Monday's Markets Update (July 3, 2023)

04 Jul 2023 by rate3

On Monday, Manufacturing PMI decreased, but NASDAQ (open: 13,798, close: 13,816) held its ground largely thanks to Tesla (+6%) beating production estimates. BTC (open: 30,653, close: 31,255) added +2.0% on bulls using technicals to drive it further up.

Details
The ISM Manufacturing PMI decreased to 46 in June 2023, from 46.9 in May. The reading pointed to a sharper rate of contraction in the manufacturing sector since May 2020. Demand is weak, production is slowing, and suppliers have capacity. There are signs of more job cuts in the near term. Price pressures eased, and supplier deliveries improved. Customers’ inventories dropped into too low territory, a positive for future production.

Notable Macroeconomic Updates:
Australia: RBA kept cash rate at 4.1%, said inflation passed peak but still too high. Inflation in Australia was at 7.0% in Q1. May CPI -5.6%, further tightening may be needed to bring inflation to target.

Brazil: Industrial production rose 0.3% in May from April, beating expectations and recovering from a 0.6% decline in the previous month. Output expanded in 19 of 25 industrial branches, led by petroleum derivatives and biofuels, auto vehicles, and machinery and equipment. However, food and chemical and pharmaceutical products declined. On a yearly basis, industrial production rose 1.9%, rebounding from a 2.7% decline in April.

Angola: GDP growth slowed sharply in Q1, contracting to 0.3% from 2.6% in the previous quarter. The oil sector was the main drag, contracting 8% due to lower prices and production. Transportation (+27.1%) and diamonds & other minerals (+22.1%) were the main drivers of growth. On a seasonally adjusted basis, GDP shrank 1.1%, the first drop since Q2 2021.

Qatar: The Qatar Financial Center PMI fell to 53.8 in June, the softest growth in the non-energy sector since March. However, business conditions still improved, with new business rising strongly due to tourism, competitive pricing, and marketing initiatives. Output has risen every month for more than three years, and employment also increased. Suppliers' delivery times continued to improve, despite an increase in demand for inputs. The non-energy private sector remains optimistic, citing new projects, company development plans, and marketing campaigns.

Commodities
Corn: Futures fell to $5.5 per bushel in July, after the USDA's Acreage report showed a 6% increase in planted acres and a 9% increase in harvested acres. Some rain in the Midwest eased drought concerns, but 65% of the region is still in moderate drought. The US is the world's largest producer and exporter of corn.

Ethanol: Futures fell to $2.3 per gallon, their lowest level since March 31st, due to increased production, lower blending mandates, and rising stocks. The ethanol industry is recovering from the enclosure, with production up 400 million gallons in 2022. The share of ethanol in gasoline also reached a record high of 10.4%. However, the government has reduced the blending mandate for 2024-2025 from 15.25 billion gallons, and stocks have risen.

Coffee: Arabica coffee futures fell to $1.65 per pound in July, near the lowest level since late January, as favorable weather in Brazil and a forecast for higher production weighed on prices. Brazil's coffee crop is expected to be strong, and the USDA forecast that global production will rise 2.5% in 2023/24.

Coal: Newcastle coal futures hit a 1-month high of $145 per tonne in July 2023, driven by rising demand from China. The country imported 182 million tons of coal in the first 5 months of the year, up 90% from 2022. However, industrial activity remains subdued and stockpiles are growing, so prices are expected to fall to $120 per tonne by 2025.

Soybean: Prices hit a 1-year high of $15.5 per bushel in July, on concerns over supply shortages. The USDA cut its soybean plantings estimate by 4.5% to 83.5 million acres, due to dry weather in major producing states. Soybean stocks fell 18% year-on-year to 796 billion bushels, and some analysts say the US could run out of soybeans before the next harvest.

Palm oil: Futures held above MYR 3,900 amid concerns of low supply. Rain in the US Midwest failed to improve soybean crops, while sunflower and rapeseed output prospects were pressured. Demand for palm oil as a feedstock for biodiesel rose as Saudi Arabia and Russia extended crude oil output cuts. Indonesia plans to raise its mandatory palm oil-based biodiesel blending to 40%. Exports of Malaysian palm oil products fell 6.9% in June.