Macro Commentary Jan 2024: Expert Insights

Financial Report Summary: U.S. Dollar Index ® Performance in July 2024

U.S. Dollar Index ® Performance: The U.S. Dollar Index ® (USDX) experienced a decline in July, closing at 103.86, with a loss of 1.46% signalling a shift in market sentiment after a strong June. The month was characterized by mixed data releases and cautious central bank actions, which influenced the currency's performance.

Key Economic Data and Events:

July 1st – ISM Manufacturing PMI: The month opened with ISM Manufacturing PMI at 48.5, signalling a contraction in manufacturing. Despite this the USDX closed higher at 105.59.
July 5th – Non-Farm Payroll (NFP): Employment figures for June showed an addition of 206,000 jobs, slightly above the forecast of 190,000, reassuring investors of a stable job market. The USDX ended at 104.55 with a loss of 0.29%.
July 11th – CPI Data: Annual Core Inflation, which excludes food and energy, unexpectedly dropped to 3.3% for the 12 months ending in June, below the anticipated 3.4%. The Consumer Price Index (CPI) data also surprised the market, falling more than expected to 3.0% from the previous month's 3.3%. The USDX ended the session down 0.53% at 104.13.

July 31st – Fed Interest Rate Decision: The Federal Reserve kept rates steady at 5.25%–5.50%, closing the day down 0.36% compounding the months losses.

Weekly and Daily Performance Trends:

Early July: The USDX saw downward pressure after disappointing ISM data, ADP employment change and a marginal improvement in NFP.
Mid-July: Bearish momentum continued as inflation began to ease the likely hood of a rate cut seemed further away.
Late July: Despite some bullish momentum the USDX faltered at a daily supply area and weakness returned.

Equity Market Overview: S&P (ES) Futures: The S&P 500 futures gained 0.43% to close at 5558.00. Key drivers included a blend of resilient corporate earnings and steady economic growth (GDP Q2 PREL at 2.8%).

Bitcoin (Coinbase BTC): Bitcoin showed resilience after reaching a low of $53,499 climbing to $70,000 before closing down at $64,558 which was up 4.32% for the month.

Crude Oil Futures (Mini Crude QM): Oil prices rose by 5.84%, ending the month at $81.55, driven by uncertainty surrounding the demand for oil from China. This is despite rising crude inventories in the US.

Market Sentiment and Risk Considerations:

Geopolitical Influences: In July 2024, oil prices experienced temporary spikes due to geopolitical tensions in the Middle East, including Israel's involvement in targeted assassinations in Iran and Beirut. However, overall, oil prices declined for the month, driven by weak global demand, particularly from China, and anticipated increases in OPEC+ supply.

The U.S. dollar's value was influenced by these geopolitical events and domestic economic data, including potential Federal Reserve rate cuts. This impacted oil prices as a weaker dollar can boost demand by making oil cheaper for other currency holders. Despite the volatility, the overall trend in July pointed to declining oil prices amid global market conditions.

Regulatory Trends: Discussions on potential cryptocurrency regulations contributed to market volatility. Global cryptocurrency regulations focused on establishing clearer frameworks to enhance oversight and consumer protection.

In July 2024, significant regulatory developments occurred in the cryptocurrency space, particularly with the full implementation of the EU's Markets in Crypto-assets (MiCA) regulation.

The European Banking Authority (EBA) clarified rules regarding Asset-Referenced Tokens and Electronic Money Tokens, while the first EU-compliant stable-coin licenses were issued.

Overall, July 2024 marked a crucial step towards a more structured and transparent cryptocurrency market in the European Union.

Economic Projections: In July 2024, economic projections showed a cautiously optimistic outlook, with S&P Global forecasting global real GDP growth at 2.8%. The U.S. economy was also projected to grow by 2.7%, supported by strong consumer spending and a rebound to 3.0% growth in Q2. Inflation rates were declining, with the Consumer Price Index (CPI) expected to drop below 3.0% and reach 2.7% by year-end.

The IMF projected global inflation to decrease from 6.7% in 2023 to 5.8% in 2024 and further to 4.3% by 2025. While advanced economies were expected to approach central bank inflation targets, challenges remained in the eurozone and China, which faced manufacturing issues and a housing market slowdown, respectively. Overall, these trends contributed to cautious optimism in financial markets.

'Macro Commentary'July 2024