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Thoughts of the Day

Another inflation indicator, the US Producer Price Index, showed that prices rose +2.2% in May (vs expected +2.5% and previous +2.3%). This indicates that the disinflation process is resuming in the US. 

Coming on the heels of the softer Consumer Price Index released the day before, it is another sign for the US Federal Reserve that inflation is headed towards their 2% target and they can start thinking about cutting interest rates soon.

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Saudi Arabia ends 80-year petrodollar deal with US for multi-currency sales
Saudi Arabia has decided not to renew its 80-year petrodollar deal with the United States, which expired on Sunday, June 9, as per media reports.

This agreement, originally signed on June 8, 1974, had been a key part of US global economic influence.

By choosing not to extend this contract, Saudi Arabia can now sell oil and other goods using different currencies, such as the Chinese RMB, Euros, Yen, and Yuan, instead of only US dollars. There’s also talk of exploring digital currencies like Bitcoin for transactions.

Day Ahead

  • US University of Michigan Preliminary Consumer Data (Consumer Sentiment: 73 expected and 69.1 prev, Consumer Expectations: 75 vs 68.8)
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What Happened Yesterday

Market Movements as of New York Close 13 Jun 24

The Bank of Japan Monetary Policy Decision kept interest rates at 0.1% as expected. The USDJPY rose +0.28% after the meeting despite the BoJ’s vote to reduce its purchase amount of Japanese Government Bonds.

US Initial Jobless Claims edged higher to +242k (vs +225k expected) from +229k. This is the highest reading since August 2023. Data continues to show that the growth of the labour market is slowing.

The US Producer Price Index (PPI) showed that wholesale prices rose +2.2% Year-on-Year (vs +2.5% expected and +2.3% prev [revised from +2.2%]]) in May 2024. The core index, which excludes food and energy prices, showed that prices rose +2.3% YoY (vs +2.4% expected and prev). On a month-on-month basis, headline inflation fell -0.2% (vs a gain +0.1% expected and +0.5% prev) while the core inflation rate was unchanged at 0% (vs +0.3% expected and +0.3% prev). The US 2 year yields fell -0.07% from 4.74% to 4.67% in immediate reaction as softer than expected inflation increases the chance of the US Federal Reserve cutting interest rates sooner.

The US stock market opened higher from Wednesday as the US stock futures rose earlier in the Asian trading session. The stock market then dipped in the early half of the New York session before reversing course in the later half. The S&P 500 rose +0.23% on the day (high: +0.39%, low: -0.34%), the Dow Jones edged -0.17% lower (high: +0.00%, low: -0.79%) while the Nasdaq increased +0.57% (high: +0.90%, low: +0.04%). The S&P 500 and Nasdaq closed at record highs once again.

The crypto market was weak on Thursday despite the stronger risk sentiment in the US stock markets with Bitcoin down -2.22% and Ether down -2.58% 
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Headlines & Market Impact

US job market resembling pre-pandemic environment, Yellen says

Notable Snippet:  “The labour market has become a little less hot, a little bit more normal. The number of job openings has declined some. We’ve had a burst in labour force participation,” Yellen said in an interview with CNBC.

“And so the labour market now is resembling what it looked like pre-pandemic. Wages are increasing but at a slower rate. And so that doesn’t really look like it’s a threat to inflation,” Yellen said.

Yellen, who is in New York to press the case for President Joe Biden’s economic agenda in a speech to business and Wall Street leaders, said a substantial part of remaining inflation that needs to come down is in housing markets, where recent drops in elevated rents are slower to take effect as leases roll over.

Higher costs of housing, education, health care and other necessities are affecting Americans’ view of the economy even though their wages have risen, she said.

Yellen added that even as inflation comes down, Biden will “continue to address the high cost of living whether it’s in allowing Medicare to negotiate drug prices down, capping the cost of insulin copays, doing what he can to bring down the cost of living.”

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Biden, Zelenskiy inch toward NATO with 10-year defence agreement

Notable Snippet:  U.S. President Joe Biden and Ukraine President Volodymyr Zelenskiy signed a 10-year bilateral security agreement on Thursday aimed at bolstering Ukraine’s defence against Russian invaders and getting Ukraine closer to NATO membership.

The deal, signed on the sidelines of the G7 summit in Italy, aims to commit future U.S. administrations to support Ukraine, even if former President Donald Trump wins November’s election, officials said.

“Our goal is to strengthen Ukraine’s credible defence and deterrence capabilities for the long term,” Biden said at a joint news conference with Zelenskiy.

He said the G7’s message to Russian President Vladimir Putin is “You cannot wait us out. You cannot divide us.” The group of rich nations also agreed to a $50 billion loan for Ukraine backed by profits from frozen Russian assets.

In the event of an armed attack or threat of such against Ukraine, top U.S. and Ukrainian officials will meet within 24 hours to consult on a response and determine what additional defence needs are required for Ukraine, the agreement says.

Under the agreement, the United States restates its support for Ukraine’s defence of its sovereignty and territorial integrity, amid a renewed push by Russia on Ukraine’s eastern front.

It also outlines plans to develop Ukraine’s own defence industry and expand its military.

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OPEC calls for more fossil fuel investment to prevent shortfall, dismisses peak oil demand prediction

Notable Snippet: The head of OPEC said Thursday that the world will need to invest in fossil fuels for decades to prevent an energy shortage, dismissing predictions that oil demand will peak soon.

OPEC Secretary General Haitham Al Ghais said oil demand will grow by 25 million barrels per day, or bpd, in the developing world through 2045, with China and India alone contributing 10 million bpd, as billions of people need access to basic services such as electricity, cooking gas and transportation.

“Those that dismiss this reality are sowing the seeds for future energy shortfalls and increased volatility, and opening the door to a world where the gap between the ‘energy haves’ and ‘energy have nots’ grows even further,” Al Ghais said in a statement.

The OPEC chief called for “continued oil industry investment, today, tomorrow, and many decades into the future given the products derived from crude oil are essential for our daily lives.”

OPEC’s predictions of future demand starkly contrast with those of the International Energy Agency, whose membership is primarily developed economies in North America, Europe and Northeast Asia.

The IEA warned Wednesday that the world will face a massive surplus of oil in the coming years as production increases while demand slows and ultimately peaks by the end of the decade. Oil supply capacity will rise to 114 million bpd by 2030, 8 million barrels more than global demand, according to the IEA.

While oil demand will remain strong in Asia in the coming years, those gains will be offset by the adoption of electric cars, fuel efficiency and the declining use of oil for electricity generation in the Middle East, according to the IEA.

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Phan Vee Leung
CIO & Founder, TrackRecord