Weekly Financial Market Commentary and Analysis: July 1 - July 5

The global financial markets were eventful last week, causing a significant drop in initial sentiment. The US dollar rebounded strongly, leading to a near-collapse of Asian currencies. Market reactions to the first presidential debate between Trump and Biden were mixed, but calls for Biden's withdrawal have intensified. Additionally, China announced the specific date for the Third Plenary Session, drawing significant market attention.

 Market Performance Overview

Last week, Nvidia and Micron Technology's sharp declines dragged Wall Street down. The Nasdaq index rose by 0.2%, while the S&P 500 index and the Dow Jones index fell by less than 0.1%. In June, the Nasdaq index led the gains again, rising nearly 6%. The S&P 500 index and the Dow Jones index recorded cumulative increases of 3.5% and 1.1%, respectively.

The US dollar continued its rebound, nearing an eight-week high. The yen briefly fell below the 161 mark, raising concerns, while the renminbi also broke the 7.3 threshold. The market is closely watching if the Third Plenary Session will bring significant policy support. Meanwhile, unexpected inflation data from Australia and Canada injected tension into the market. However, the US Personal Consumption Expenditures (PCE) price index, a favored inflation gauge by the Federal Reserve, met expectations, alleviating market concerns and leading to a dollar retreat on rate cut expectations.

Currency Markets

Last week, the USD/CNH broke above 7.3, with the renminbi hitting its lowest level since November last year. Despite the central bank's efforts to stabilize the exchange rate, the renminbi faces pressure in the third quarter due to the upcoming dividend season, tariff risks, and the widening US-China interest rate differential. Concurrently, the yen nearly collapsed under the weight of a strong dollar, briefly falling below the critical 161 level, lower than the intervention level set by the central bank. The Japanese government has also appointed a new monetary czar. The weakness in the yen and renminbi may spill over to regional currencies, particularly the Korean won and the New Taiwan dollar.

Other emerging market currencies did not escape unscathed either, with the Turkish lira and Brazilian real both down over 10% this year.

Commodities

Gold remained in a wait-and-see mode, seemingly not ready for a breakout soon. Despite the neutral price movement, market sentiment remains optimistic due to long-term fundamentals supporting prices. Spot gold rose 0.25% for the week, closing at $2326.70 per ounce. After the release of the US PCE data, it reached a weekly high of $2339.8 per ounce, with a cumulative gain of over 12.78% for 2024. Spot silver rose 1.37% last week, closing at $29.145 per ounce, with a year-to-date gain of 22.52%.

The US PCE price index remained flat in May, with the weak data boosting expectations of an early Fed rate cut, which would improve the overall demand outlook favoring commodities. Lower interest rates could be beneficial for oil, as they could increase consumer demand. WTI crude oil rose 1.01% for the week, closing at $81.74 per barrel, marking the third consecutive week of gains with a year-to-date increase of nearly 13.74%. Brent crude oil futures for August delivery rose last Friday, settling at $86.41 per barrel.

Cryptocurrencies

Bitcoin crashed at the start of last week, bottoming out at $58,492 before fluctuating around the $61,000 level towards the weekend, with bulls failing to regain control. The US government transferred 3,940 bitcoins to exchanges, the German government transferred 750, and there were also surprising reports of the Chinese government selling off. Bitcoin's dominance showed significant movement, exceeding 2% in a single week.

Chinese Markets

As of last weekend, June's market session had concluded, bringing the first half of the year to a close. The Chinese A-share market showed a pattern of decline, recovery, and adjustment. The year's lowest point touched 2635, and the highest was 3174. The three major indexes showed divergence in the first half of the year. By the end of last week, the Shanghai Composite Index fell by 0.25% for the half-year, the ChiNext Index dropped by over 10%, and the Shenzhen Component Index decreased by 7.1%.

Outlook for This Week:

After last week's key US Personal Consumption Expenditures data eased market concerns, investors will focus on the US non-farm payroll report this week. Additionally, the upcoming elections in France and the UK could bring volatility. Other focal points include the Eurozone CPI, the Federal Reserve minutes, and the European Central Bank forum.

Political Risks and Market Impact

Political risks resurfaced in June and July, causing concerns for the euro. The rise in popularity of far-right parties has sparked financial market anxiety, with France at the center of this turmoil. Marine Le Pen's National Rally party's success in the national legislature vote echoed its performance in the European elections. The first round of elections will be held on Sunday, June 30, with the second round a week later.

The euro's performance this week will be influenced by the upcoming French parliamentary elections. Political uncertainty pressures the currency as market participants remain cautious about potential increased fiscal spending by a new government and its impact on Eurozone financial stability. Despite a 0.7% decline in the second quarter, Eurozone economic data and policy decisions remain key market focus points.

UK Market Outlook

In the UK, pre-election stability has supported the pound, but election result uncertainty may cause currency fluctuations. If the election results lead to political stability, the pound may strengthen. However, unexpected outcomes, such as a poor performance by the Labour Party or no decisive majority, could pressure the pound.

Japanese Yen and Economic Data

The yen has been a recent market focus, with Japanese authorities' frequent comments on yen depreciation adding to market uncertainty. Despite steady rises in US inflation data and Tokyo inflation, the yen continues to fall. Fed officials' statements influence market perceptions of the yen, particularly regarding rate hike timing. Monday's Tankan survey results, following a sharp decline in June services PMI, will be interesting. Japan's economic recovery has been sluggish this year, and Tankan data will be crucial ahead of the Bank of Japan meeting on July 31. Market predictions suggest a possible rate hike by the Bank of Japan in July, potentially supporting the yen.

Australian Market Expectations

In Australia, the economy has been heating up recently. Following the surge in the monthly Consumer Price Index (CPI), market speculation about an interest rate hike by the Reserve Bank of Australia (RBA) has intensified, boosting the Australian dollar. This week, attention will be on the RBA meeting minutes, and the final Judo Bank Manufacturing PMI will be released on July 1.

US Market Focus

In the US, the May PCE price index indicated slowing inflation, which will influence the Federal Reserve's rate decisions. This further cements market expectations of a Fed rate cut this year. The non-farm payroll report this week will be crucial for assessing the job market. US political dynamics, especially Trump's performance in the election debate, have increased market concerns about trade policy changes, potentially affecting the dollar.

Chinese Market Trends

Since early 2023, the renminbi has been under pressure due to China's prolonged real estate crisis and weak consumer spending. The renminbi has depreciated by 2.3% this year. The People's Bank of China has been managing the gradual depreciation of the renminbi, driven by the persistent strength of the US dollar. This summer, China's focus will be on the so-called Third Plenary Session. This meeting of the Communist Party of China's Central Committee, held every five years, sets the reform blueprint for the next five years. Key data points will include PMI, housing sales, and retail sales. In the third quarter, the onshore renminbi is expected to fall to 7.33 against the dollar, while the offshore renminbi may drop to 7.35. The difference between the two could indicate that "the market is pricing in the possibility of an expanded trading range."

 Important Events and Economic Data Overview (Beijing Time):

 Important Events:

**Monday (July 1):**

- ECB Governing Council Member Nagel speaks

**Tuesday (July 2):**

- Reserve Bank of Australia releases June Monetary Policy Meeting Minutes

- Federal Reserve Chairman Powell, ECB President Lagarde, and Central Bank of Brazil President Neto speak at the ECB Central Banking Forum

**Thursday (July 4):**

- U.S. Independence Day, markets closed

- Federal Reserve releases Monetary Policy Meeting Minutes

- ECB releases June Monetary Policy Meeting Minutes

- UK holds general election

**Friday (July 5):**

- FOMC Permanent Voting Member, New York Fed President Williams speaks

#### Economic Data Overview:

**Monday (July 1):**

- Eurozone June SPGI Manufacturing PMI Final

- UK June SPGI Manufacturing PMI Final

- US June ISM Manufacturing PMI

- US June SPGI Manufacturing PMI Final

**Tuesday (July 2):**

- Australia ANZ-Roy Morgan Consumer Confidence Index (week ending June 30)

- Eurozone June Harmonized CPI YoY (Preliminary, NSA)

- Eurozone May Unemployment Rate

- US May JOLTS Job Openings

- US May Retail Sales MoM/YoY

- US May Industrial Production MoM

**Wednesday (July 3):**

- Australia June AIG Performance of Manufacturing Index

- UK June SPGI Services PMI Final

- US June ADP Employment Change

- US May Trade Balance

- US Continuing Jobless Claims (week ending June 22)

- US May Durable Goods Orders MoM (Revised)

- US May Factory Orders MoM

- US June ISM Non-Manufacturing PMI

- US EIA Crude Oil Inventories (week ending June 28)

**Thursday (July 4):**

- Australia May Trade Balance

- Australia May Imports/Exports MoM

- Switzerland June CPI YoY

**Friday (July 5):**

- Eurozone May Retail Sales MoM/YoY

- US June Non-Farm Payroll Change

- US June Unemployment Rate

- US June Average Hourly Earnings YoY

- Canada June Employment Change

- Canada June Unemployment Rate

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