We are wary of the long USD bets built on a hawkish Fed foundation. According to the CFTC Commitment of Traders Report, gross non-commercial USD long positions across IMM futures reached their highest since 2015. Following the surprisingly cool June US CPI report, Fed Chair Kevin Warsh intends to have an intense and honest debate with Fed members at the July 28-29 FOMC meeting about forward guidance and about acknowledging the limits of forecasting abilities with economic models or single data points.
The futures market reduced the probability of a Fed hike in September to 48% from 64%. Fed Chairman Kevin Warsh declared before the House Financial Services Committee a lack of tolerance for elevated inflation but did not provide any guidance on how to achieve this. His aggressive rhetoric decoupled from the cooling in the June CPI inflation to 3.5% YoY (-0.4% MoM) from 4.2% YoY (0.5% MoM) in May and core inflation to 2.6% YoY (0% MoM) from 2.9% YoY (0.2% MoM). Warsh also told lawmakers that he does not have a preferred inflation metric and has one of his appointed task forces seek an underlying inflation rate that strips temporary geopolitical distortions and commodity spikes.
Brent crude oil prices failed to close above April’s low of $86 per barrel. President Donald Trump abandoned his plan to impose a 20% US reimbursement fee on cargo shipments through the Strait of Hormuz in exchange for trade and investments by Gulf allies into the US. Trump directed his transactional foreign policy towards extracting economic concessions from Gulf allies instead of solely punishing Iran into submission. While fears of an all-out war in the Gulf that would depress the global economy have subsided, the underlying blockade remains amid sticky insurance premiums.
Quote of the Day
“Don’t throw stones at your neighbours, if your own windows are glass.”
Benjamin Franklin
July 15 in history
Benjamin Franklin successfully proved that lightning is electricity using his famous kite and key experiment in 1752.
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The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
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