The indication that the level of consumer prices in the United States continues to accelerate and spread throughout the economy has contributed to agents raising the possibility that the Federal Reserve may increase the country's benchmark interest rate by 100 basis points, an adjustment that is higher than the 75 basis points in June, and of a magnitude that was hardly considered before. The possibility of an even more contractionary Fed stance boosted the agents' search for the American currency, leading the dollar index, which measures the dollar's variation against a basket of currencies from advanced economies, to reach above 109 points during Wednesday's intraday (13), the highest level in the last 20 years.
This scenario has been reflected in the movement of speculative funds in recent weeks. According to the latest Commitment of Traders (COT) report from the CFTC, spec funds reduced 3,159 long positions in Arabica coffee funds and options in New York between July 5 and 12 while raising their short positions by 3,546 lots. Thus, the net balance went from 23,648 long positions to 16,943. In London, specs showed a similar movement, with the net balance going from 4,753 long positions to 708 short positions.
During the same period, the most active contract in New York showed a decrease of 1570 points (7.6%) to US¢ 205.35/lb, while the most active contract of Robusta in London dropped by 0.4% to USD 1,954/t.
This Monday (18th), global markets started resuming some risk appetite, correcting last week's sharp drops and calmed by the statements of two Fed members reinforcing their preferences for a 0.75 p.p. readjustment at this moment, causing the bets on a hike of 1.00 p.p. to lose strength. According to the CME FedWatch tool at the time of writing of this report, 69.1% of market participants are betting on a 75-point hike taking the interest rate to between 2.25% and 2.50% p.a., while 30.9% believe in a 100-point rise, with the rate between 2.50% and 2.75% p.a. The return of risk appetite has boosted the commodities complex, with coffee futures in New York ending the session with strong corrections after the big drop seen last week.
The weak performance of the Chinese economy has also contributed to concerns about a slowdown in the global economy. China's National Bureau of Statistics (NBS) reported that the world economy shrank by 2.6% in the quarter between April and June from the immediately previous quarter, a stronger drop than projected by analysts, who, the second largest -1.5% change. The drop is linked to the government's zero covid policy, which intensified mainly in April and May, when rigid lockdowns of a significant part of the population in important industrial and financial centers such as Shanghai were promoted, drastically reducing the circulation of people and sacrificing the activity level in industry and services sectors. The growth in the number of new daily cases, which last week reached its highest level in 7 weeks, and the discovery of a new and more contagious subvariant of the Omicron variant in a district in Shanghai, should continue to be monitored by the market and continue as a potential risk-aversion factor for the week.
This week's highlight is the monetary policy decision of the European Central Bank (ECB), which will take place on Thursday (21). The monetary authority signaled in its last meeting that it would only raise 0.25 p.p. in the July meeting; however, there is the possibility that the ECB will promote a higher increase to control the price level, as its peers do. A stronger hike could support the European currency, which has been losing ground since the start of the Russian-Ukrainian war.
Sources: ICE/NY; ICE/EU; B3; Commodity Network Trader’s Pro.
