Hikes
MSCI’s broadest index of world stocks, which experienced a substantial 6% growth last month due to the U.S. Federal Reserve’s temporary pause in aggressive rate hikes, remained relatively flat in light trading conditions.
Australia’s Central Bank Maintains Interest Rates, Citing the Need for Assessment
Yesterday, Australia’s central bank announced its decision to keep interest rates steady at 4.1%. This move comes as the bank requires additional time to evaluate the economic impact of its recent rate hikes.
Inflation Outlook Complicated by Oil Price Surge
The outlook for inflation becomes further complicated as oil prices surged on Tuesday, prompted by market contemplation of supply cuts scheduled for August by major producers Saudi Arabia and Russia. Brent crude futures saw a 1.5% increase, reaching $75.74 per barrel, while West Texas Intermediate (WTI) crude experienced a similar percentage rise, now valued at $70.87.
U.S. Manufacturing Activity Slumps, but Strong Labor Market Sustains Consumption
Data released on Monday by the Institute of Supply Management revealed a slump in U.S. manufacturing activity during June, dropping to levels not seen since the initial wave of the COVID-19 pandemic in May 2020. Despite these figures indicating potential recessionary signals, rising real incomes, buoyed by a robust labor market, are likely to continue supporting consumption.
Eurozone Faces Similar Factory Downturn
Purchasing managers surveys indicate that the Eurozone is also grappling with a factory downturn, echoing the concerns seen in the U.S. manufacturing sector.
Central Banks Grapple with Service-Sector Inflation
While evidence suggests that inflation is easing, central bankers are still cautious about keeping monetary policies tight to combat service-sector inflation, which has proven to be resilient.
Anticipating Q2 Corporate Earnings Amidst Uncertainty Over Fed Monetary Policy
Market participants are currently awaiting a mixed bag of economic data in preparation for Q2 corporate earnings announcements. However, uncertainty looms over the Federal Reserve’s future monetary policy decisions. The minutes from the Fed’s last meeting, scheduled for release at 02:00 AM (SGT) the next day, could potentially offer further insights into the direction of their policies, with the possibility of injecting some volatility into the markets. Should the Fed decide to implement more rate hikes than the market had widely expected (twice), there is a genuine concern that the recession may be deeper than initially anticipated.
Ongoing U.S.-China Trade War Adds to Global Trade Relations Uncertainty
Tensions between the U.S. and China in their ongoing trade war persist. Recently, China’s export controls on critical minerals used in the manufacturing of microprocessor chips and solar panels have added more uncertainty to global trade relations.
Currency and Precious Metals Market Performance
In the currency market, the Dollar Index has remained flat. The EUR/USD pair experienced a slight dip of 0.1%, currently trading at 1.0898. Gold prices have seen a modest increase, with spot gold up by 0.4% to $1928.28 per ounce.
Digital Assets Rally on Nasdaq’s Refiled ETF Application
In the realm of digital assets, news broke that Nasdaq has resubmitted an application with the U.S. securities regulator to list an exchange-traded fund (ETF) managed by BlackRock Inc. This development has sparked a surge in prices across various digital assets. The move by Nasdaq comes after the Securities and Exchange Commission (SEC) expressed concerns regarding the initial filings, citing issues of clarity and completeness. Similar concerns were also raised by the SEC towards a filing from Fidelity, affecting the Chicago Board Options Exchange (CBoE).
Bitcoin (BTC) is currently trading around the $30,800 mark in early Asia trade, retracing slightly from Monday’s high of $31,378. Ethereum (ETH) has also pulled back marginally, trading at approximately $1,940 this morning, following its recent peak of $1,976, the highest level reached since May 6.