FOMC Minutes Signal Potential July Rate Hike

The latest FOMC minutes revealed that policymakers anticipate an increase in borrowing costs due to above-target inflation, suggesting a possible rate hike in July, which boosted the US dollar.

Key Factors for Today

• FOMC Minutes Indicate Potential July Rate Hike
• Dollar Strengthens, Exerting Pressure on Gold
• Eurozone PPI Turns Negative, Weakening Eurodollar
• Australian Trade Surplus Expands, but Aussie Remains Under Pressure
• Japan Witnesses Significant Wage Hike, Impacting Equities and Yen
• API Inventories Show Strong Drawdown, Boosting WTI Oil

Market Movers

• Investors displayed signs of pessimism following the release of the latest FOMC minutes, as they highlighted the Federal Reserve's willingness to hike rates. This sentiment shift, combined with a tight labour market and stronger-than-expected economic activity, resulted in a rise in the dollar and a decline in gold prices.
• Eurozone experienced a negative turn in Producer Price Index (PPI), marking the first time since 2020. This suggests that inflationary pressures in the shared economy might be easing. However, the Eurozone's final June Services PMI remained in line with expectations, confirming a sixth consecutive month of expansion.
• Australia witnessed an expansion in its trade surplus for May, surpassing expectations. Increased foreign demand led to a 4% growth in exports, outpacing a 2% increase in imports. Consequently, yields on Australian debt reached their highest level since late last year. However, the Australian dollar continued to face pressure due to the stronger US dollar, resulting in a negative session after a four-day winning streak.
• Japan saw its largest wage hike since 1993, with the average increase reaching 3.58%. This surge, exceeding the Bank of Japan's 2.0% inflation target, triggered reports of capital outflows from equities and a rise in the yen.
• API inventories exhibited another strong drawdown, reporting a decrease of 4.4 million barrels, following the 2.4 million barrel drawdown of the previous week. This outcome surpassed the consensus expectation of a 1.8 million barrel drawdown, bolstering WTI oil prices.

Economic Calendar

• EA Retail Sales
• ADP Employment Change
• US Trade Balance
• Initial Jobless Claims
• Fed Logan Speech
• S&P Global Services PMI
• ISM Services PMI
• JOLTs Job Openings
• EIA Crude Oil Stock Change

The Big News

FOMC Minutes Hint at Potential July Rate Hike, Impacting Market Sentiment and Dollar Strength

Policymakers expect borrowing costs to rise due to above-target inflation, resulting in a boost for the US dollar. However, this development should be approached with caution as investors displayed signs of pessimism following the release of the minutes. The futures market now indicates a 90% probability of a quarter-point rate hike in July, compared to 80% previously. This sentiment shift has led to a stronger dollar and a decline in gold prices, with the precious metal falling back to $1915 per ounce.

Eurozone Faces Inflationary Relief as PPI Turns Negative, While Euro Struggles Against Dollar

Meanwhile, in the Eurozone, the Producer Price Index (PPI) turned negative for the first time since 2020, indicating a potential easing of inflationary pressures. However, the final June Services PMI remained in line with expectations, reflecting continued expansion in the shared economy. The Euro struggled against the dollar, with the EUR/USD pair dropping to $1.0850, potentially targeting further losses unless it manages to regain ground above $1.0935.

Title: Australian Trade Surplus Surges on Strong Exports, while Australian Dollar Battles Strong US Dollar

In Australia, the trade surplus for May expanded beyond expectations, driven by increased foreign demand. Exports grew by 4%, outpacing a 2% increase in imports. However, the Australian dollar faced pressure from the stronger US dollar, resulting in a negative session after a four-day winning streak. The AUD/USD pair reached 0.6650, and further downside towards 0.66 is possible unless it finds support or encounters resistance at 0.6720.

Japan Witnesses Notable Wage Hike, Triggering Capital Outflows and Yen Strength

Japan experienced a significant wage hike, the largest since 1993, surpassing the Bank of Japan's inflation target. This led to reports of capital outflows from equities and a rise in the yen. USD/JPY declined to 143.70, with potential support at 142.38. The Nikkei also fell in response to these developments.

API Inventory Drawdown Signals Tightening Supplies, Fuelling WTI Oil Price Surge

In the energy market, API inventories showed a strong drawdown of 4.4 million barrels, indicating tightening supplies. This surpassed market expectations of a 1.8 million barrel drawdown. Additionally, the DOE reported the sale of an additional 1.5 million barrels from the SPR. As a result, WTI oil prices received a boost, reaching $72.10 per barrel and encouraging further bets towards $72.70 per barrel.