The major assets were ready to extend themes from the previous day when the U.S. GDP release shook up overall price action.
How did the major assets trade yesterday?
We’re breaking down the headlines you may have missed!
Headlines:
- PBOC surprisingly cut its medium-term lending facility (MLF) rates by 20bps to 2.3%, the steepest cut since April 2020 and the first in almost a year
- German IfO business climate index slipped from 88.6 to 87.0 in July, with the manufacturing, services, trade, and construction sectors all seeing declining sentiment
- CBI Industrial Trends Survey showed output volume growth in the U.K. was unchanged in the quarter through July, but growth expectations are the strongest since March 2022; Total new orders fell in July
- U.S. Advance Q2 2024 GDP accelerated from 1.4% to 2.8% (2.5% expected) thanks to strong consumer spending and private inventories
- U.S. initial jobless claims in the week ending July 20: 235K (247K expected, 245K previous)
- U.S. durable goods orders for June: -6.6% m/m (0.0% expected, 0.1% previous); Core durable goods at 0.5% (0.2% expected, -0.1% previous)
- China CB Leading Economic Index fell by another 0.7% m/m in June after a 0.5% dip in May
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
With no top-tier data on the docket, Asian session traders had time to price in themes from the previous sessions. Spot gold hit its lowest levels in two weeks while bitcoin (BTC/USD) extended its intraweek downtrend to hit the $63,800 area ahead of Thursday’s U.S. data releases.
The Japanese yen, which had been in an uptrend for most of the week, saw another upswing shortly after the Japanese markets opened.
Then, the People’s Bank of China (PBOC) surprised the markets by cutting its medium-term lending rates by 20bps to 2.3%. Not only did it follow a rate cut on the short-term rates earlier this week, but the 20bps cut was also more than the central bank’s “usual” 10bps reduction.
U.S. crude oil prices dipped during the session and then again when Germany’s IfO business climate disappointed market estimates and encouraged a risk-averse trading environment during the early London session.
Plots thickened during the U.S. session when the U.S. Advance Q2 GDP came in much stronger than expected. Interestingly, both risk assets and U.S. Treasury yields received support from the news. See, strong growth pointed to a “soft landing” in the U.S. but also supported a “higher for longer” interest rate environment.
Bitcoin, crude oil, and U.S. equities traded higher while U.S. 10-year Treasury yields rose from 4.20% to 4.26% before settling lower.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The dollar’s price action was all over the place on Thursday as traders priced in Uncle Sam’s data releases and overall market sentiment.
USD extended its losses against JPY and CHF during the Asian session, with USD/JPY hitting lows near 152.00 before turning higher. It also saw broad downswings at the start of London session trading, likely on traders taking profits ahead of Thursday’s U.S. data releases.
The U.S. reports later in the day didn’t exactly cause uniform price action for the dollar. While a strong Q2 GDP is good for USD, it also encouraged risk appetite that dragged it lower against its “riskier” counterparts. The dollar traded lower in the first hour or so after the release before seeing (very) slight recoveries by the end of the day.
Upcoming Potential Catalysts on the Economic Calendar:
- Spain’s unemployment rate at 7:00 am GMT
- U.S. core PCE price index at 12:30 pm GMT
- U.S. personal income and spending at 12:30 pm GMT
- U.S. revised UoM consumer sentiment at 2:00 pm GMT
U.S. data releases will be under the spotlight again today as we see the core PCE price index, the Fed’s preferred inflation measure.
Shortly after, the final reading for the July UoM consumer sentiment and inflation expectations will be printed.
The Fed has cited both reports in previous policy decisions, so make sure you stick around in case they influence the demand for the U.S. dollar or risk assets in the last hours of the trading week!
