Financial Analyst/Content Writer, RADEX MARKETS
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
PODÍL
Kevin Warsh made quite the splash following last week’s FOMC meeting, his first as Chairman of the Federal Reserve. While the rate decision itself was nothing out of the ordinary, with the board voting unanimously to hold rates steady at 3.50-3.75%, the incoming Chairman has made it clear that business at the central bank will be conducted very differently under his stewardship. If anything, the Fed is set to return to the way it used to operate in the Greenspan era, with much less emphasis on forward guidance and doing away with handholding and overcommunicating. Warsh stated repeatedly that markets should stop expecting the Fed to announce every single move and instead react to incoming economic data. Speaking of which, the Fed Chairman firmly reiterated the committee’s 2% inflation objective, making it clear that such a target would not change until successfully struck. The commitment has dramatically changed expectations for future rate adjustments, with markets now forecasting a 40% chance of an interest rate hike during the next meeting on the 29th of July. The shift necessarily prompted a strengthening of the dollar last week, pushing the DXY to highs of 101 and beyond – levels not seen since May of last year. The greenback is on the front foot again this morning, pushing the euro down to $1.145 and the pound down to $1.32, while the yen battles with a two-year high of 161.7 per dollar. Beyond currencies, higher rates on the USD do not bode well for non-yield-bearing assets such as gold or silver, which have not performed as many would have hoped so far this year, losing 3% and 7% respectively since the first of January. With that said, such numbers pale in comparison to the shocking display in cryptocurrencies, which have fallen around 30-40% over the same time frame.
Conflicting headlines surrounding Iran have made for a choppy start to the week for oil prices. Brent Crude revisited $82 per barrel as trading got underway this morning, following aggressive comments from President Trump late last night, but quickly returned to $78 after encouraging developments emerged from the latest round of negotiations in Switzerland. The US and Iran have apparently agreed on a roadmap for a final deal to be reached within 60 days, including an end to hostilities in Lebanon, a crucial point that was missing from the initial memorandum of understanding formalised last week. West Texas Intermediate performed a similar jump higher earlier this morning, only to settle back down to $75 per barrel later in the day. Should negotiations hold, crude oil shipments through the Strait of Hormuz may well quickly return to pre-conflict levels, but a number of Gulf countries have been forced to recognise that relying so heavily on the maritime passage in question has exposed critical vulnerabilities in their shared economic models. Oil producing nations are increasingly turning to alternative export routes, such as the East-West pipeline in Saudi Arabia and the Fujairah pipeline in the UAE, while Iraq has stated that it plans to export crude and naphtha via Syrian and Turkish ports, bypassing the Iranian stranglehold on seaborne shipments.
The big event of the week is the publication of the PCE price index on Thursday, which will deliver the latest reading on US inflation. Forecasts for the headline figure are showing an increase to 4%, while the core element, excluding food and energy prices, is expected to remain at 3.3%. Neither number is ideal as far as the Fed is concerned, which would like to see such figures halved over the coming months. Thursday will also see the release of the third and final revision for Q1 GDP growth, durable goods orders, personal spending and personal income, before the June Michigan Consumer Sentiment completes the picture on Friday. The earnings calendar is quiet this week, with the notable exception of Micron Technology (MU) after market close on Wednesday.
About the Author
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
Reviewed by RADEX MARKETS
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