North American News
The Nasdaq index experienced a 1% gain, surpassing the high it reached on Friday
- The bulls get the upper hand once again
The one-way trade in the Nasdaq since May has extended further, with the index rising 1.0% to the best levels since April 2022.
Intel is leading the way today with a 4% gain despite incoming China export controls on semiconductors. Tesla and Activision-Blizzard are other notable gainers. Tomorrow we get the US retail sales report for June with expectations for a 0.5% rise. A strong report would actually hurt the Nasdaq because it could mean higher US interest rates for longer.
Empire Fed July manufacturing index +1.1 vs -4.3 expected
- New York-area manufacturing survey
- Prior was +6.6
Details
- New orders +3.3 versus +3.1 last month
- Shipments +13.4 versus +22.0 last month
- Prices paid +16.7 versus +22.0 last month
- Employment +4.7 versus -3.6 last month
- prices received +3.9 versus +9.0 last month
- Inventories -4.9 versus -6.0 last month
- Six month outlook +14.3 vs +18.9 last month
US semiconductor association asks Biden not to impose more China sanctions
- Association to ask Biden to halt further sactions
The US-based semiconductor industry association has called on the Biden administration to refrain from further sanctions on US microchip sales to China.
The association called for the the restrictions to be narrow and clearly defined.
Here is the statement:
The Semiconductor Industry Association (SIA) today released the following statement regarding potential additional government restrictions on semiconductors.
“Recognizing that strong economic and national security require a strong U.S. semiconductor industry, leaders in Washington took bold and historic action last year to enact the CHIPS and Science Act to strengthen our industry’s global competitiveness and de-risk supply chains. Allowing the industry to have continued access to the China market, the world’s largest commercial market for commodity semiconductors, is important to avoid undermining the positive impact of this effort. Repeated steps, however, to impose overly broad, ambiguous, and at times unilateral restrictions risk diminishing the U.S. semiconductor industry’s competitiveness, disrupting supply chains, causing significant market uncertainty, and prompting continued escalatory retaliation by China.
“We call on both governments to ease tensions and seek solutions through dialogue, not further escalation. And we urge the administration to refrain from further restrictions until it engages more extensively with industry and experts to assess the impact of current and potential restrictions to determine whether they are narrow and clearly defined, consistently applied, and fully coordinated with allies.”
Treasury yields look to resume the latest drop this week
- 10-year Treasury yields are down nearly 4 bps to 3.781%
The latest retreat continues to weigh on yields, with bonds still catching a bid today in European morning trade. The drop last week comes after 10-year yields met its March highs near 4.09% before falling back below the key 4% threshold and here we are now, down roughly 30 bps from there to 3.78%.
Goldman Sachs now sees only a 20% chance of a US recession in the next 12 months
- Goldman Sachs lowers estimate of recession to 20% from 25%
Goldman Sachs economist Jan Hatzius has cut the chances of a US recession to 20% from 25% previously.
“The probability of a U.S. recession has fallen further as both recent data and ongoing fundamentals point to rapid — and mostly painless — disinflation from here,” he writes.”One reason why we expect most DM economies to achieve a soft landing is that many EM economies have already done so, despite more difficult starting positions in terms of the size of the energy hit and/or the stability of inflation expectations.”
US microchip curbs on China aim to halt Chinese innovation
- It would be tough for China to see this as anything but an act of war
A New York Times article from last week on the US efforts to curb Chinese access to microchips is eyeopening.
‘An Act of War’: Inside America’s Silicon Blockade Against China is the title of the article and it’s not overstated. It outlines how on Oct 7 of last year, the US Bureau of Industry and Security launched economic measures to hinder China’s ability to produce or purchase advanced semiconductor chips.
The public line is that these restrictions aim to impede China’s production of weapons and surveillance technology powered by advanced chips, supercomputers, and AI systems. However, the result and likely the aim is to affect, if not cripple, a wider range of Chinese industries that rely on semiconductors.
May Canadian wholesale inventories +3.5% vs +3.5% expected
- Canadian May 2023 wholesale inventory data
- Prior was -1.4%
- Sales of $83.6 billion in May
- Sales up in 4 of 7 subsectors, led by the machinery, equipment and supplies, the miscellaneous, and the motor vehicle and motor vehicle parts and accessories subsectors
- Inventories -0.2%
Commodities
Silver Pulls back from two-month high, bullish potential seems intact
- Silver edges lower on Monday and snaps a three-day winning streak to over a two-month high.
- The technical setup favours bulls and supports prospects for the emergence of some dip-buying.
- Any meaningful corrective slide might now be seen as a buying opportunity and remain limited.
Silver kicks off the new week on a weaker note and for now, seems to have snapped a three-day winning streak to the $25.00 psychological mark, or its highest level since May 11 touched on Friday. The white metal remains on the defensive through the early European session and is currently placed around the $24.75-$24.80 region, down nearly 0.70% for the day, though any meaningful downside seems elusive.
Against the backdrop of the recent goodish rebound from the vicinity of the $22.00 mark, or a three-month low touched in June, Friday’s sustained breakout through the $24.50-$24.60 congestion zone was seen as a fresh trigger for bullish traders. This, along with bullish technical indicators on the daily chart, validates the positive outlook for the XAG/USD and supports prospects for the emergence of some dip-buying.
WTI Oil trades below $75.00 on choppy session
- WTI sets its second day in a row of losses as investors continue to take profits following a three-week gain streak.
- Unexpected supply disruptions in Nigeria and Lybia may limit the downside’s potential.
- Eyes on Tuesday’s Retail Sales data from the US.
At the start of the week, the West Texas Intermediate (WTI) barrel fell below $75.00.The downside movements may be explained by investors taking profits and a slight recovery of the US Dollar.
The focus is set on Tuesday’s Retail Sales data from the US from June. As the USD significantly weakened following soft inflation figures from June which fueled dovish bets on the Federal Reserve (Fed), weak Retail Sales figure could fire another downwards leg for the Greenback. As for now, markets are expecting the headline figure to have increased 0.5% MoM in June while the sales excluding the Automobile sectors to have expanded 0.3% MoM.
EIA sees a slight dip in US share production in August
- The latest EIA forecasts
The EIA sees US share regions producing 9.399 million barrels per day in August, down 18,000 barrels per day after a 5,900 bpd rise in July.
The evidence continues to mount that we’re at the peak of US shale supply and that it will be tough to sustain later in the decade, barring a drilling technology breakthrough.
EU News
Barclays says US investors “may be close to peak pessimism” on European equities
Via a note from Barclays on Friday on European equities in brief.
Barclays cites the flow data they track, which shows most US clients have cut exposure to Europe. Clients reason:
- that the region is the most vulnerable to central bank-induced recession
- will suffer from a “weaker for longer China”
- “has missed the AI train”
- “Poor liquidity was another concern, which prompts clients to own concentrated positions in a few quality/growth/internationally geared mega cap EU stocks”
Italy June final CPI +6.4% vs +6.4% y/y prelim
- Latest data released by Istat – 17 July 2023
- Prior +7.6%
- HICP +6.7% vs +6.7% y/y prelim
- Prior +8.0%
SNB total sight deposits w.e. 14 July CHF 494.7 bn vs CHF 486.6 bn prior
- Latest data released by the SNB – 17 July 2023
- Domestic sight deposits CHF 484.2 bn vs CHF 476.0 bn prior
Goldman Sachs expects the Bank of England to hike by 50bp at its August meeting
UK economists at Goldman Sachs are expecting the Bank of England Monetary Policy Committee to raise the Bank Rate by 50bp at the August meeting
Goldman Sachs forecast a Bank Rate peak of 6% in November this year.
GS cite in reasoning:
- firm wage pressures
- firm inflationary pressures
- With mostly fixed-rate mortgages in the UK, our Economists’ models show that the stock of outstanding mortgages are responding more slowly to policy rate changes.
- This delayed adjustment in output puts upward pressure to BoE’s policy path.
ECB’s Vasle: Core inflation remains high, resilient
- Remarks by ECB policymaker, Boštjan Vasle
Until we get to the July policy decision next week, don’t expect any change to the tone and rhetoric from the ECB. It will be interesting to see how they go about things next as September is not quite nearly a given in terms of being another rate hike – at least for now.
Other News
Putin says response being prepared for Crimea bridge attack
- Kerch bridge was attacked overnight
The Kerch bridge was once again attacked today, this time likely by water-based drones. The automotive part of the bridge was damaged while the rail bridge was left intact.
It’s a critical logistics transportation hub from Russia to Crimea to support the war. Two civilians were killed and their daughter was injured.
Putin has made some comments:
- What happened to the bridge is a terroristic act by Ukraine
- Russia will respond
- Defense Ministry is preparing proposals on an answer to the bridge attack
China Q2 GDP +0.8% q/q (expected 0.5%)
China’s economic growth data for the April to June quarter of 2023.
The q/q has beaten expectations, which is a positive. The y/y is heavily impacted by base effects.
China’s National Bureau of Statistics (NBS)
- says the national economy showed good momentum of recovery in H1 of the year but adds that the foundation of the domestic economic recovery is not solid.
- China is confident and capable to achieve economic growth targets
- economy expected to improve more
- economy is gradually recovering from the pandemic effects
China June: Retail sales +3.1% y/y (expected 3.2%) Industrial output +4.4% y/y (exp 2.7%)
Chinese economic activity data for June 2023
Further National Bureau of Statistics (NBS) says
- June crude oil production rose 1.9% Y/Y to 17.5mln metric tons and H1 crude output rose 2.1% Y/y to 105.1mln tons
- June crude production the highest since 2015
- June natural gas output rose 5.5% Y/Y, H1 natgas output rose 5.4% Y/Y
People’s Bank of China set MLF rate at unchanged 2.65%, as expected
People’s Bank of China Medium-term Lending Facility (MLF)
PBOC inject 103bn yuan via a one-year MLF at 2.65% 9circa 125bn was expected, prior 237bn injection)
- 100bn yuan of MLF are maturing today
- thus net MLF injection is 3bn yuan
The PBOC’s MLF rate is a benchmark interest rate that banks in China can use to borrow funds from the People’s Bank of China for a period of 6 months to 1 year, medium-term liquidity to commercial banks.
The rate is typically announced on the 15th of each month. Given the 15th was on Saturday we’re getting it today instead.
The interest rate on the MLF loans is typically higher than the benchmark lending rate (more on these below), which encourages banks to use the facility only when they face a shortage of funds.
The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th. Current LPR rates are:
- 3.55% for the one year
- 4.20% for the five year
Cryptocurrency News
CELO price shoots up 15% as Celo aims to transition to Ethereum L2 from independent L1 blockchain
- CELO price observed an increase of nearly 20% at its peak during the day, making it the highest single-day rise this year.
- A new proposal aims to bring the network back to Ethereum from being an EVM-compatible chain.
- The total value locked on Ethereum Layer-2 has risen by 145% YTD.The DeFi market has grown by just 38% in the same duration.
Celo is “returning home,” as the crypto community calls what is a transition of the Layer-1 (L1) blockchain back to an Ethereum-based Layer-2 (L2) blockchain. Bound to affect the native token’s price, the impact was larger than expected, and as per experts, the impact on the network would also be huge in the long term.
CELO price rises after homecoming proposal
Celo developers cLabs proposed a transition of the Celo blockchain from Layer-1 to Layer-2 on Ethereum. Before becoming an independent EVM-compatible L-1 blockchain, Celo used to be an L2 and is now going back to being one due to multiple reasons.
One of the biggest focuses of this transition is to improve and provide a seamless developer experience. Additionally, moving back to being an Ethereum L2 would provide stronger security assurance than Celo individually could. Furthermore, this would simplify liquidity sharing between Celo and Ethereum by creating a trustless bridge between the two.
National Australia Bank blocks A$270 million in payments to high risk crypto exchanges citing risk of fraud
- National Australia Bank has introduced new blocks on some crypto platforms where scams are more prevalent.
- The banking institution intervened in more than A$270 million worth of customer payments between March and July.
- Nearly 50% of the scams reported to the Australian Financial Crimes Exchange were linked to cryptocurrency in the past thirty days.
The National Australia Bank (NAB) is one of the four largest banking institutions in Australia.The bank is a member of an independent initiative to fight financial and cyber crime in the country.
According to a recent report, the bank cited the risk of fraud and blocked A$270 million worth of payments to cryptocurrency exchanges. Several Australian banks have identified the risk associated with crypto exchanges and taken similar measures, including Westpac, Commonwealth Bank of Australia and ANZ.
National Australian Bank blocks payments to high risk crypto exchanges
One of Australia’s largest banks halted millions of Australian Dollars worth of payments to crypto exchanges, between March and July to help protect customer funds from potential scams. According to the bank’s recent report, 40% Australians are extremely willing for payments to be slower if they were better protected from scammers. The bank therefore introduced blocks on payments initiated towards platforms where scams are more relevant.
The NAB intervened in more than A$270 million worth of transactions without disclosing further details of the platforms.
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