North American News
Federal Open Market Committee (FOMC) minutes are due this week
The minutes of the June Federal Reserve FOMC meeting are due on Wednesday July 4 at 2pm US Eastern time, 1800 GMT.
Preview thoughts, in brief, via BMo:
- the official communication will help refine expectations around a hike in July and the path toward the 5.75% upper bound implied by the SEP
- The balance of risks regarding the hike/no hike debate is far closer to equilibrium than it has been this cycle – and the Minutes will offer clarity on policymakers’ views of the weightings associated with each variable influencing the policy outlook.
- We expect the release will address the absence of evidence pointing to a material impact from the regional banking volatility and emphasize the need for a more measured pace of tightening given we are only at the beginning stages of when we would begin to see the lagged impact of restrictive policy rates as we heard from Powell at the press conference, on Capitol Hill, and in Portugal last week.
- In evaluating the current balance of opinions on the Committee, it is notable that even Fed President Goolsbee — one of the most dovish voters on the FOMC and a persistent advocate of patience in assessing the effects of tighter policy conditions — is unsure about whether or not he will support a hike in July.
- With market pricing strongly favoring a 25 bp increase later this month, the fact Goolsbee is unable to rule out a move higher in policy rates reinforces the mantra of data dependence, and how broadly unconvinced Powell & Co. are that inflation has demonstrated a sufficient downward trajectory.
- Policymakers have continually identified services inflation as a facet of the economy that has shown little sign of easing; though on Friday, Goolsbee said “The thing that everybody should put their eye on in the immediate term are goods prices.”
Canada S&P Global June manufacturing PMI 48.8 vs 49.0 prior
- Canadian manufacturing PMI slips in June
- Prior was 49.0
- Output, new orders and employment all declined
- Lead times posted a record improvement
- Firms commented that market demand was subdued
- Companies noted that new export orders were again down, with some firms noting lower demand from the neighbouring USA
- Confidence in the outlook remained positive
- Backlogs of work declined for an eleventh successive month in June
RBC on Bank of Canada: data supports a July rate hike; market pricing too low
- The Bank of Canada decision is July 12
Royal Bank of Canada (RBC) has made comments regarding the Bank of Canada’s (BoC) upcoming policy decisions, stating that recent economic data supports a rate hike in July.
Key Points:
- Concerns Over Inflation: RBC highlights that the main takeaway from the Bank of Canada’s June statement, progress report, and minutes is an increasing concern over whether enough has been done to bring inflation sustainably back to the 2% target.
- Factors behind Concerns: The concerns of the Bank of Canada are primarily driven by excess demand, persistent core inflation, and a resurgence in the housing market.
- Likelihood of a July Rate Hike: RBC asserts that the economic data released since the June statement supports a rate hike in July. They believe that the rate hike is both likely and necessary to ensure that inflation returns to the 2% target.
- Market Pricing Too Low: RBC believes that the market is underestimating the likelihood of a July rate hike. The market pricing for a rate hike in July has dropped from 75% to 60% this week, which RBC sees as too low given the current economic data.
Summary:
RBC emphasizes that recent economic data is consistent with a rate hike by the Bank of Canada in July.The bank highlights that the main concerns of the Bank of Canada revolve around inflation and whether enough has been done to bring it back to the 2% target.The factors driving these concerns include excess demand, core inflation, and the housing market. RBC believes that a rate hike in July is both likely and necessary, and argues that the market is currently underpricing the possibility of a rate hike.
Commodities
Silver bulls await sustained move beyond $23.00/38.2% Fibo
- Silver attracts some buyers for the third straight day, though remains below $23.00.
- The technical setup favours bullish traders and supports prospects for further gains.
- A convincing break below the $22.70-65 confluence will negate the positive outlook.
Silver trades with a mild positive bias for the third successive day on Tuesday, albeit lacks follow-through and remains below the $23.00 mark through the early European session.
From a technical perspective, the recent breakout through the $22.65-$22.70 confluence – comprising the 200-hour Simple Moving Average (SMA) and the 23.6% Fibonacci retracement level of the downfall from the June swing high – favours bullish traders. Moreover, oscillators on hourly charts are holding in the positive territory and are still far from being in the overbought zone, supporting prospects for some meaningful appreciating move for the XAG/USD.
Oil climbs $71 but can’t get above the weekly high
- WTI crude up $1.21 to $71.00
The lack of US traders didn’t cool the oil market on Tuesday.
The initial reaction to oil prices to the Saudi output cut extension and Russian export curbs was positive on Monday but it didn’t last long as prices briefly traded lower. Today, the $1.21 gain to $71.00 helped the crude bulls but the failure to get over Monday’s high is a warning sign.
ICYMI – China restricts export of metals used in high performance chips
- Probably the biggest news over the past 24 hours or so
China will restrict exports of products and materials that incorporate the metals gallium and germanium. these are critical to the manufacturing of semiconductors, 5G base stations, and solar panels.
The restriction is viewed as a response to the restrictions placed by the U.S. and other countries on the sale of high-end chips and chip-manufacturing equipment to China – primarily from Nvidia.
An important point to note is that while Russia, Japan, South Korea and Ukraine all produce unrefined gallium, their combined output is around 10,000 kg per year. China outputs more than 500,000 kg per year (2022 numbers).
This could get ugly very quickly. The impact is likely to be a jump in price for these metals, which should encourage increased production outside China, but it’ll take time.
The U.S. contends that its measures against Chinese chip makers are designed to prevent China from advancing technologies that could offer it an advantage in defense or other sectors deemed critical to national security.
Beijing has argued that these measures aim to suppress China’s economic growth.
As of August 1, according to the announcement from China’s Ministry of Commerce, exporters of gallium and germanium will need to apply for licenses and report details of their overseas buyers in an effort to “safeguard national security and interest.” Although China is a dominant player in the global production, refining, and processing of many critical raw materials, including gallium and germanium, it still relies on Western technology to produce high-performance chips.
Gallium, which is primarily sourced from China, is a critical ingredient in an expanding class of semiconductors used in a wide array of commercial and military applications. Germanium, another crucial metal, is commonly found in solar cells and fiber-optic systems.
New Zealand GDT price index -3.3%
- The latest New Zealand dairy auction results
- Prior was 0.0%
- Whole milk powder -0.4%
EU News
Germany May trade balance €14.4 billion vs €17.5 billion expected
- Latest data released by Destatis – 4 July 2023
- Prior €18.4 billion
Some hope on the inflation front for the UK
- Britain’s second-largest supermarket group, Sainsbury, says fresh food prices are falling
Sainsbury is saying that there is perhaps something positive developing:
“We’ve seen in those products where the prices went up first, and that was predominantly in fresh food, we’ve seen prices start to come down. The packaged products just takes longer to feed through the system and so those products will be a bit more stubborn.”
Other News
IAEA head says they will be discussing Iran’s nuclear programme amid uncertainty
The head of the International Atomic Energy Agency is Director General Rafael Mariano Grossi.Speaking in Tokyo.
- Says we will be discussing the nuclear program of Iran amid uncertainty
- and also discussing North Korea
- there is still a possibility of an incident at the Ukrainiain nuclear facility
ICYMI: China made a big change at the country’s central bank this week
- Pan Gongsheng was appointed as party secretary for the PBOC
This puts him in line as the next PBOC governor and is likely a directive for Yi Gang to step down from the post. Yi has been in charge of China’s central bank since 2018. As for Pan, he replaces Guo Shuqing as party secretary for the central bank with Guo now officially removed from his post as PBOC vice governor as well.
According to Reuters sources, Pan’s appointment points to growing concerns within the country’s leadership over systemic risks in the financial sector. The way I see it, this is pretty much Beijing consolidating its power and policy direction as it looks to ensure a continuity of the ongoing monetary policy stance.
China major state-owned banks reportedly to have cut dollar deposits again
- That will be a second time in about a month
The report comes via Reuters, stating that China’s major state-owned banks have lowered their dollar deposit rates once again with effect from 1 July. The rates were cut by as much as 150 bps with the sources claiming that some banks were not offering rates above the 2.80% cap (reduced from 4.30% previously) for large deposits.
RBA leaves the cash rate unchanged at 4.10%
- The latest monetary policy decision by the RBA – 4 July 2023
- Prior 4.10%
- Higher rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so
- In light of this and the uncertainty surrounding the economic outlook, the RBA decided to hold interest rates steady this month
- This will provide some time to assess the impact of rate hikes to date and economic outlook
- Inflation in Australia has passed its peak
- Growth in the Australian economy has slowed and conditions in the labour market have eased
- A significant source of uncertainty continues to be the outlook for household consumption
- Some further tightening of monetary policy may be required
- The decision to hold rates steady provides more time to assess the state of the economy
- Remains resolute in its determination to return inflation to target and will do what is necessary to achieve that
Cryptocurrency News
South Africa Imposes Licensing Requirements on Crypto Exchanges
- Cryptocurrency exchanges in the country have until November 30 to comply.
- FSCA said the new rules will protect investors from fraud.
Cryptocurrency exchanges operating in South Africa have until November 30 to register with the country’s financial regulator. Those who will not comply with the directive risk facing enforcement actions, including fines or business closure, the Financial Sector Conduct Authority (FSCA) said today (Tuesday).
“There is potentially serious harm to financial customers when using crypto products, and thereforeit makes sense for us to introduce the regulatory framework,” commented UnathiKamlana, FSCA Commissioner. “Time will tell the effectiveness of our measures, and we will continue to work together with the industry to refine and make changes where and if necessary.”
South Africa Regulates Crypto
The exchanges that could be affected by the new directive in Africa’s most developed economy include Binance, Coinbase, Kraken, and KuCoin, which are currently operating in the region. FSCA isplanning to curb an increase in fraudulent activities involving digital assets.
The South African financial regulator could have been prompted to implement the stringent regulation following previously reported cases of fraud in the sector. For instance, last year, a cryptocurrency exchange dubbed Africrypt claimed it had been hacked, and bitcoins worth $3.6 billion were missing.
The South African law enforcement agencies later launched an investigation into the matter in what was believed to have been a case of fraud, according to a report by Bloomberg.
Pro-XRP lawyer slams Coinbase for delisting XRP, comments on SEC lawsuit against the exchange
- Bill Morgan, a pro-XRP lawyer, called out Coinbase’s inconsistency in its treatment of XRP.
- The exchange delisted XRP while several assets labeled as securities by the SEC continue trading on the platform.
- Experts believe Coinbase is unlikely to relist XRP since the payment remittance firm has dropped the altcoin from its liquidity hub service.
Pro-XRP attorney Bill Morgan recently shared his views on a tweet exchange between Coinbase’s chief legal officer and attorney John Deaton. As the two personalities discussed the Securities and Exchange Commission’s (SEC) crackdown on Coinbase and the support that the exchange has received from financial institutions, Morgan highlighted the inconsistencies in the exchange’s treatment of assets like XRP.
Coinbase delisted XRP back in January 2021, citing the SEC’s lawsuit against payment giant Ripple. However, the exchange did not take any such steps for assets like Cardano and Solana. Both these assets have been tagged as securities by the US regulator, and the exchange facilitates their trading.
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