Japan's May Wholesale Inflation Jumps, Complicates BOJ Rate Hike Path

Economic

Summary:

Japan's wholesale inflation jumped in May at the fastest annual pace in nine months, data showed on Wednesday, a sign the weak yen was adding upward pressure on prices by pushing up the cost of raw material imports.

The data complicates the Bank of Japan's decision on how soon to raise interest rates, as price rises driven by cost pressures could cool consumption and dampen the chances of achieving the kind of demand-driven inflation it wants to see before further phasing out stimulus, analysts say.

"Consumer inflation may not slow much as wholesale price rises re-accelerate, and energy prices are seen rising sharply towards this summer" as government subsidies to curb utility bills end in June, said Takeshi Minami, chief economist at Norinchukin Research.

"But the BOJ will need to wait for wages to rise and help consumption recover" before raising rates again, he added.

The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 2.4% in May from a year earlier, BOJ data showed, exceeded a median market forecast for a 2.0% gain.

It followed a 1.1% gain in April, accelerating for a fourth straight month, with the increase driven by higher prices for utilities, petroleum and chemical goods as well as nonferrous metals, the data showed.

An index measuring the yen-based import goods prices rose 6.9% in May from a year earlier, accelerating from a 6.6% gain in April, a sign the yen's recent declines were pushing up the cost of raw material imports.

The data will likely be among factors the BOJ board will scrutinise when it meets for a two-day policy meeting ending on Friday. The central bank is widely expected to keep unchanged its short-term interest rate target at a 0% to 0.1% range.

The BOJ ended eight years of negative interest rates and other remnants of its radical stimulus programme in March on the view that prospects for inflation to durably stay around its 2% inflation target were heightening.

In the latest projections made in April, the central bank expects core consumer inflation to hit 2.8% in the year that began in April, before slowing to 1.9% in fiscal 2025 and 2026.

BOJ governor Kazuo Ueda has said the central bank will hike rates further if it feels more convinced that underlying inflation will stay around 2% as it had projected in April.

Source:Reuters

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Cohen

Economic

Stocks

Apple Inc. shares rallied to their first record since December on Tuesday, as investor sentiment around the iPhone maker continues to improve.

Shares soared 7.3% to $207.15 in their biggest one-day jump since November 2022. The gain added $215.1 billion to the company’s market capitalization, making for one of the biggest single-day value adds by any company in history, according to data compiled by Bloomberg. The stock added another 0.3% in extended trading.

Apple Shares Soar Most Since 2022 on Hope AI Will Fuel Upgrades_1

The record came in the wake of the company’s annual Worldwide Developers Conference, where it showcased a number of features related to artificial intelligence and announced a partnership with ChatGPT maker OpenAI. The event crystallized a strategy many investors felt had been missing from Apple amid AI-fueled rallies elsewhere within Big Tech.

The stock has risen more than 25% off an April low, a rally that has returned it above a $3 trillion market cap and put it within striking distance of regaining its title as the largest company. Apple closed with a valuation of $3.18 trillion, just under Microsoft Corp. at $3.22 trillion.

Apple’s AI event fueled hopes that customers will pay up for the next generation of iPhones, and both LightShed Partners and D.A. Davidson upgraded the stock on this thesis.

“The addition of AI features to the newest iPhone comes at an ideal time for Apple,” wrote LightShed analyst Walter Piecyk. “IPhone revenue has been stagnant, and the vast majority of its installed base has old phones as the upgrade cycle slowed to record lows. It should therefore be an easy lift for Apple to stimulate a stabilization or inversion of the lengthening replacement cycle.”

Concerns about the company’s growth were eased by a positive quarterly report in early May, when Apple also announced the largest stock buyback program in US history at $110 billion.

That report has also supported the stock in recent weeks — May was the best month for Apple shares since July 2022 — but despite the record share price, Apple is only up 7.6% this year. It lags behind the Nasdaq 100 Index’s 14% gain, while stocks with more concrete AI exposure — including Microsoft, Amazon.com Inc., Alphabet Inc., and Meta Platforms Inc. — have all posted double-digit gains. AI-focused chipmaker Nvidia Corp. has soared 144%, briefly overtaking Apple in size.

Among the so-called Magnificent Seven, only Tesla Inc. has done worse than Apple this year. The electric-vehicle maker has dropped more than 30% this year.

Source:Bloomberg

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Alex

Economic

Cryptocurrency

Twelve cryptocurrency wallets purchased 156,733 Ethereum from Coinbase in the past few hours, valued at approximately $574 million. This transaction was completed at an average price of $3,664 per Ethereum.

However, despite these purchases, Ethereum's price is struggling amid corrections that have hit the crypto market in general.

Will Ethereum's price drop by 7%?

According to data from the analysis platform Spot On Chain, 11 out of the 12 cryptocurrency wallets withdrew about 13,059 Ethereum. Notably, one of the wallets – 0xdfa, withdrew a slightly higher amount, 13,084 Ethereum.

Meanwhile, the supply of Ethereum on cryptocurrency exchanges has significantly decreased, reaching its lowest level in seven years, as reported by blockchain data from Glassnode. Lark Davis, an experienced crypto investor, highlighted this trend.

"The supply of Ethereum on exchanges is at its lowest level in 7 years, and as a result, the price of Ethereum could rise significantly."

At the same time, the crypto community is abuzz with the recent approval from the U.S. Securities and Exchange Commission (SEC) for Ethereum ETFs. This development is a crucial advancement for the cryptocurrency market, opening the door for significant potential investments, reflecting the early success seen with Bitcoin ETFs.

Meanwhile, prominent crypto researcher Bobby Banzai predicts monthly inflows of $569 million into Ethereum ETFs. His predictions are based on the performance of international ETFs and futures data from the Chicago Mercantile Exchange.

Despite these positive developments and market optimism, the immediate impact on Ethereum's price has been unfavorable. Following these large purchases, Ethereum's price has dropped by up to 4.91% in the last 24 hours and is currently trading around $3,494.18. Spot On Chain attributed this to the possibility that the transactions from new wallets could be part of over-the-counter (OTC) deals, which do not directly affect the market price. The data analysis platform's forecast indicates cautious short-term expectations for Ethereum, predicting a potential 7% correction from the current market price.

Nevertheless, Ethereum faced challenges this Tuesday, with the digital currency market undergoing a price correction. If this downward trend continues, Ethereum's next support level could be at $3,302.

Source:Investing

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Samantha Luan

Economic

The consumer price index (CPI) rose 0.3% in May from a year earlier, matching a gain in April, data from the National Bureau of Statistics (NBS) showed on Wednesday, below a 0.4% increase forecast in a Reuters poll.

CPI edged down 0.1% from the month before, against a 0.1% rise in April and compared with economists forecasts for zero growth.

The slide in the producer price index (PPI) eased to 1.4% in May from 2.5% in April, compared with a forecast 1.5% decline.

"I think the deflationary pressure has not faded yet," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"The CPI inflation is slightly negative in m-o-m terms. The improvement in PPI is largely driven by commodity prices such as copper and gold, which is not a reflection of China’s domestic demand," he said.

China's economy has struggled to motor on despite the end of stringent Covid curbs in late 2022, mainly due to the ripple effects of a prolonged property sector crisis on investor, business and consumer confidence.

Beijing has rolled out several measures to spur demand in the housing sector and launched other schemes to boost consumer sentiment, including offering government-subsidised incentives to spur trade-ins of autos and other consumer goods.

It has also vowed to create more jobs linked to major projects, roll out measures to promote domestic demand targeted for youths and has pledged greater fiscal stimulus to shore up growth.

Wednesday data on the core inflation measure, which excludes volatile food and energy prices, highlighted the fragility of domestic demand. It stood at 0.6% in May year-on-year, slowing from 0.7% in April.

Many economists expect Beijing to unveil more support measures in coming months to keep the economy on track to reach its GDP growth target of "around" 5% for this year, and foster a sustainable rebound.

"A more comprehensive and proactive policy stance covering fiscal, monetary, and property sector may be necessary to boost domestic demand more effectively," Pinpoint's Zhang said.

Source:Reuters

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Cohen

Economic

Gold price (XAU/USD) showed some resilience below the $2,300 mark and posted modest gains for the second straight day on Tuesday. The uptick, however, lacks bullish conviction as traders keenly await the release of the latest consumer inflation figures from the United States (US) and the outcome of the highly-anticipated Federal Open Market Committee (FOMC) meeting later this Wednesday. This should provide fresh cues about the likely timing when the Federal Reserve (Fed) will start cutting interest rates, which, in turn, will play a key role in influencing the next leg of a directional move for the non-yielding yellow metal.

Heading into the key data/event risks, growing acceptance that the Fed will keep rates higher for longer amid a strong US labor market and sticky inflation continues to act as a headwind for the Gold price. The hawkish outlook, meanwhile, assists the US Dollar (USD) to stand tall near a one-month peak, which, in turn, is seen as another factor that contributes to capping the upside for the XAU/USD. The downside, however, seems cushioned in the wake of political uncertainty in Europe and persistent geopolitical tensions, warranting caution before positioning for an extension of the recent pullback from the all-time peak.

Daily Digest Market Movers: Gold price bulls remain on the sidelines amid hawkish Fed expectations

Reduced bets for an imminent interest rate cut by the Federal Reserve in September, along with China's decision to pause buying, turn out to be key factors capping the upside for the Gold price.

The current market pricing indicates that the Fed could cut rates by only 25 basis points this year, either at the November or December policy meeting, which continues to underpin the US Dollar.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall near its highest level since May 9 and contributes to keeping a lid on the Dollar-denominated commodity.

Traders, however, now seem reluctant and prefer to wait for more cues about the likely timing when the Fed will start cutting interest rates before placing fresh directional bets around the XAU/USD.

Hence, the focus will remain glued to Wednesday's release of the latest US consumer inflation figures and the crucial FOMC monetary policy decision, due to be announced later during the US session.

Stronger jobs and wage data released on Friday raised concerns that inflation may remain sticky amid a still resilient US economy, which, in turn, will reaffirm higher for longer interest rates narrative.

The headline US Consumer Price Index is expected to ease to 0.1% in May from the 0.3% previous, and the yearly rate is seen unchanged at 3.4%, still well above the Fed's annualized target of 2%.

Moreover, Core CPI is anticipated to hold steady at 0.3% during the reported month and edge lower to the 3.5% YoY rate from 3.6% in April, reaffirming stubbornly high inflationary pressure.

Meanwhile, the US central bank is expected to leave interest rates unchanged and release updated economic projections, including the so-called "dot plot", which will influence the precious metal.

Technical Analysis: Gold price needs to break below $2,285 support for bears to seize control

From a technical perspective, the $2,300 round figure now seems to act as immediate support ahead of the $2,285 horizontal zone. Against the backdrop of Friday's breakdown below the 50-day Simple Moving Average (SMA), some follow-through selling below the latter will be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart are holding in the negative territory, the Gold price might then accelerate the slide towards the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 mark.

On the flip side, any strength beyond the $2,325 hurdle is more likely to attract fresh sellers and remain capped near the 50-day SMA support breakpoint, currently pegged near the $2,345 region. This is followed by the $2,360-2,362 supply zone, which, if cleared decisively, should allow the Gold price to retest last week’s swing high, around the $2,387-2,388 area and reclaim the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and pave the way for a further appreciating move in the near term.

Source:FXStreet

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FastBull Featured

Daily News

[Quick Facts]

1. Israel thinks Hamas has rejected the ceasefire proposal.

2. "Political black swans" hit France, causing fluctuations in markets.

3. OPEC monthly report shows major central banks will ease policy in H2.

4. WSJ's Timiraos thinks the Fed will keep interest rates unchanged.

[News Details]

Israel thinks Hamas has rejected the ceasefire proposal

The Palestinian Islamic Resistance Movement Hamas responded to the U.S. ceasefire proposal on the Gaza war on Tuesday, but Israel said the response was tantamount to a rejection. An Israeli official said on Tuesday the country had received Hamas' answer from the mediators and that Hamas "changed all of the main and most meaningful parameters." Hamas also rejected the proposal for a hostage release that was presented by President Biden.

A Hamas official said the Palestinian group merely reiterated longstanding demands not met by the current plan.

Egypt and Qatar said they had received Hamas' response to the proposal presented by President Biden on May 31, but they did not disclose details. A Hamas official who declined to be named told reporters that the organization reiterated its position that a ceasefire agreement must include permanent cessation of hostilities, Israel's complete withdrawal from the Gaza Strip, reconstruction of Gaza, and the regaining of freedom for Palestinians held by Israel.

The United States has indicated that Israel has accepted its proposal, but the Israeli side has not responded to this publicly. Israel continues to launch attacks in central and southern Gaza and has repeatedly stated that it will not commit to ending the Gaza operation until Hamas is eliminated.

"Political black swans" hit France, causing fluctuations in markets

As French President Emmanuel Macron decided to call an early parliamentary election, which has an increasing impact, the French stock market recorded its biggest two-day decline in a year, with bank shares falling along with French government bonds. France's CAC 40 index closed down 1.3%, amounting to 2.7% losses over the past two sessions. Société Générale, Crédit Agricole and BNP Paribas led the declines, pushing the Stoxx Banks Index to drop by the most since last August. The Stoxx 600 index closed down 0.9%.

As it stands, the market did not at all anticipate any high political risk events in France and Europe. However, political risks will only increase in the coming weeks, with new polls and rumors causing sharp volatility.

OPEC monthly report shows major central banks will ease policy in H2

According to the OPEC Monthly Report, global major central banks, especially the Federal Reserve, the European Central Bank, and the Bank of England, are expected to shift to more accommodative monetary policies in the second half of the year, depending on how their economy and inflation will develop. From an industry perspective, the improvement in industry in non-OECD (Organization for Economic Co-operation and Development) economies has been significant, while industrial production in OECD economies is only expected to pick up gradually in the second half of the year from the weak levels seen since the beginning of the year. The services sector is maintaining a steady growth momentum globally, which is expected to be a major contributor to economic growth in the second half of the year. In particular, tourism will have a positive impact on oil demand.

WSJ's Timiraos thinks the Fed will keep interest rates unchanged

Nick Timiraos, a well-known financial journalist from the Wall Street Journal, predicted in his latest article that the Federal Reserve may announce to keep the federal funds interest rate within the range of 5.25%-5.5% on Wednesday. Fed officials may reserve their views in the much-anticipated policy statement and hint that their next move is more likely to be a rate cut than a rate hike.

Fed policymakers are divided on whether and when to cut rates, but these are matters for the future, rather than something to be resolved at the present. Right now, officials have reached a consensus, but this is overshadowed by investors' fervor for Fed rate forecasts.

After ending the rapid rate-hiking process last year, Fed officials generally agreed that holding steady is the best course of action for an economy with solid growth and slightly above-target inflation. In this summer, they will assess the impact of interest rates which reached a 20-year high a year ago on jobs, consumption, and inflation.

We don't expect a major policy change at the FOMC meeting this Wednesday, so we need to focus more on the new quarterly interest rate projections, known as the "dot plot".

[Focus of the Day]

UTC+8 14:00 U.K. GDP MoM (Apr)

UTC+8 16:00 IEA's Monthly Oil Market Report

UTC+8 20:30 U.S. CPI (May)

UTC+8 21:00 ECB Vice President Guindos Speaks

UTC+8 02:00 Next Day: Fed's June Interest Rate Decision

UTC+8 02:30 Next Day: Fed Chair Powell Holds Monetary Policy Press Conference

UTC+8 03:30 Next Day: Bank of Canada Governor Macklem Speaks

Risk Warnings and Disclaimers

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Samantha Luan

Economic

Forex

Japanese Producer Prices and the Bank of Japan

On Wednesday (June 12), producer price figures from Japan influenced buyer appetite for the USD/JPY.

Producer prices increased by 0.7% in May after advancing by 0.5% in April. Economists forecast producer prices to rise by 0.4%. Furthermore, producer prices increased 2.4% year-on-year in May after a rise of 1.1% in April. Economists expected producer prices to increase 2.0% year-on-year in May.

Producers increase prices in a higher-demand environment, passing costs onto consumers. The latest figures could signal an improving demand environment and a possible uptick in demand-driven inflationary pressures.

On Friday, the Bank of Japan may consider the producer price numbers. However, the BoJ may need more data points to begin meaningful discussions about interest rate hikes. Household spending slid by 1.2% in April after private consumption fell by 0.7% in Q1 2024. Downward trends in household spending could leave the BoJ in a holding pattern in the near term.

Furthermore, the BoJ also needs to consider the effects of a weaker Yen on import costs and producer prices. Higher producer prices stemming from a weaker Yen could raise consumer prices and impact household spending further.

In a recent speech, Bank of Japan Deputy Governor Ryozo Himino raised concerns about the Yen, saying,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

US Economic Calendar: The US CPI Report, FOMC Projections, and the Press Conference

Later in the session on Wednesday, the US CPI Report will attract investor attention.

Economists forecast the US annual inflation rate to remain at 3.4% in May. Furthermore, economists expect the core inflation rate to fall from 3.6% to 3.5% in May. Higher-than-expected numbers may sink investor bets on multiple 2024 Fed rate cuts.

A higher-for-longer Fed rate path may raise borrowing costs and reduce disposable income. Lower disposable income could curb consumer spending and dampen demand-driven inflation.

We anticipate heightened dollar sensitivity to the inflation figures, with the Fed delivering its interest rate decision late in the session. Economists predict the Fed will stand pat on Wednesday. However, uncertainty about the Fed rate path will give the FOMC Economic Projections and Press Conference more weight.

The recent US Jobs Report and the inflation numbers could lead to more hawkish economic projections and a US dollar breakout. Fed Chair Powell will also move the dial after the release of the projections.

Short-term Forecast

Near-term trends for the USD/JPY will depend on US inflation numbers, the FOMC Economic Projections, and the Bank of Japan. Hotter-than-expected US inflation numbers and more hawkish Economic Projections could tilt monetary policy divergence toward the US dollar. However, Bank of Japan forward guidance on Friday also needs consideration.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY breakout from 157.5 could support a move toward the 159 handle. If the USD/JPY moves through the 159 level, the bulls could take a run at the April 29 high of 160.209.

US inflation numbers, the FOMC Economic Projections, and the FOMC Press Conference need consideration.

Conversely, a USD/JPY fall through the 156.5 handle could bring the 50-day EMA into play. A break below the 50-day EMA could signal a fall toward the 151.685 support level.

The 14-day RSI at 56.89 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.