August 3rd Financial Breakfast: The dollar rose on the back of strong employment data, shrugging off the impact of Fitch's downgrade of the US rating

On August 3rd, the dollar rose on Wednesday, as investors shrugged off the impact of Fitch's downgrade of the US credit rating. At the same time, data showed that the US private employment growth in July was greater than expected, which also supported the dollar, indicating the resilience of the labor market and the decline in gold prices. Oil prices closed 2% lower. Despite the historic decline in US crude oil inventories, traders sought refuge from the impact of Fitch's downgrade of the US credit rating.

Beijing time on Thursday (August 3), the dollar rose on Wednesday, investors shrugged off the impact of Fitch's downgrade of the US credit rating, while data showed that the US private employment growth in July was greater than expected, also supporting the dollar, indicating the resilience of the labor market, gold prices fell; oil prices closed 2% lower, despite the historic decline in US crude oil inventories, but the impact of Fitch's downgrade of the US credit rating, traders sought refuge.

Commodity closing situation:U.S. gold futures closed 0.2% lower at $1,975 an ounce. U.S. crude oil futures ended 2.3% lower at $79.49 a barrel; Brent crude futures ended 2% lower at $83.20 a barrel.

US stock market closing:The Dow Jones index closed down 0.98% at 35283.08; the S & P 500 index closed down 61.38% at 4513.78; the Nasdaq Composite index closed down 2.17% at 13,973.45.

Thursday Forward

Precious metal

Gold slid on Wednesday as data showed a stronger-than-expected increase in private jobs in the US in July, the dollar rose and bond yields strengthened. "Rising interest rates will eventually put pressure on gold," said Daniel Pavilonis, senior market strategist at RJO Futures. "In addition, we are seeing a stronger dollar and gold prices are temporarily stuck below $2,000 and above $1,900."

The dollar rose 0.3 percent to a more than three-week high as benchmark U.S. 10-year Treasury yields climbed to their highest level since November 2022.

The ADP national jobs report showed that U.S. private jobs rose by 324,000 in July, well above the 189,000 expected by economists polled by Reuters.

All eyes are on Friday's U.S. non-farm payrolls report for July. After adding 209,000 in June, overall payrolls are expected to increase by 200,000.

Spot silver fell 2.5% to $23.72 an ounce; platinum fell 1.1% to $921.10 an ounce; palladium rose 0.1% to $1,240.74 an ounce.

crude oil

Oil prices closed 2 percent lower on Wednesday, despite a historic drop in U.S. crude inventories, as traders sought safety after a major ratings agency downgraded the U.S. government's credit rating.The U.S. Energy Information Administration (EIA) said Wednesday that U.S. crude oil inventories plunged 17 million barrels last week, the largest drop in U.S. crude inventories since 1982. The decrease in inventories was attributed to higher refining capacity at refineries and strong crude exports.

Oil prices fell despite a historic decline in U.S. crude inventories, and financial marekts generally fell after rating agency Fitch downgraded the U.S. government's credit rating.

Earlier in the session, both crude oil indicators rose more than $1, helped by Tuesday's data from the American Petroleum Institute (API) showing a decline in inventories. Traders and analysts said the U.S. government withdrew its bid to buy 6 million barrels of oil for the Strategic Petroleum Reserve (SPR), which also pushed oil prices lower.

Total supply of refined products, which measures demand, fell by 1.30 million barrels a day to 20 million barrels a day last week, the EIA said. Edward Moya, senior markets analyst for the Americas at OANDA, said: "Gasoline demand appears to have peaked following the rise in petrol prices at the pump."

As demand outstrips supply, crude inventories are falling elsewhere and Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, is cutting production sharply, limiting supply, raising concerns that purchases by the world's largest oil importer could slow as prices rise.

Six OPEC + sources told Reuters that changes to the current oil production policy were unlikely at an OPEC + committee meeting on Friday.

foreign exchange

The dollar rallied on Wednesday as investors shrugged off Fitch's downgrade of the U.S. credit rating, while data showing that U.S. private jobs rose more than expected in July also supported the dollar, indicating the resilience of the labor market.The ADP national jobs report showed that private jobs rose by 324,000 last month, higher than the 189,000 forecast by survey economists.

The US labour market is slowing after the Federal Reserve raised interest rates by a cumulative 525 basis points starting in March 2022. But the economy remains strong, with the Atlanta Fed's GDPNow forecasting real gross domestic product growth of 3.9 per cent in the third quarter.

Michael Arone, chief investment strategist at State Street Global Advisors in Boston, said: "The dollar's rise is probably more due to continued strong economic data, so the market believes the Fed will continue to raise interest rates, and these interest rate differentials will continue to widen or be strong compared to other countries," he said. "The dollar is rebounding, which is also somewhat in line with risk aversion."

The dollar index, which measures the greenback against six major currencies, rose 0.57 percent to a three-week high. The dollar index has risen 3.0 percent from a 15-month low hit on July 18.

Fitch's downgrade of the US from triple A to double A + on Tuesday drew an angry response from the White House and surprised investors, despite the resolution of the US debt ceiling crisis two months ago.

The rating agency pointed out that the U.S. fiscal situation could deteriorate over the next three years, and repeated delays in debt ceiling negotiations until the last minute would threaten the ability of the U.S. government to pay its bills.

Goldman Sachs said in a report that the downgrade did not contain new fiscal information, adding that it did not expect any meaningful holders of U.S. Treasury debt to be forced to sell as a result of the downgrade.

The world's most traded currency pair also had little negative reaction, with the euro falling 0.37% to $1.0941 against the dollar, which analysts said could benefit from its safe-haven role; ratings downgrades hit global risk appetite, with the MSCI Global Equity Index falling 1.55%.

The yen initially regained some of its recent losses as traders assessed the BoJ's monetary policy stance and continued to assess the impact of the central bank's move on Friday to loosen interest rate controls, with Shinzo Uchida, deputy governor of the BoJ, saying on Wednesday that the central bank's decision was aimed at making its massive stimulus more sustainable rather than a prelude to an exit from ultra-low interest rates. Sterling fell 0.45% to $1.272 on the day.

The Bank of England will announce its interest rate decision on Thursday, and the market is still uncertain whether the central bank will raise interest rates by 25 basis points or 50 basis points from the current 5%. The Australian dollar fell 1.00% to $0.655 after falling to its lowest level since June at $0.657.

The Australian dollar extended a sharp decline from the previous session after the Reserve Bank of Australia left interest rates unchanged on Tuesday and signalled that tightening may be complete.

Market News

U.S. crude oil exports to Asia may reach a record high in August

Rohit Rathod, senior oil market analyst at industry consultancy Vortexa, said U.S. crude exporters are expected to ship a record 2.20 million bpd of crude to Asia this month as the region looks to replace Saudi Arabia's production cuts. The current record was set in April, when exports were 2.10 million bpd. He added that the increase in Asian routes will push up total U.S. crude exports and could set new highs. Total U.S. oil exports are expected to be 4 million to 4.20 million bpd in August and 4 million bpd in July. The current record is 4.50 million bpd set in April. European imports are expected to decrease to 1.60 million to 1.70 million bpd in August and 2.10 million bpd in July due to refinery shutdowns in Europe.

US Treasury: Fitch downgrade has limited impact, US bonds remain the safest asset

A senior US Treasury official said the impact of Fitch's downgrade of the US's AAA sovereign rating on the price of Treasuries would be limited. "We see limited or no impact on yields or prices," Josh Frost, the Treasury's assistant secretary for financial marekt affairs, told reporters on Wednesday. "In the immediate response, we see a very limited market price response." Frost does not believe that Fitch's stripping of the US's top rating will cause buyers of Treasuries to be forced to sell. He said Treasuries would not be affected, just as they were after S & P stripped the US of its AAA rating in 2011. "We didn't see any evidence of that in 2011," Frost said of the risk of selling.

Zero Hedging: The Strategic Petroleum Reserve will only be replenished if the U.S. economy falls into a deep recession

Official data confirmed a report by the American Petroleum Institute (API) that crude oil inventories fell by 17.05 million barrels last week, the largest drop on record. Total crude oil inventories are now back at their lowest level since January 5. The so-called adjustment factor has fallen sharply from a record positive value. It is worth noting that the Biden administration has not replenished the Strategic Petroleum Reserve (SPR) for the past 14 weeks, with the exception of the week of July 14. To be sure, while the Department of Energy says it "remains committed to replenishing the SPR," this effectively means that the SPR is only likely to be refilled if the U.S. economy falls into a deep recession, Bidenomics collapses, and more than $10,000 billion in stimulus is no longer working.

"Small non-farm" growth exceeded expectations, and the job market continued to remain flexible

The jobs report released today by ADP shows that jobs rose by 324,000 last month, exceeding market expectations of 189,000. Despite the Federal Reserve raising interest rates by 525 basis points since March 2022, the labor market is only gradually slowing down. The government reported data on Tuesday showing that there were 1.6 job openings for each unemployed person in June, little changed from May. A survey last month showed that consumers were very optimistic about the labor market in July. The non-farm payrolls to be announced on Friday are expected to increase by 200,000 as government payrolls are expected to increase further.

Putin: A reliable Russian food supply plan is being developed

On August 2 local time, according to the Kremlin news, Russian President Vladimir Putin expounded Russia's principled position on terminating the agreement on the outbound shipment of agricultural products from Black Sea ports (000061) and lifting the blockade on the supply of food and fertilizers to Russia in a telephone conversation with his Turkish counterpart. Putin pointed out that, given the complete lack of progress in the implementation of the Russian part of the agreement, it is pointless to extend the agreement further. Putin reiterated that the Russian side will be willing to return to the agreement once the Western countries fulfill all their obligations to Russia stipulated in the agreement on the outbound shipment of agricultural products from Black Sea ports. Putin stressed that a reliable Russian food supply program, including a program for free food supply, is being developed, taking into account the needs of the countries most in need of food. Substantive discussions on this issue were held at the Second Russia-Africa Summit held in St. Petersburg recently. Russia is willing to cooperate with Turkey and other relevant countries in this field.

MIIT Wang Hong: In the first half of 2023, our country's robot industry as a whole maintained a stable growth trend

Wang Hong, deputy director of MIIT Equipment Industry Division I, said at the 2023 World Robot Conference press conference that in the first half of this year, our country's robot industry as a whole maintained a stable growth trend. Data show that the output of industrial robots reached 222,000 sets, an increase of 5.4% year-on-year; the output of service robots reached 3.53 million sets, an increase of 9.6% year-on-year.