International News 19/06
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Following the release of weaker-than-anticipated US inflation data, US Treasury yields have declined.
Following the release of weaker-than-expected US inflation figures, US Treasury yields dropped. The consumer price index for May 2024 came in at 3.3%, slightly below the forecast of 3.4%. This has led to increased expectations of an interest rate cut by the Federal Reserve in the coming months. The 10-year US Treasury yield fell to 4.297%, the lowest level since April 1. Additionally, market expectations of a rate cut in September have risen, with a 69.2% chance of at least a 25 basis point cut already priced in. The yield on 30-year bonds also decreased. The data was released prior to the Federal Reserve's policy announcement, where it is anticipated that interest rates will remain unchanged. The US Treasury yield curve, which measures the difference between 2-year and 10-year Treasury yields, was at negative 40.4 basis points, a figure that is closely watched by market participants.
China's central bank is expected to resume gold purchases as prices decline.
China, the largest buyer of gold in the official sector, is expected to resume actively buying gold as its price has fallen from a record high in May. This positive view of gold as an investment has been shared by industry players attending a conference. Official data from the People's Bank of China (PBOC) showed that their gold holdings remained unchanged in May after 18 consecutive months of adding to reserves. This led to a sharp decline in global gold prices. The CEO of the World Gold Council (WGC), David Tait, mentioned that China is currently in a buying pause, but if the price corrects to $2,200 per ounce, they will resume buying. Currently, benchmark gold bullion is trading at around $2,300 per ounce. The PBOC controls the amount of gold entering China through quotas for commercial banks. The WGC predicts that China will be the largest official sector gold buyer in 2023, with net purchases of 7.23%.
The Federal Reserve has decided to maintain interest rates at 5.25% to 5.5%. The full statement is available below.
At its June 2024 meeting, the Federal Reserve (Fed) decided to maintain its benchmark interest rate, the Fed Funds Rate, at 5.25%-5.5%. The 2% inflation target will continue to be used as a reference point for determining future interest rates. The Federal Reserve will also consider factors such as labour market conditions, inflationary pressures and expectations, as well as financial and international developments. Recent economic indicators demonstrate that the economy is still expanding at a consistent pace, accompanied by robust employment gains and a low unemployment rate. However, inflation has remained elevated, with little progress towards the Committee's 2% inflation objective. The Committee's objective is to achieve maximum employment and 2% inflation in the long term. The Committee believes that the risks associated with achieving these goals have become more balanced over the past year, although the economic outlook remains uncertain. In order to support their objectives, the Committee has decided to maintain the target range for the funds rate.
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The EU has reduced tariffs on electric cars imported from China, prompting concern among European carmakers.
The European Commission's decision to impose tariffs on imported electric vehicles from China is causing concern for European car manufacturers. German car manufacturers are bracing for significant losses in China, as the possibility of a trade war not only hurts their business in China but also affects imports of cars made in China. The EU Commission's announcement has prompted concern among manufacturers, with BMW CEO Oliver Zipse describing the policy as "the wrong way". The tariffs on electric vehicles made in China, which will amount to up to 38.1% of their value, will come into effect in July 2024. However, Chinese carmakers are expected to absorb the additional costs and still maintain profitability, which may impact European manufacturers. Chinese automakers have largely refrained from comment on the matter, although Nio, an electric vehicle manufacturer, has stated that, despite opposing the decision, they remain committed to the European market. Furthermore, Chinese companies BYD and Chery have announced plans to commence production of cars in Europe. The real test for Chinese carmakers will be their ability to successfully absorb the tariffs.