Wednesday, July 5th – Global financial markets saw a negative change in risk sentiment as animosity towards China and the United States increased. The consequences from this fragile relationship prompted US stock index futures to begin in the negative after the Independence Day vacation, but the US Dollar Index stayed firm over 103.00. Investors anxiously anticipated S&P Global’s publication of updated Services and Composite PMI surveys for both the UK and the US. In addition, the economic docket for the day featured the release of May Factory Orders and the minutes from the Federal Reserve’s June policy meeting.
Anticipation heightened ahead of the FOMC minutes as experts predicted a possibly more hawkish tone. In recent developments, China issued imminent export limitations on particular gallium and germanium components commonly used in electric car and semiconductor production, beginning August 1. This decision is being viewed as a threat to the US and its allies, signalling that China may limit the delivery of rare-earth materials to states affiliated with the US-led decoupling efforts. In potential reprisal, the Biden administration is allegedly exploring placing limitations on Chinese corporations’ access to US cloud-computing services, according to sources quoted by The Wall Street Journal. Meanwhile, China’s Caixin Services PMI for June revealed a decrease to 53.1 from May’s 57.1.
Around currency markets, EUR/USD continued a tight trading range below 1.0900 after ending lower on Tuesday. Eurostat’s imminent publication of the Producer Price Index (PPI) statistics for May received notice. GBP/USD displayed stability at 1.2700, after a slight gain the previous day. USD/JPY extended its rangebound trend below 145.00 for the third consecutive day. Gold prices witnessed a small boost, hitting $1,930 on Tuesday, but failed to establish considerable positive momentum. With the 10-year US Treasury bond rate securely over 3.8%, XAU/USD wavered around $1,920 in early Wednesday trade. Meanwhile, AUD/USD remained sluggish and traded below 0.6700, while NZD/USD drifted sideways at 0.6200.
As the globe carefully monitors the current events between China and the US, market investors anxiously anticipate the publication of the FOMC minutes, looking for fresh insights into the future path of monetary policy. The effect of current geopolitical tensions on the global economy remains unpredictable, and investors are cautioned to take care in the face of possible market volatility.