June 1st Financial News

Daily News

Summary:

U.S. job openings unexpectedly rise and layoffs fall in April; the Fed may skip a rate hike in June; U.S. economy shows signs of cooling...

[Quick Facts]

1. Two officials support the Fed to "skip" a rate hike at its June meeting.

2. U.S. job openings unexpectedly rise and layoffs fall in April.

3. A turnaround on the debt limit expected?

4. Fed's Beige Book shows signs of cooling as hiring and inflation eased slightly.

[News Details]

Two officials support the Fed to "skip" a rate hike at its June meeting

Fed officials, including the vice chair nominee, hinted at support for "skipping" a rate hike in June, prompting a quick reversal of market expectations for another hike.

Fed Governor and vice chair nominee Philip Jefferson said any decision to hold rates steady should not be viewed as the end of the tightening cycle. Skipping a rate hike at the upcoming meeting would allow the FOMC to see more data before making a decision on the extent of further policy tightening.

Federal Reserve Bank of Philadelphia President Patrick Harker said he was increasingly convinced that the Fed really should skip a rate hike. But the upcoming data on the U.S. job market due on Friday may change his mind.

U.S. job openings unexpectedly rise and layoffs fall in April

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) released on Wednesday showed job openings increase by 358,000 to 10.1 million. The data in March was revised upward to 9.75 million. The number of layoffs fell significantly in April, with 1.8 job openings per unemployed person, up from 1.7 in March. This indicates continued strength in the labor market. The increase in job openings was driven by the retail sector which added 209,000 job openings; the job openings rate rose to 6.1% from 5.9% in March.

A turnaround on the debt limit expected?

A procedural vote on a bill to suspend the U.S. debt limit has passed with enough votes in the House of Representatives and the voting keeps going on. John Thune, the Senate's No. 2 Republican, said on Wednesday that the Senate is expected to pass the bill by Friday evening, a few days ahead of the June 5 deadline. Both the White House and McCarthy expect the bill to be successfully legislated.

Fed's Beige Book shows signs of cooling as hiring and inflation eased slightly

The Fed's latest Beige Book shows no big change in the overall economic activity in the U.S. in April and early May. While most contacts expect economic activity to keep expanding, expectations for future growth have deteriorated slightly. Employment increased in most Districts, though at a slower pace than in previous reports. On the inflation front, consumer prices continued to rise due to solid demand and rising costs, with several districts noting that consumers have been becoming more price sensitive.

The U.S. economy appears to be expanding at a rate of 1% to 2%, a steady pace. April and early May saw few changes in U.S. economic activities. Of the 12 regional Federal Reserve Banks, four reported mild economic growth, six reported no change, and two others reported a slight decline in economic activities.

Expectations for future growth fell slightly, although most contacts still expected (economic) activity to expand further.

Still, the labor market has remained solid, though the pace of hiring has slowed slightly. It was still difficult in finding workers across a wide range of skill levels and industries, but it was reported easier hiring in construction, transportation, and finance.

Inflation growth has slowed in many Districts. Contacts in most Districts expected a similar pace of price increases in the coming months. . Consumer prices continued to move up due to solid demand and rising costs.

[Focus of the Day]

UTC+8 17:00 Eurozone HICP (May)

UTC+8 19:30 The European Central Bank releases the minutes of its May monetary policy meeting

UTC+8 20:15 U.S. ADP Employment (May)

UTC+8 20:30 U.S. Initial Jobless Claims

UTC+8 01:00 Philadelphia Fed President Harker speaks on the economic outlook

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Warren Takunda

Traders' Opinions

Economic

The Canadian economy has demonstrated impressive resilience in the face of challenges, as evidenced by the stronger-than-expected GDP growth rate of 0.8% in the first quarter of 2023. This positive outcome not only surpassed market estimates but also exceeded the Bank of Canada's (BoC) projection for weak growth throughout the year. This robust performance opens up possibilities for the BoC to resume its tightening cycle if inflation continues to pose concerns. Let's delve deeper into the factors driving this growth and the implications for various sectors of the economy.

Exports and Imports

Canada's exports of goods and services experienced a notable surge, increasing by 2.4% in the first quarter. This acceleration was primarily fueled by improved sales in automobiles, precious metals, and grains. Conversely, imports grew at a slower pace of 0.2%, with higher energy imports partially offsetting reduced purchases of automobiles, precious metals, and clothing. This trend suggests a healthy demand for Canadian products internationally, while cautiousness in consumer spending may have contributed to the decline in certain import categories.

Household Consumption

After two quarters of minimal growth, household consumption regained momentum, expanding by 1.5% for goods and 1.3% for services. This upswing in consumer spending indicates that Canadians are gaining confidence in the economy and are willing to increase their consumption levels. Stronger consumer demand is typically a positive sign for businesses across various sectors, potentially leading to increased production and job creation.

Housing and Business Investments

However, the housing sector experienced a decline of 3.9% in the first quarter. This contraction can be primarily attributed to the higher interest rates implemented by the Bank of Canada. While higher interest rates aim to curb inflation and maintain stability, they can also dampen demand for mortgages and slow down the housing market. Similarly, business investments faced a setback, declining by 2.5%. This decline may reflect a cautious approach adopted by businesses due to increased borrowing costs. These trends warrant careful monitoring in the coming quarters to assess their long-term impact on economic growth.

GDP Annualized Expansion

Looking at the broader picture, Canada's GDP expanded by 3.1% on an annualized basis. This figure highlights the overall strength of the Canadian economy and suggests that the first-quarter growth is part of a sustained upward trajectory. Achieving an annualized expansion rate of this magnitude demonstrates the resilience and potential for continued growth in the face of global uncertainties.

Canada's stronger-than-expected GDP growth in the first quarter of 2023 showcases the economy's resilience and ability to rebound from previous challenges. The surge in exports, coupled with a resurgence in household consumption, indicates positive sentiment and an improving economic landscape. However, caution must be exercised with regard to the housing and business investment sectors, which experienced declines due to higher interest rates. The annualized GDP expansion of 3.1% further underscores the strength and potential of the Canadian economy moving forward. As we progress through the year, it will be crucial to monitor these trends closely to assess the sustainability of growth and the implications for various stakeholders.

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

Central Bank

Mexico's central bank on Wednesday signaled it would hold the benchmark interest rate at its current all-time high for an extended period of time to bring inflation down to its target range.

"To achieve orderly and sustained convergence of headline inflation to the 3% target, the bank's governing board considers that it will be necessary to maintain the benchmark rate at its current level for a prolonged period," the Bank of Mexico said in its quarterly economic report.

Similar inflation concerns have dominated policy discussions at the Federal Reserve, with traders split between expectations of a further hike and a pause at the U.S. central bank's next policy meeting.

The Mexican central bank's governing board unanimously held the benchmark interest rate steady at 11.25% on May 18, breaking a nearly two-year rate-hike cycle in which, it raised the rate by 725 basis points to combat rising consumer prices.

Annual inflation peaked in August and September at a more than two-decade high of 8.70%, slowing to a 20-month low of 6.0% in the first half of May, according to official data published last week.

Core inflation - considered a better gauge of price trends because it excludes some highly volatile items - hit its lowest level in a year, but remains "a risk," according to the bank.

During a presentation of the quarterly report, members of the central bank's board of governors hinted that it may be premature to lower the interest rate in the short term, despite inflation moving in line with expectations.

Governor Victoria Rodriguez said the central bank had achieved a "solid, firm" monetary policy, but that "we have to let it do its job."

"We are going to wait for a period that we can't define in advance, but for one that we consider of course to be longer than between this decision and the next," Rodriguez said.

Deputy governor Irene Espinosa said that it was "important" to keep the rate restrictive, while deputy governor Jonathan Heath said that the real-ex-ante interest rate should stay in the 6-7% range for "the time that is necessary."

Mexico's so-called real-ex-ante policy rate, defined as the difference between the nominal interest rate and expected inflation, is tracking at around 6.35%, Goldman Sachs' Alberto Ramos said in a note on Wednesday.

Goldman expects Mexico to keep the benchmark rate unchanged until "at least" the fourth quarter, Ramos said.

Banxico, as Mexico's central bank is known, currently forecasts inflation will reach its 3% target by the last quarter of 2024.

The bank does, however, appear to be more bullish on growth, raising its economic growth forecast for 2023 to 2.3% on Wednesday, an upward revision from 1.6% in its March report.

The Mexican peso has been one of the best performers among major global currencies over the course of the year, reaching a seven-year high this month amid a steady inflow of remittances, strong export growth and a private investment boost.

Source: Market Screener

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Warren Takunda

Traders' Opinions

Elon Musk, the visionary entrepreneur behind Tesla Inc., has once again claimed the esteemed position of the world's wealthiest person, dethroning Bernard Arnault, the Chairman of luxury conglomerate LVMH. According to the real-time billionaires list by Forbes, Musk's net worth now stands at an impressive $191.3 billion, surpassing Arnault's net worth of $187.3 billion.

This latest shift in fortune occurred as shares of LVMH experienced a significant decline of 2.9% on Wednesday, impacting Arnault's overall wealth. In contrast, Musk's financial resurgence can be attributed to a variety of factors, including his astute business decisions and recent acquisitions.

Back in December 2022, Musk had temporarily conceded the title of the world's richest person to Arnault. At that time, the Tesla CEO had divested some of his Tesla stock to facilitate a leveraged buyout of Twitter. This move had briefly diminished Musk's net worth, allowing Arnault to ascend to the top spot.

However, Musk's unwavering determination and ability to navigate the financial landscape with precision have propelled him back to the forefront. His continued success at the helm of Tesla, coupled with the growth of various other ventures, has reinforced his position as a prominent figure in the global business arena.

Tesla, under Musk's leadership, has been at the forefront of the electric vehicle revolution, capturing the imagination of consumers and investors alike. The company's innovative technologies and commitment to sustainability have not only propelled its market capitalization but have also solidified Musk's position as a trailblazer in the automotive industry.

In addition to his endeavors in the electric vehicle sector, Musk's ventures extend to space exploration through SpaceX, tunneling with The Boring Company, and neurotechnology with Neuralink. His ambitious projects have not only garnered widespread attention but have also contributed to his remarkable wealth accumulation.

On the other hand, Bernard Arnault's prominence in the luxury goods industry cannot be undermined. As the head of LVMH, he has overseen a portfolio of prestigious brands such as Louis Vuitton, Christian Dior, Moët & Chandon, and Givenchy, among others. Arnault's expertise and strategic vision have played a pivotal role in establishing LVMH as a powerhouse in the global luxury market.

Nevertheless, the recent decline in LVMH's shares has temporarily impacted Arnault's net worth, allowing Musk to reclaim his throne. The fluidity of these rankings underscores the volatility of the financial markets and the inherent unpredictability of wealth accumulation.

As the world eagerly observes this ongoing battle for the title of the world's wealthiest person, it is a testament to the extraordinary success achieved by individuals who relentlessly pursue their visions. The rivalry between Elon Musk and Bernard Arnault serves as a captivating narrative, highlighting the dynamic nature of wealth creation and the ever-evolving landscape of global business.

In conclusion, Elon Musk's resurgence as the world's richest person, with a net worth of $191.3 billion, has propelled him past Bernard Arnault, whose net worth currently stands at $187.3 billion. Musk's unwavering drive, coupled with his visionary approach to business, has enabled him to reclaim the coveted title. As the financial markets continue to fluctuate, only time will tell how this captivating rivalry unfolds and who will ultimately emerge as the true titan of wealth.

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Damon

Economic

A batch of purchasing managers index reports from across the Asia-Pacific region will offer local markets direction on Thursday, with investors likely to be in a cautious mood following Wednesday's global market moves.

If the PMI data on Thursday from Japan, Australia, India, South Korea and others are as gloomy as China's official PMI figures were on Wednesday, markets are in for a torrid start to the new month.

Official data showed factory activity in China shrank faster than expected in May, at its fastest rate in five months, while service sector activity expanded at the slowest pace in four months.

The Caixin manufacturing PMI report on Thursday is also expected to show manufacturing activity shrank in May, but at the same pace as April. Barring a huge upside surprise, China's economy appears to be sputtering and the pressure on local assets is growing.

The dollar edged up to a fresh six-month high against the yuan on Wednesday, with speculation mounting that locals are joining overseas investors in seeking to get their money out of Chinese markets.

Other Asian markets also start the new month on the defensive - the MSCI Asia ex-Japan index slumped 1.2% on Wednesday for its biggest daily loss in over a month, while the Japanese Nikkei's 1.4% fall was its steepest in almost two months.

Back in China, Tesla and Twitter chief Elon Musk continues his visit, and is expected to travel to the Tesla plant in Shanghai to meet with staff, sources say.

Meanwhile, economic weakness in China is weighing on oil prices. Remarkably, Brent crude oil is now more than 40% cheaper today than it was a year ago, adding to the downward pressure on global inflation.

Figures this week show that euro zone inflation pressures are easing, but this 'good news' is struggling to support risk appetite - until the U.S. debt ceiling deal is approved by both Houses of Congress, nervousness will linger, while worries over the economic impact of the Fed's rate hiking campaign are never too far from the surface.

Dovish remarks from Fed Governor Philip Jefferson and Philadelphia Fed President Patrick Harker on Wednesday helped lower U.S. bond yields and implied rate expectations. But it is the May employment report on Friday that will be pivotal to whether the Fed raises rates another 25 basis points, as traders mostly expect, or not.

Here are three key developments that could provide more direction to markets on Thursday:

- PMI data - China, Japan, Australia, India (May)

- South Korea trade (May, prelim)

- Euro zone inflation (May, flash estimate)

Source: Yahoo

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Commodity

Oil prices continued to fall on Wednesday after slumping heavily a day earlier ahead of an expected vote by politicians in Washington to lift the $31.4 trillion U.S. debt ceiling and an upcoming OPEC+ meeting.

Brent, the benchmark for two thirds of the world's oil, was trading 2.39 per cent lower at $71.78 a barrel at 3.56pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks U.S. crude, was down 2.76 per cent at $67.54 a barrel.

Brent settled 4.4 per cent lower to $73.54 at market close on Tuesday and WTI fell by an equal amount to $69.46, marking the biggest decline in about a month as markets factor in mixed economic data and possible weaker demand from China, the world's biggest importer of crude and second largest economy.

On Wednesday, the latest data from China showed signs of weakening demand and a slowdown in its manufacturing sector.

China's manufacturing purchasing managers' index (PMI) for May fell to 48.8 from 49.2 in April, according to data from the National Bureau of Statistics, its lowest in five months and the second consecutive reading below the 50-point mark that separates expansion from contraction.

The latest data on Wednesday also showed that industrial production in Japan fell 0.4 per cent in April, missing predictions of 1.4 per cent growth.

The weakening data feeds into the International Monetary Fund's prediction of a weakening global economy and growth slowing to 2.8 per cent this year, below the 3.4 per cent expansion recorded in 2022 and the historical growth average of 3.8 per cent over the 2000-2019 period.

"Oil is on the ropes as the upcoming week will likely contain further confirmations that China's recovery is struggling, the U.S. labour market is cooling, the Fed will likely deliver more tightening that will eventually cripple the economy later this year, and as everyone waits to see if the debt deal can make it to the President's desk," said Edward Moya, senior market analyst at Oanda.

"It is hard to get excited about jumping back into oil as we have an upcoming OPEC+ meeting that seems poised to be just a review of production levels, but no announcement of further cuts."

On April 2, OPEC+ producers announced voluntary output cuts of 1.16 million barrels per day to ensure oil market stability. Brent, which crossed $85 a barrel following the group's decision, has since lost about 14 per cent of its value on a weakening global crude demand outlook.

The 23-member OPEC+ alliance is set to meet in Vienna on Sunday to discuss the group's production policy.

Oil Extends Decline After 4% Slump Ahead of U.S. Debt Ceiling Vote And OPEC+ Meeting_1

Last week, Saudi Arabia's Energy Minister told oil market short sellers to "watch out", which was seen by some traders as a signal for further output reductions.

"I keep advising them that they will be 'ouching'. They did 'ouch' in April," said Prince Abdulaziz bin Salman during an event in Qatar.

However, Russian Deputy Prime Minister Alexander Novak later said he expected no new steps from OPEC+, Reuters reported, citing his interview with Russian daily Izvestia.

"With several OPEC+ member countries voluntarily removing barrels from the market, and amid rising demand during the Northern Hemisphere's summer, we expect larger inventory draws to materialise and support prices," UBS analysts said in a research note on Tuesday.

Goldman Sachs expects Brent to trade at $95 a barrel by the end of this year from a previous $90 estimate and $100 in 2024 compared with a prior $97 forecast.

"In the near term, oil politics, potential further export cuts, and a reversal of the depressed market mood seem to be the main drivers to watch," said Norbert Ruecker, head of economics and next generation research at Julius Baer.

Source: The National News

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Warren Takunda

Traders' Opinions

In a bid to address the ongoing currency turmoil in Zimbabwe, the country's central bank has expressed optimism regarding the convergence of official and black-market foreign exchange rates. Recent reports indicate a substantial 58% decline in the value of the Zimbabwean dollar against the US dollar, leading to a growing disparity between the official exchange rate and the rate prevailing in the parallel market. The central bank's efforts to bridge this gap and stabilize the exchange rate are gaining momentum, with plans underway to introduce a digital currency for daily transactions by mid-June. This article delves into the factors contributing to Zimbabwe's currency crisis, examines the implications of exchange rate convergence, and assesses the potential impact of the forthcoming digital currency.

Currency Turmoil and Disparity

Over the past month, Zimbabwe has experienced significant depreciation of its currency against the US dollar. The official exchange rate, as recorded on May 25, stood at 1,888.0119 Zimbabwe dollars per US dollar. In stark contrast, the black-market rate hovered around 3,300 Zimbabwe dollars per US dollar. This pronounced divergence between the two rates has created an environment of uncertainty and volatility, leading to economic challenges and hindering foreign investment.

Central Bank's Convergence Strategy

Recognizing the adverse consequences of the widening exchange rate gap, Zimbabwe's central bank has taken proactive measures to address the issue. According to the bank's officials, they envision the convergence of official and black-market foreign exchange rates in the near future. This move aims to restore stability to the currency and foster a more predictable economic environment. While exact details of the central bank's strategy remain undisclosed, their commitment to achieving rate convergence instills hope among market participants.

Implications of Exchange Rate Convergence

The convergence of official and black-market exchange rates carries several potential benefits for Zimbabwe's economy. Firstly, it would reduce the uncertainty and risk associated with fluctuating exchange rates, encouraging both domestic and foreign investors to engage more actively in the market. Additionally, a stable exchange rate would contribute to price stability, making it easier for businesses to plan and budget effectively. The convergence would also alleviate inflationary pressures, as the exchange rate plays a pivotal role in determining import prices.

Introducing a Digital Currency

In a bid to modernize the country's financial system and facilitate smoother transactions, Zimbabwe's central bank plans to introduce a digital currency by mid-June. This move is expected to alleviate some of the challenges associated with physical currency, such as counterfeiting and the high costs of production and distribution. The digital currency's integration into daily transactions could streamline the payment ecosystem and potentially reduce reliance on foreign currencies. However, the success of this endeavor will depend on the widespread adoption and trust placed in the new digital currency by businesses and citizens alike.

Zimbabwe's central bank is actively pursuing strategies to address the currency crisis and bridge the gap between official and black-market exchange rates. The envisaged convergence of these rates is anticipated to bring stability to the economy, attract investment, and mitigate inflationary pressures. Furthermore, the introduction of a digital currency holds promise for modernizing the financial system and facilitating more efficient transactions. As Zimbabwe progresses towards achieving exchange rate stability and implementing the digital currency, it remains crucial for stakeholders to closely monitor developments and adapt their financial strategies accordingly.

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