July 11 Financial Breakfast: Dollar hits three-week low as policymakers signal the end of the Federal Reserve's rate hike cycle

On Tuesday (July 11), Beijing time (July 11), the dollar hit a three-week low on Monday, after remarks from Federal Reserve policymakers strengthened market expectations that the tightening cycle was nearing an end, gold prices were little changed, investors awaited U.S. inflation data that could affect the Fed's policy stance, and palladium fell below $1,200 for the first time since December 2018.

Commodity close: U.S. gold futures settled at $1,931 an ounce, down 0.1%. Brent crude futures settled 1% lower at $77.69 a barrel, and U.S. crude futures fell 1.2% to $72.99 a barrel.

U.S. stocks closed: The Dow Jones index closed up 0.62% at 33,944.40 points; the S & P 500 index closed up 0.26% at 4,410.41 points; the Nasdaq Composite index closed up 0.18% at 13,685.48 points.

Tuesday Forward

Precious metal

Gold prices were little changed on Monday as investors awaited U.S. inflation data that could influence the Federal Reserve's policy stance, while palladium fell below $1,200 for the first time since December 2018.

Jim Wyckoff, senior analyst at Kitco, said: "Looking at the technical charts, gold has some strong support at $1,900. If inflation continues to be a hot topic, gold could fall below that level, or quickly to $1,848."

This week's focus will be on the U.S. consumer price index (CPI) released on Wednesday, and minutes from last week's Federal Reserve meeting show that the vast majority of policymakers expect further policy tightening.

Palladium, down 0.2 per cent to $1,241.41 a troy ounce from an earlier low of $1,190.65, has fallen almost 31 per cent so far this year as the rapid rise of electric vehicles threatens to hit demand for the car catalyst metal amid broader economic weakness.

Silver rose 0.4% to $23.14 an ounce, while platinum rose 2% to $926.55 an ounce.

crude oil

Oil prices fell about 1 percent on Monday, weighed down by the growing likelihood of a U.S. interest rate hike, but tighter crude supplies from top oil exporters Saudi Arabia and Russia limited the decline.

"Traders are very nervous about rising rates, which could kill demand very quickly," said Dennis Kissler, senior vice-president of trading at BOK Financial, adding that some investors were also taking profits after last week's rally.

Both indicators rose more than 4.5 percent last week after Saudi Arabia and Russia announced new production cuts, bringing OPEC +'s total output cut to about 5 million barrels per day, or about 5 percent of global oil demand.

San Francisco Fed President Daly reiterated on Monday that she believes two more rate hikes may be needed this year to reduce inflation, which remains too high, and Cleveland Fed President Mester also signaled support for further rate hikes.

China's producer price index fell the most in seven-and-a-half years in June from a year earlier, government data showed on Monday, as the recovery in the world's second-largest economy slowed.

However, the head of the International Energy Agency (IEA) said on Monday that despite the global economic downturn, oil demand from China and developing countries, coupled with OPEC + supply cuts, could keep the oil market tight in the second half of the year.

Markets are also eyeing the release of U.S. consumer price index (CPI) data later this week, a key inflation report, as well as a series of economic reports from China to determine demand conditions.

foreign exchange

The dollar hit a three-week low on Monday after comments from Federal Reserve policymakers reinforced market expectations that the tightening cycle was nearing an end.

However, despite Friday's data showing the smallest job growth in two-and-a-half years, the Federal Reserve is still widely expected to raise interest rates by another 25 basis points this month. The Federal Reserve suspended interest rate hikes in June.

Federal Reserve policymakers such as San Francisco Fed President David Daly said on Monday that the central bank may need to raise interest rates further to reduce stubbornly high inflation, but the end of the monetary policy tightening cycle is now drawing closer.

In afternoon trading, the dollar index fell 0.3 per cent to 101.98, its lowest level in three weeks, while the euro rose to a three-month high of $1.0997 against the greenback and ended trading 0.2 per cent higher at $1.0995 in New York.

The dollar hit its lowest level since June 21 at 141.32 against the yen, falling 0.6% to 141.335 yen at the end of trading. On Friday, the dollar fell nearly 1.3% against the yen after data showed that U.S. non-farm payrolls rose 209,000 in June, missing market expectations for the first time in 15 months.

Erik Nelson, macro strategist at Wells Fargo, said: "From a relative interest rate and growth perspective, the pressure for a weaker dollar... is hard to justify."

Mr. Nelson added: "The US economy has outperformed expectations and Europe has underperformed. I think the US economy is stronger than we thought."

The details of Friday's jobs report reflected continued strong wage growth, strengthening market expectations for further rate hikes later this month, but expectations of a rate cut later in 2023 now look unlikely.

With the release of the US non-farm payrolls report, attention has turned to US inflation data due on Wednesday. The core consumer price index (CPI) is expected to increase by 5% in June from a year earlier.

The Norwegian krone, the second-worst performing G10 currency this year, strengthened after data showed core inflation continued to rise to a record high in June.

The Norwegian krone strengthened against both the dollar and the euro after the Norwegian inflation data was released. The dollar ended the day down 1% against the Norwegian krone at 10.493 kroner and the euro fell nearly 1% to 11.5363 kroner.

Market News

Bank of England Governor Bailey vows to "stay the course" on inflation

Mr. Bailey, the governor of the Bank of England, said on Monday that the BoE must "stay the course" in the fight against inflation, which is now higher than in any other major advanced economy. "It is vital that we stay the course and complete our mandate to get inflation back to our 2 per cent target and provide an environment of price stability in which the UK economy can thrive," Mr. Bailey said. Mr. Bailey said BoE officials were paying particular attention to data from labour market and service price inflation ahead of the next policy decision on August 3. " The current pace of price and wage growth is not in line with the inflation target, "Mr. Bailey said." With the latest consumer price increase of 8.7 per cent, inflation is unacceptably high and we have to get inflation down to the 2 per cent target. "

The US House committee has urged Powell to assist in the investigation into the collapse of Silicon Valley banks

The House of Representatives' top government oversight committee has asked Federal Reserve chairperson Jerome Powell to help investigate the Silicon Valley bank collapse after some Fed officials balked at handing over records. James Comer, the Republican chairperson of the House oversight and accountability committee, wrote to Mr. Powell saying Fed staff had some confidential regulatory information that was not publicly available but that the committee had not "received any response" to requests made since late April. "We look forward to continuing to work with you and your staff so that the committee can receive documents that are fully compliant with the requirements," Comer and Lisa McClain, chairperson of the subcommittee on health care and financial services, wrote in a letter to Mr. Powell.

Hot weather stimulates cooling demand, and U.S. natural gas futures prices rise

U.S. natural gas futures rose more than 3 percent Monday on forecasts that demand for cooling from warmer weather will exceed previous expectations by the end of July, especially in the Texas area. Prices rose even as U.S. drillers extracted near-record amounts of natural gas from the ground. Grid operator the Texas Electric Reliability Council (ERCOT) expects electricity use to reach record highs Tuesday and Thursday as homes and businesses rely on air conditioners to weather the recent heat wave. About 49 percent of the state's electricity in 2022 will come from natural gas plants, with most of the rest coming from wind (22 percent), coal (16 percent), nuclear (8 percent) and solar (000591) (4 percent), according to U.S. Federal Energy data.

Russian Prime Minister: Russian industry will not return to its previous model of relying on foreign imports

On July 10 local time, Russian Prime Minister Mishustin said that the Russian industry will not return to the previous model of relying on foreign imports. He said that the improvement work of the Russian Tu-214 narrow-body passenger aircraft will be completed by the end of 2024, and the finalized passenger aircraft will no longer use any foreign materials and parts. The future production target of the Tu-214 is 20 per year.

India welcomes the sweltering summer "test" again: the peak of electricity load in June hit a record high

India's peak electricity demand climbed to a record level in June, mainly due to increased use of cooling equipment hit by the extreme heat in the summer. According to data from the Indian Power Department, the country's electricity demand reached 223.3 GW on June 9, 3.4% higher than the highest level in 2022. April-June is the hottest month of the year in India, and the peak electricity load in India during this period exceeded last year's highest level for many days this year. Despite this, the country's peak electricity demand in June was still below the peak of 229 GW previously forecast by the Ministry of Power, due to falling temperatures in some areas, easing the load on coal supply. Record output from Indian coal mines has boosted inventories at power stations by 30 per cent year-on-year to an average of 13 days, well below expectations but enough to guard against widespread shortages.

Russia's spare refining capacity rose in July, making it more difficult to cut exports

Russia's commitment to cut oil exports has been complicated by the country's primary refining capacity idling rate of more than 38 percent in July, according to calculations by industry insiders and Reuters. The data showed that Russia's primary refining capacity idling capacity has been raised to 2.326 million tons in July from a previous plan, but it has dropped sharply from June, when idle capacity was 3.966 million tons. The increase in July idling capacity expectations was due to some large refineries extending the period of maintenance or storage units. Russian Deputy Prime Minister Novak announced last week that Russia will reduce oil exports by 500,000 barrels per day in August due to weak global oil prices. Russia needs to maintain adequate fuel supplies in the domestic market to meet the growing demand during the summer driving season, and must contend with a surge in wholesale gasoline prices caused by supply shortages and a large amount of idle refining capacity.