North American News
Monday is a US market holiday
It was the Memorial Day holiday in the United States and that kept markets predictably quiet but it certainly wasn’t dead. The market was in a good mood as the dollar steadily sold off. The main winners were the commodity currencies and the pound, which benefited from risk appetite.
- All US stock and bond markets are closed on Memorial Day
- FX desks will be skeleton staff, if any.
At the CME, the major venue for popular products such as ES and NQ, equity index futures trade:
- Sunday, May 26th 5:00pm open for Tuesday trade date
- Monday, May 27th 12:00pm halt and at 5:00pm trading resumes
- Tuesday, May 28th regular hours
Deutsche Bank on US: risk to growth to topside, risk to inflation to downside
- Deutsche Bank like US stocks
Deutsche Bank raised thier S&P 500 target to 5,500 last week, reasoning (in brief):
- a strong earnings cycle, admits valuations appear to be “pretty full’, but says they are not too highcompared with historical standard
- economic expansion, says this’ll continue and that forecasters have underestimated economic growth for seven quarters
- easing price pressures, inflation mostly reflects factors like seasonality and the stickiness of measured rents
- the risk to growth relative to the macroeconomic consensus looks to us to be on the upside
- and the risks to inflation we see as basically being to the downside
Canada prelim April wholesale trade sales +2.8%
- Preliminary data for April
- Advance estimate +2.8%
Commodities
Gold price bounces back from two-week low amid thin liquidity conditions
- Gold price rises close to 1% after bouncing off two-week low of $2,325.
- Strong US economic data dampens hopes for Fed easing, pressured Gold prices last week.
- Fed officials indicate longer timeline to achieve 2% inflation target, impacting Gold’s appeal.
- Upcoming US PCE Price Index anticipated to report a core increase of 2.8% YoY and headline growth of 0.3% MoM.
Gold is up on Monday amid thin trading due to holidays across both sides of the Atlantic, particularly the UK and the US. The yellow metal bounced off two-week lows of $2,325, as US Treasury yields finished the last week down, while the Greenback weakened across the board.
The yellow metal trades at $2,354 on Monday, gaining close to 1% at the time of writing. Solid economic data from the US hurts market participants’ hopes that the Fed will ease monetary policy this year. Consequently, this undermined the non-yielding metal, which tumbled by more than 3% last week.
Fedspeak weighed on Gold prices as officials acknowledged it would take longer than previously thought to curb stickier inflation to the Fed’s 2% core inflation goal. Although the golden metal is considered a hedge against inflation, higher US Treasury yields sponsored the last leg down of XAU/USD.
UBS analysts chimed in, “We expect gold prices to stay volatile and price setbacks to be shallow, targeting Gold prices to test new record highs later this year.”
Gold price rises amid weak US Dollar
- The US Dollar Index, which tracks the buck’s performance against a basket of peers, trades at 104.58, down 0.15%.
- US economy continues to fare well, as evidenced by last week’s S&P Global PMIs, which highlighted increased business activity. However, investor uncertainty about the economic outlook persists due to a worse-than-expected US Durable Goods Orders report released on Friday.
- FOMC Minutes showed that Fed officials remained uncertain about the degree of policy restrictiveness. They added that “it would take longer than previously anticipated to gain greater confidence in inflation moving sustainably to 2%.”
- BBH analysts commented that since the latest Beige Book released on April 17, the US inflation has remained sticky despite some signs of softening in the labor market. They added, “We expect a balanced tone in this report that will allow the Fed to take a wait and see approach with regards to easing.”
- Fed funds futures rate estimate just 25 basis points of interest rate cuts in 2024
WTI extends recovery to $78.50 ahead of OPEC meeting
- WTI jumps to $78.50 with a focus on global inflation data.
- The Fed is expected to announce rate cuts in the last quarter of this year.
- Investors will focus on the OPEC+ meeting to know about any change in the oil supply policy.
WTI futures on NYMEX, rises further to $78.50 in Monday’s New York session.The Oil price rises even though investors expect that the Fed will consider reducing interest rates from the current levels in the last quarter of this year.
Market speculation for Fed rate cuts has shifted to the last quarter from the September meeting as policymakers want the continuation of current policy framework for a longer period until they get evidence that inflation will sustainably return to the desired rate of 2%.Fed officials emphasize keeping the policy framework restrictive despite the slowdown in price pressures in April suggested by the CPI report of the same month.
Natural Gas up nearly 3% on its road to recovery
- Natural Gas prices have declined over 5% from last week’s peak at $3.16 as traders book profits.
- EU court ruling on Gazprom payments might see disrupted Gas flows in Austria.
- The US Dollar Index trades flat after a volatile week.
NatGas holds its ground on Monday after reaching a six-month high of $3.16 on Thursday and immediately facing profit taking. The last squeeze came on the back of a Bloomberg article reporting that Austria warned that the remaining Gas flows out of Russia might get disrupted after a court ruling said that European companies no longer need to make payments to Gazprom on deliveries. Traders were pushing up Gas prices ahead of any disruption risk, but now profit-taking is underway and Gas prices are looking for support levels.
Natural Gas is trading at $2.85 per MMBtu at the time of writing.
Natural Gas news and market movers: EU facing supply issues
- Supply concerns linger in the EU after Austria’s OMV AG warned of possible disruptions in Gas flows out of Russia.
- Meanwhile, Bloomberg reported that Italian Gas storages are filled up to 73%, well above its average of 59% for this time of year.
- Brunei LNG is facing a substantial outage and ships awaiting in the harbor. Since May 20, no LNG has left the port.
EU News
European stock markets finish strong to start the week on a positive note
- Closing changes for the main European equity bourses
It’s been a nice start to the week for risk assets, despite the US and UK holidays
Closing changes:
- Stoxx 600 +0.3%
- German DAX +0.4%
- French CAC +0.4%
- Italy MIB +0.7%
- Spain IBEX +0.7%
Germany May Ifo business climate index 89.3 vs 90.4 expected
- Latest data released by Ifo – 27 May 2024
- Prior 89.4; revised to 89.3
- Current conditions 88.3 vs 89.8 expected
- Prior 88.9
- Expectations 90.4 vs 90.9 expected
- Prior 89.9; revised to 89.7
SNB total sight deposits w.e. 24 May CHF 461.2 bn vs CHF 467.4 bn prior
- Latest data released by the SNB – 27 May 2024
- Domestic sight deposits CHF 452.5 bn vs CHF 459.0 bn prior
ECB’s Lane: There is enough in what we see to start interest rate cuts
- Remarks by ECB chief economist, Philip Lane, to the Financial Times
- I think we have been successful in getting inflation down in a timely manner
- But policy needs to remain in restrictive territory
- Things will be bumpy and things will be gradual
- But within the zone of restrictiveness we can move down somewhat
- If inflation visibly approaches the target next year, then we can make sure rates come down further
- If inflation turns out to be more persistent, easing policy stance too quickly would not be consistent in returning inflation back to target in a sustainable manner
- Even if inflation does not smoothly decline during the rest of this year, further disinflation can be expected during the course of next year
- It is straightforward that the calibration of the appropriate degree of restrictiveness should adjust for the impact of lower expected inflation
- Keeping rates overly restrictive for too long could push inflation below target in the medium-term
- That would require corrective action that could require rates to be below neutral
- The breadth of domestic inflation dynamic is narrowing
- ECB wage tracker is signaling that wage pressures have moderated since last year
- The overall message on wages is bumpy, there is some deceleration but it’s fairly slow
- We will see another phase of disinflation bringing us back to target later next year
ECB’s Rehn: The time is ripe to start cutting rates in June
- Remarks by ECB policymaker, Olli Rehn
- Inflation is converging to 2% target in a sustained way
- The time is ripe in June to ease monetary policy
- This obviously assumes that the disinflationary trend will continue without further setbacks
ECB’s Villeroy: June rate cut is a done deal barring any surprises
- Remarks by ECB policymaker, Francois Villeroy de Galhau
- Should not commit to anything for July
- ECB wants to keep freedom on timing and pace of policy moves
- There is significant room for rate cuts
- Personally, services inflation matters more than wages
Switzerland approves tech to slash amount of radioactive waste from atomic power plants
- The technology could cut the volume of highly radioactive waste by 80%.
The Financial Times (gated) carries the report. Very brief:
- technology known as “nuclear transmutation”
- could cut the volume of highly radioactive waste from nuclear power plants by 80%
- would reduce the time it remains radioactive to “less than 500 years” (from hundreds of thousands of years)
Weekend – ECB’s Cipollone said recent data flow supportive of dialling back interest rates
- Cipollone joins other ECB officials in prompting on a June interest rate cut
ECB board member Piero Cipollone spoke on Sunday, saying he expects inflation to continue to fall in coming months, barring any shocks. And to reach the 2% target in 2025.
On interest rates:
- “Recent data go in that direction and increase our confidence that we will be able to dial back our restrictive monetary policy stance”
Asia-Pacific-World News
China Industrial Profits April 2024 +4.0% y/y (prior +4.3%)
- China Industrial Profits, via National Bureau of Statistics (NBS) data.
China’s economic data in the early part of this year has been on the improve. That’s carrying on into Q2.
April 2024 Industrial Profits up 4.0% y/y vs. prior -3.5%
- January – April (ie YTD) Industrial Profits +4.3% vs. prior +4.3%
China launched a US$47bn state-backed fund to boost the country’s semiconductor industry
- National integrated circuit industry investment fund
Info vis news wires reporting on China’s new state-backed investment fund with registered capital of 344 billion yuan aimed at boosting the semiconductor industry:
- third phase of its national integrated circuit industry investment fund was officially set up on May 24
- China’s finance ministry is the biggest shareholder with a 17% stake
China’s Politburo says financial risks a major hurdle that must be overcome
- The Chinese Communist party held a Politburo meeting today
- Preventing financial risks is linked to national security, people’s “property security”
- Financial regulations must be strict to send a strong signal on responsibility
China’s leader Xi Jinping will attend China-Arab Forum on May 30, give keynote speech
- Note for the diary
Chinese state media confirm Xi Jinping’s appearance:
- Chinese President Xi Jinping will attend the opening ceremony of the 10th ministerial meeting of the China-Arab States Cooperation Forum on May 30 in Beijing and deliver a keynote speech, a foreign ministry spokesperson announced on Sunday.
China, Japan and South Korean leaders met today in Seoul
- South Korean President Yoon Suk Yeol hosted Chinese Premier Li Qiang, and Japanese Prime Minister Fumio Kishida.
South Korean President Yoon Suk Yeol, Chinese Premier Li Qiang, and Japanese Prime Minister Fumio Kishidamet. These were the first three-way talks in four years.
Chinese Premier Li Qiang:
- praised the ‘restart’ in relations
- called to revive trade and security dialogues
- may agree to resume three-party free trade agreement negotiations
There were similar sentiments from the Japanese and South Korean leaders, who also expressed concerns over North Korea.
Bank of Japan Governor Ueda says some challenges are uniquely difficult for the Bank
- Opening remarks from BOJ Gov Ueda
- We have made progress in moving away from zero and lifting inflation expectations, but we must now re-anchor them, this time at the 2% target
- BoJ will proceedcautiously, as do other central banks with inflation-targetingframeworks
- While many of the challenges we face are similar to those encountered by our counterparts, some are uniquely difficult for us
- The absence ofsignificant interest rate movements poses a considerable obstacle inassessing the economy’s response to changes in interest rates
BOJ’s Uchida says “we have overcome the zero lower bound”
- Deputy governor of the Bank of Japan Shinichi Uchida
- We still have a big challenge to anchor the inflation expectations to 2%, the end of our battle is in sight
- Says ‘this time is different’
- We have overcome the zero lower bound
- We returned to a conventional monetary policy framework, aiming at a 2% price stability target through adjustments of the short-term policy rate, which means we have overcome the zero lower bound
- Labour marketconditions have changed structurally and irreversibly
- Not so clear if Japan has overcome deflationary norm
- The main driving force for these developments and long-waited structural changes is labour shortages
The G7 Communique gave vague support to Japan to prop up the yen
- The G7 repeated its caution against excess volatility in foreign exchange rates. Yawn.
Reuters carry a piece saying Japan renewed its push at the G7 to counter yen bears,.The G7 responded in its communique, says Reuters:
- After lobbying by Japan, the G7 finance ministers reaffirmed in a communique issued after their meeting in Italy on Saturday their commitment cautioning against excess volatility in foreign exchange rates.
Some remarks from analysts:
- Service-sector inflation, closely watched by the BOJ as a key indicator of underlying price trends, also remains flat. “Services inflation likely peaked out,” said Junichi Makino,chief economist at SMBC Nikko Securities.”It doesn’t seem like underlying inflation will accelerate towards 2%.”
- “While markets seem excited about the chance of a policy shift, the BOJ is probably cool-headed about all this,” said Daiwa Securities chief market economist Mari Iwashita, who rules out the chance of a taper decision in June. “Besides, there’s no guarantee such action could stop the yen’s fall.”
Ex-BoJ Masai says Bank has room to hike to 0.5% by year end if conditions remain unchanged
- Takako Masai, Chairperson at the SBI Financial and Economic Research Institute and Former Bank of Japan Board Member
Takako Masai, Chairperson at the SBI Financial and Economic Research Institute and Former Bank of Japan Board Member, spoke with Bloomberg.
- says the BoJ has scope to hike its benchmark rate to as high as 0.5% by the end of the year if economic conditions stay more or less on the same track
South Korea official says hopes to partially remove short-selling ban in June
- South Korea has new tech to detect illegal short selling
Lee Bok-hyun heads up South Korea’s Financial Supervisory Service, he said he personally hoped to partially lift South Korea’s short selling ban in June, but if not then at least provide a timeline on when and under what conditions it would be lifted.
He was announcing a new South Korean stock market monitoring system to detect illegal short-selling, expected to be implemented from Q1 of 2025. The monitoring system is said to be a prerequisite to lift the market-wide ban on short-selling imposed in November 2023.
Cryptocurrency News
Ethereum nears the March highs
- ETF enthusiasm continues to build
US politicians appear to be in a battle to prove who is more pro-crypto.
The SEC did an about-face on an Ethereum ETF and now Trump has flip-flopped into a pro-crypto stance. With votes to earn here and margins small, it looks like they will be after this voting bloc until November.
Next stop for ETH is $4000 but that will be a formidable challenge given the March highs at $4093. With the ETFs approved, the next catalyst will be the open of trading. Note that for bitcoin, the start of trading marked a short-term top and a sell-the-fact trade that led to a 20% drop.
That said, there is plenty of time for momentum to build as it will take weeks or even months before ethereum ETFs can begin trading.
CAT enters free fall after crypto sleuth alleges founders behind GCRClassic hack
- Crypto detective ZachXBT says team behind Solana-based CAT meme coin is connected to the GCRClassic X account hack.
- Hackers opened long positions on ORDI and ETHFI before posting about them from GCRClassic’s account.
- CAT is down over 70% in the past 24 hours.
Solana-based “sol” (CAT) meme coin crashed heavily on Monday following a recent analysis by crypto detective ZachXBT connecting its team to the X account hack of crypto analyst GCRClassic.
CAT’s team accused of account hack
In an analysis on X on Monday, ZachXBT accused the CAT meme coin team of carrying out a sniping attack on their own project and using the proceeds to launch a pump-and-dump scheme via GCRClassic’s account.
Sniping attack in this context refers to a fraudulent practice where insiders buy large holdings of a project before it’s available to the public only to dump the coin after it begins trading.
He started his analysis by citing a post from Lookonchain stating that an insider created new wallets to snipe 632 million CAT — 65% of its supply — using 1,370 SOL worth $230,000. The insider later dumped $5 million worth of CAT and transferred parts of the profits to crypto exchanges Kucoin and MEXC.
After several strategies to hide their trail, the insiders transferred funds to decentralized perpetual exchange Hyperliquid and opened $2.3 million worth of ORDI long positions. Around the same time, compromised GCRClassic account released a post shilling for ORDI, causing the price to spike. The insiders quickly booked profits of $34,000 before GCRClassic made a post from another account confirming the original X account was hacked.
However, that didn’t stop the hackers who made another post shilling ETHFI after opening long positions of $1 million worth of ETHFI on Hyperliquid.
“People let a scammer farm them for 7 figs just bc they purchased an expensive username and made mysterious posts,” said ZachXBT.
PEPE hits new all-time high, meme coin could extend gains
- PEPE hit a new all-time high at $0.00001725 on Monday, May 27.
- The frog-themed meme coin noted a surge in active addresses and social dominance amidst rising price.
- PEPE extended gains by over 4% on Monday and added 81% to its value in the past seven days.
PEPE, a frog-themed meme coin, hit a new all-time high early on Monday, rallying to a peak of $0.00001725.The asset rallied 81% in the past seven days on Binance.
Meme coins have consistently extended gains in the ongoing cycle, alongside a rally in Bitcoin, Ethereum and other cryptocurrencies in the top 20 assets by market capitalization.Dogecoin (DOGE), Shiba Inu (SHIB), Pepe (PEPE) and Solana-based meme coins have rallied on several occasions since the approval of Spot Bitcoin Exchange Traded Funds (ETFs) early in 2024.
PEPE currently ranks as the 19th largest cryptocurrency by market capitalization on Coinmarketcap.
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