The core narrative of the current market has been forcibly shifted from "inflation decline" to "geopolitical supply shock." This has resulted in a fatal combination: the renewed US-Iran conflict is dominating the market. The US military and Iran have been exchanging attacks for several days, causing a sharp drop in traffic in the Strait of Hormuz and a surge in Brent crude oil prices. The specter of inflation has resurfaced through oil prices, and Federal Reserve officials have publicly called for interest rate hikes again after several months, with market bets on a September rate hike soaring to 50%. Gold is experiencing a violent tug-of-war between interest rate fears and geopolitical safe-haven demand, suffering a sharp drop of over 3% on the week after intraday volatility, while silver is also weakening. This is a triple whammy of bond selling, a strong dollar, and pressure on non-interest-bearing assets. The dollar is strengthened by both safe-haven demand and expectations of a rate hike.

On the other hand, the domestic elections in the US and Israel have definitively determined the upper and lower limits of the short-term Middle East power struggle. Under this intertwined tension between "election rescue" and "domestic stability maintenance," the geopolitical situation in the near term is likely to present a state of "superficial tension, but actual undercurrents of control." Implications for investors: Theoretically, the market can expect some implicit benefits from the US's efforts to control the situation in the near term.

With the probability of a full-blown conflict being firmly suppressed by the domestic political needs of both countries, the extreme risk of a surge in oil and other commodities due to geopolitical instability is decreasing. The geopolitical situation is entering a rare period of "high-pressure equilibrium" before the dual elections.

Meanwhile, the British political arena is undergoing a crucial leadership transition. The Labour Party has completed its leadership reshuffle, with Andy Burnham officially elected as the new leader and set to officially assume the premiership next week, succeeding Keir Starmer, who was forced to resign due to governing failures and internal party pressure. As the sixth change of prime minister in the UK in nearly ten years and the seventh head of state since the Brexit referendum, this political change has not triggered market panic. Instead, it has brought a moderately positive trend to the pound, shaking off the negative impact of past leadership transitions on exchange rates. The market is exhibiting a typical pricing characteristic of "short-term boost, long-term stability."

What the market should pay close attention to is that this leadership transition did not involve any substantial policy shifts, which is key to the pound avoiding negative impacts and securing stable support.

Last Week's Market Performance Review:

Last week, US stocks continued their decline on Friday (July 17), with semiconductor and large-cap technology stocks under pressure. Coupled with the further escalation of the US-Iran conflict and a sharp rise in international oil prices, investor risk appetite cooled significantly. At the close, the S&P 500 fell 1.01% to 7,457.69 points; the Nasdaq Composite fell 1.40% to 25,520.24 points; and the Dow Jones Industrial Average fell 406.55 points, or 0.77%, to 52,146.42 points. All three major indices recorded declines this week. The S&P 500 fell 1.6% cumulatively, the Nasdaq fell 2.9%, and the Dow fell 0.9%.

On Friday (July 17), spot gold remained relatively firm, but upward momentum remained insufficient. Rising oil prices have reignited concerns about rising inflation and reinforced expectations that the Federal Reserve may raise interest rates later this year. As of this writing, spot gold is trading slightly below its daily high of $4014.19 per ounce, having earlier fallen to $3959.20, its lowest level since July 1st.

Spot silver hovered around $55.50 per ounce on Friday, its lowest level since the end of November 2025, as rising oil prices fueled inflation concerns and increased market expectations that the Federal Reserve will maintain high interest rates for an extended period. Escalating geopolitical tensions, with Iran launching a new round of attacks on US facilities in the Middle East, following the sixth consecutive night of US attacks on Iranian military targets, continue to disrupt shipping in the Strait of Hormuz.

Last week, the US dollar index rebounded before the weekend, benefiting from stronger-than-expected US economic data, a cooling of global market risk appetite, and the Federal Reserve's hawkish monetary policy stance. Supported by multiple positive factors, the euro/dollar exchange rate is likely to continue its downward trend, while the dollar/yen exchange rate is expected to continue rising. Even with ongoing market discussions about the Bank of Japan's foreign exchange intervention, it is unlikely to reverse this upward trend. The current global foreign exchange market has once again tilted towards the dollar, with non-dollar currencies generally under pressure. The short-term strength of the dollar is supported by both solid fundamentals and policy factors, significantly increasing the trading risk of shorting the dollar.

The euro/dollar was flat as traders reassessed the impact of soaring oil prices on inflation amid escalating tensions in the Middle East, disrupting energy supplies through the Strait of Hormuz. At the time of writing, the pair was trading around 1.1438, ending the week with modest gains. The dollar/yen pair continued its downward trend, touching the 162.40 area, further approaching the 40-year low of 162.84 reached earlier this month. The yen faced significant pressure this week as tensions escalated in Iran, the dollar strengthened slightly, and rising oil prices—expected to force central banks to raise interest rates—closed at 162.38, a slight increase of 0.45.

The pound fell in North American trading, declining 0.22% against the dollar, amid persistent geopolitical tensions that triggered a jump in oil prices and exacerbated concerns about renewed inflation. The pound/dollar pair closed at 1.3450 after reaching a high near 1.3480. On Friday, the Australian dollar rose near 0.6980, recovering initial losses after the dollar (USD) lost some of its gains following a series of mixed US economic data. Strong housing starts and consumer confidence data were offset by weak building permits and subdued industrial production data.

On Friday, July 17, the energy market re-entered a phase of expanding risk premiums. WTI crude rose to $81.70 a barrel, and Brent crude rose to $87 a barrel, a weekly gain of nearly 13%. Crude oil prices remain constrained by supply expectations, inventory releases, and demand changes, while gasoline prices are being driven up by refining losses, insufficient inventory, export pull, and compliance costs. The core issue in the current market has shifted from the availability of crude oil to the ability to process and transport it to consumption regions in a timely manner.

Following the latest round of US airstrikes against Iran, geopolitical risks have escalated again, putting pressure on Bitcoin. Bitcoin briefly fell to around $63,600, continuing its decline from around $65,000, hitting a low of $63,446.29 during the session. As the world's largest cryptocurrency by market capitalization, Bitcoin is currently hovering below its 50-day simple moving average, a technical indicator typically considered important for judging short-term trends and momentum.

The 10-year US Treasury yield hovered around 4.6%, while the 30-year yield briefly touched a high of 5.1%, indicating the market is stubbornly pricing in "higher interest rates for a longer period." High oil prices exacerbate inflation stickiness, coupled with concerns about a hawkish stance from the Federal Reserve, putting significant pressure on bonds. A break above 4.7% in yields would accelerate tightening of financial conditions, creating a negative feedback effect on equity assets. Short-term support is seen in the 4.50-4.55% range, which can be considered a critical line for a temporary easing of bearish sentiment. Traders are highly sensitive, and the upcoming CPI data could be the trigger for a volatility spike.

Market Outlook for This Week:

This week (July 20-24) will see a dense window of data releases in global markets, including domestic credit pricing, overseas inflation, employment, trade, and PMI data. Coupled with the upcoming ECB interest rate decision, multiple core variables will dominate short-term asset pricing.

From domestic LPR rates to employment and inflation in Europe and the US, from crude oil inventory rollovers to global manufacturing sentiment assessments, every data release and policy announcement will stir up volatility in the foreign exchange, commodity, and equity markets. Investors need to analyze the market rhythm in advance and seize turning points and trading opportunities.

The UK will officially inaugurate its new Prime Minister on Monday, while the Japanese market will be closed.

Thursday (July 23) will see a major policy event this week: the European Central Bank (ECB) will announce its July interest rate decision, followed by a press conference with ECB President Christine Lagarde. The market widely expects the three key interest rates to remain unchanged. In June, the ECB raised these rates by 25 basis points to offset excess liquidity in the market. This decision and speech will provide guidance for the future monetary policy direction of the Eurozone.

Risk Warning: Key Data and Policy Variables Require Close Monitoring

In addition to core economic data and policy events, investors should be wary of multiple potential market risks:

First, global inflation and employment data may experience unexpected fluctuations, potentially leading to rapid corrections in central bank policy expectations and triggering short-term volatility in stock indices, foreign exchange markets, and commodities.

Second, if the European Central Bank releases hawkish or dovish signals, it will directly impact the euro, commodities, and global risk asset sentiment.

Third, increased liquidity volatility during the WTI crude oil futures contract rollover period may result in price gaps and unusual price movements.

Fourth, a collective weakening of manufacturing PMIs in multiple countries will suppress expectations for global economic recovery, significantly dragging down equity markets.

Fifth, volatile geopolitical situations could escalate risk aversion at any time, disrupting the pricing of assets such as gold and crude oil.

This Week's Conclusion:

Developments between the US and Iran will continue to be under global scrutiny. Escalating conflict will impact energy prices and central bank interest rate prospects. Meanwhile, the artificial intelligence industry will face a series of financial reports from hyperscale cloud computing companies, chip manufacturers, and infrastructure operators. US data is expected to be relatively mild this week. Meanwhile, the European Central Bank will make its interest rate decision, Europe will release a series of sentiment indicators, and the UK will release inflation, unemployment, and retail sales data. In Japan, the trade balance and consumer price index will be released soon. Politically, Labour leader Andy Burnham is expected to become the UK Prime Minister.

Analysis of the Federal Reserve's Special Task Force Structure and the Trend of Federal Reserve Interest Rates

Since taking office as the new Federal Reserve Chairman, Kevin Warsh has launched a comprehensive reform of the Fed's monetary policy framework, assembling top authorities from global central banks, academia, and venture capital to form five special task forces to systematically restructure the Fed's traditional policy system, market communication mechanisms, liquidity management, and other core areas.

These five departments have clearly defined roles and responsibilities, forming a completely new Fed policy decision-making system. Whether it will ultimately become a puppet of the White House, providing theoretical justification, or truly develop a new framework suitable for policy adjustments remains to be seen.

Productivity and Employment Task Force

This task force is the core and most disruptive think tank of this Federal Reserve reform, and a key tool for Warsh to break the traditional monetary policy framework. Its core focus is on the structural relationship between artificial intelligence and overall societal productivity, employment, and inflation.

The team is led by two top industry authorities: First, Marc Andreessen, a legendary Silicon Valley technology entrepreneur and co-founder of the top venture capital firm A16Z. With decades of experience in the technology industry, he has led investments in numerous AI and internet benchmark companies. His firsthand industry experience has fostered an extreme technological optimism, firmly believing that AI is a disruptive productivity revolution with inherent deflationary properties.

Second, Chad Jones, a senior professor of economics at Stanford University, is a leading scholar in the field of AI macroeconomic effects. He has long focused on the quantitative research of technological change and productivity and inflation, possessing a large number of mature academic models and empirical results. He is one of the few experts in academia capable of accurately quantifying the positive economic effects of AI, providing rigorous academic support for technology-enabled economics.

Supported by the combined industry and academic expertise of the two individuals, this department maintains a structurally dovish stance. Its core logic is that AI will drive a significant surge in overall societal productivity, suppressing inflation through supply expansion and breaking the traditional rule that "high economic growth inevitably leads to inflation." This provides core theoretical support for the Federal Reserve's medium- to long-term interest rate cuts.

Policy Communication Task Force

As the core department controlling market expectations, this department primarily focuses on comprehensively reforming the Federal Reserve's previously rigid and passive communication mechanisms. It is a key force influencing short-term market sentiment and interest rate fluctuations.

The department's sole core leader is Mervyn King, former Governor of the Bank of England and a globally renowned macroeconomic policy expert. During his tenure at the Bank of England, he experienced multiple global economic crises and possesses decades of frontline monetary policy management experience. He is known for his tough style and unwavering commitment to central bank policy independence.

He is a typical example of someone adept at maintaining central bank independence through institutional building. Throughout his career, he has opposed central banks pandering to the market and excessively releasing definitive interest rate signals. He has repeatedly criticized the Federal Reserve's forward guidance policy as rigid and lagging, arguing that this mechanism fosters market inertia and restricts the central bank's flexibility in policy adjustments.

Balance Sheet Policy Task Force

This task force is the core negotiating body for the Federal Reserve's liquidity management, directly determining the pace of the Fed's quantitative easing (QT) and the tightness of market liquidity. It is also the area where the opinions of major experts are most divided.

The team consists of two top economists with complementary styles: First, Raghuram Rajan, former Governor of the Reserve Bank of India and renowned professor of finance at the University of Chicago Booth School of Business, who has a deep understanding of the impact and risks of quantitative easing on emerging markets, while being extremely wary of a global liquidity crisis triggered by rapid balance sheet reduction;

Second, Karen Dinan, a senior economist at Harvard University and a core researcher within the Fed's traditional establishment, who has long been deeply involved in the areas of bank reserve frameworks and liquidity management, consistently supporting an ample reserve framework and conventional QE tools, but whose accommodative stance is only applicable during periods of economic weakness and bottoming out of interest rates.

The interplay between these two economists creates a hawkish yet prudent and pragmatic tone within the task force, firmly implementing the Fed's balance sheet reduction goals while strictly controlling the pace of reduction to avoid the risk of a liquidity shock in the financial markets.

Macroeconomic Analysis Task Force

This department is responsible for reviewing basic economic data and analyzing the macroeconomic environment. It serves as the foundational support department for all Federal Reserve interest rate decisions. The team comprises senior macroeconomists from the Federal Reserve and academic researchers specializing in economic cycles, all possessing extensive experience in tracking US inflation, employment, and economic cycles.

Its core tasks include routinely monitoring key US economic indicators, reviewing the suitability of past monetary policies, and identifying loopholes and lags in the traditional policy framework by incorporating new variables such as AI technological advancements and global liquidity changes.

Financial Stability Task Force

This department serves as the safety net for the implementation of Federal Reserve reforms. Its core members are seasoned experts in global financial market risks and cross-border capital flows, with deep expertise in US stocks, US bonds, foreign exchange, and the global liquidity system. They are adept at predicting systemic market risks arising from policy adjustments.

Its core responsibility is to monitor market fluctuations around the clock after the implementation of various policy reforms, focusing on analyzing the liquidity shocks, asset price volatility, and cross-border capital flows resulting from balance sheet reduction and weakened forward guidance.

The five working groups play a crucial role in balancing risk, specifically counteracting the radicalism of policy reforms in other departments. Through real-time risk warnings and fine-tuning of implementation, they ensure the smooth implementation of the Fed's overall monetary policy reforms, safeguarding the core bottom line of the US financial system's stability.

Interest Rate Trend Forecast

Based on the reform directions and core stances of the five working groups, the Fed's interest rate trend is expected to exhibit a core pattern of short-term hawkishness and long-term dovishness.

In the short term (2026-2027), influenced by the hawkish mechanism reforms of weakened forward guidance and continued prudent balance sheet reduction, the Fed will maintain a high interest rate range with no room for rate hikes or cuts. The current market's excessively priced-in extreme hawkish expectations require correction.

In the medium to long term (2027-2028), as the AI ​​productivity dividend continues to materialize and the inflation center steadily declines, the Fed will rely on the research support of the special working groups to initiate a new round of interest rate cuts. The overall medium- to long-term monetary policy will lean towards easing.

Conclusion:

It's worth noting that a harsh reality is that economists often provide theoretical justification for politicians. Whether this large-scale operation will help the White House move towards a more relaxed monetary policy, or objectively provide a more favorable policy framework for the US, remains to be seen.

The Strait of Hormuz is cutting off more than just oil; it's also cutting off LNG.

Last week, the military confrontation between the US and Iran in the Strait of Hormuz escalated sharply, with both sides exchanging missiles and drones. Tehran claimed it would once again block the strait. Oil prices jumped, global stock markets came under pressure, especially AI and chip sectors, which suffered heavy losses. Inflation expectations rose sharply, pushing US Treasury yields to multi-month highs, while gold fell due to interest rate anxieties. Market focus shifted to the upcoming US CPI data and the Federal Reserve Chairman's congressional hearing.

The sounds of gunfire in the Strait of Hormuz are creating turbulent waves in global financial markets. If you're only focusing on routine data this week, you might miss the real driving forces in the market. The new round of retaliatory actions by the US and Iran has once again cast the shadow of disruption over approximately 20% of the world's oil transportation routes, and oil prices have reacted swiftly. But the deeper impact lies in the repricing of inflation expectations—high oil prices, coupled with the Russian diesel export ban and the AI ​​investment boom, are forcing traders to reassess the Fed's interest rate path. Expectations of a rate hike have resurfaced. This week, the Fed Chair's hearing and CPI data will validate these concerns, making market sentiment tense and sensitive.

The Hormuz Powder Keg: Crude Oil Risk Premium Expands Rapidly

The spiral of US-Iran strikes and retaliations is escalating. Tehran has adopted a strategy of simultaneous talks and attacks, constantly probing, with its true intention likely being to strengthen its control over navigation in the Strait of Hormuz, rather than simply seeking the lifting of sanctions. In this exchange of fire, commercial vessels and Qatari LNG carriers have already been attacked, and the risk of supply disruptions has begun to materialize from the tail end of the conflict. Even if the Strait is not completely blocked, transportation insurance rates and detour costs already constitute a de facto supply tightening. Oil prices were already supported before the conflict by the disruption of Russian diesel exports due to the Russia-Ukraine situation; now, with the double risk of supply disruptions, WTI crude oil briefly surged above $80. The US summer driving season, coupled with midterm election pressure, limits the White House's tolerance for high oil prices, potentially forcing it to take more aggressive actions, which could exacerbate geopolitical instability and oil price volatility.

The Inflation Nightmare Rekindles: Interest Rate Hike Expectations Return

Traders should be most wary that oil price shocks can seep into core inflation through channels such as diesel and jet fuel. Following the attacks on Russian refineries, diesel exports were suspended, and Russia accounts for approximately 12% of global diesel exports, supporting land transportation, construction, and agricultural costs. More importantly, core PCE inflation, already stubbornly hovering around 3.5%, is being further fueled by the AI ​​investment boom through channels such as business services and electricity demand. Major overseas institutions warn that the market's excessive focus on a potentially moderate core CPI ignores the accelerating risk of core CPI converging with core PCE—not the latter cooling down, but the former being pushed up by oil prices and diesel costs. Federal funds futures already imply a nearly 40 basis point rate hike bet this year, and the 2-year Treasury yield has climbed to a 17-month high near 4.24%. Rising inflation expectations are significantly eroding hopes for interest rate cuts; higher and longer-lasting interest rates are no longer a tail risk, but the baseline scenario.

The tug-of-war between safe-haven demand and interest rates: Gold under pressure, dollar supported

Geopolitical tensions often benefit gold, but this time the logic has been disrupted by high oil prices. Increased inflation fears due to oil prices mean higher real interest rates, directly pressuring non-interest-bearing gold, which fell to $4,000. The dollar index, however, has shown resilience, benefiting from a safe-haven premium and benefiting from rising US interest rate expectations that enhance the interest rate differential of dollar assets. The euro is relatively constrained by the more severe energy shortages facing Europe. While the yen is affected by rumors of Japanese pension fund repatriation, the widening US-Japan interest rate differential means that intervention expectations can only slow the pace of depreciation. The core narrative in the current foreign exchange market has shifted to "who can withstand the impact of high oil prices," with the US, as an energy producer, gaining relative immunity.

Hidden Clues: The Asian LNG Battle and the European Gas Shortage

The Hormuz conflict has also severed Qatar's LNG supply routes, forcing Asian buyers to snap up US LNG at high prices. Data shows that Asian LNG imports in July are expected to reach a six-month high, with Japan and South Korea experiencing a surge in imports from the US, directly squeezing Europe's share. European LNG arrivals have fallen to a near two-year low, and the natural gas inventory gap has widened by 22% compared to the ten-year average. This means that European utilities may ultimately be forced to raise prices to compete for gas supplies from Asia, further pushing up global energy costs and fueling inflation.

Conclusion:

In the short term, oil prices will remain highly volatile, highly sensitive to any real-time news regarding shipping in the Straits; US Treasury yields face continued upward pressure until CPI data or Fed hearings provide clear signals; gold prices will fluctuate weakly unless the conflict triggers a full-blown safe-haven rush that outweighs interest rate concerns; the US dollar will remain relatively strong. In the long term, if the US-Iran stalemate and Russian supply disruptions continue, core inflation may accelerate in the second half of the year, forcing the Fed to open the window for interest rate hikes before the midterm elections. September is a key observation point. This path will continue to suppress the valuations of technology stocks and risk assets, while energy and physical assets will relatively benefit. The turning point lies in the de-escalation of the conflict and the reopening of energy corridors, but current power struggles do not point in this direction.

US-Iran conflict escalates; gold prices fall below $4,000, will it target $3,600 next?

Amidst the volatile global geopolitical landscape, gold, a traditional safe-haven asset, has suffered a rare and significant setback. Last week, spot gold prices fell sharply by 3% to $3,969.50 per ounce, a two-week low; US gold futures also fell by 2%. This decline is the result of multiple factors, including the rapid escalation of the situation in the Middle East, rising expectations of a Fed rate hike, and a strengthening dollar. As a non-interest-bearing asset, gold's attractiveness is being significantly weakened by the high-yield environment and inflation concerns. The market is at a delicate and tense crossroads: short-term pressure is immense, but does the long-term logic still hold true?

Escalating Middle East Conflict: Energy Crisis Looms Over Global Markets

The confrontation between the US and Iran escalated significantly over the past week, becoming the direct trigger for the collapse of gold prices. The US launched large-scale airstrikes against targets off Iran's southern coast for several consecutive nights, while Iran retaliated with missiles and drones, threatening to block the Bab el-Mandeb Strait in the Red Sea through its Houthi allies, and simultaneously attempting to regain control of the Strait of Hormuz. Rising oil prices will likely drive up Treasury yields further, potentially prompting the Federal Reserve to raise interest rates as early as September, thus putting continued pressure on gold. The conflict not only threatens energy supplies but also disrupts shipping, further amplifying market panic, yet surprisingly failing to translate into traditional safe-haven buying of gold.

A Stronger Dollar and US Treasury Yields Double the Pressure on Gold

The strong rebound of the US dollar echoes the Middle East tensions. Although it may still close lower overall, it has recovered from a near one-month low. A higher dollar exchange rate directly increases the cost of holding gold for non-US investors, weakening demand.

Meanwhile, the yield on the 10-year US Treasury note rose slightly to 4.561%, and the two-year yield rose to 4.156%. Statements from Federal Reserve officials further strengthened market expectations. According to the CME FedWatch tool, traders currently expect a 53% probability of a rate hike in September. While the probability of a rate hike in July fell to around 10%, the probability of at least a 25 basis point hike in September has rebounded to the 48%-55% range.

A high-interest-rate environment poses a fatal blow to gold. Because gold does not generate interest, its opportunity cost of holding it increases significantly when real yields rise.

US Economic Data Interpretation: Resilience Remains, Inflationary Pressures Unabated

A close analysis of recent US economic indicators reveals that consumer spending remains the main support for the economy. Gasoline prices are facing renewed upward pressure after the escalation of the conflict, which may squeeze household budgets in the third quarter. The Fed's Beige Book also shows that consumers are beginning to reduce discretionary spending and turn to cheaper alternatives. The persistence of inflation in the goods and services sector remains a core concern for monetary policy. Market expectations for the Federal Reserve are shifting from "interest rate cuts" to "maintaining high rates or even slight increases," which is the fundamental reason for the short-term pressure on gold.

Gold Outlook: Short-term Pressure, Long-term Investment Value Remains

In summary, this round of gold price declines is the result of multiple negative factors converging: geopolitical conflicts pushing up oil prices and inflation expectations, a simultaneous strengthening of the US dollar and US Treasury yields, resilient US economic data, and rising expectations of Fed rate hikes. These factors have collectively weakened gold's safe-haven and inflation-hedging attributes, causing prices to fall rapidly to their lowest levels since early July.

Since 1970, the three major bear markets in gold have each retraced at least 50% of their previous gains. If 2026 becomes a long-term cycle top similar to 1980 and 2011, the downside potential will be substantial. The current correction in gold may take longer, and prices may eventually test support around $3,600 before a more solid bottom is formed.

However, from a medium- to long-term perspective, the fundamental logic of gold has not been completely broken. The complexity and persistence of the Middle East situation could still trigger greater uncertainty in the future. If the conflict escalates beyond current control or energy supplies are substantially disrupted, safe-haven demand will likely resurface. Meanwhile, global central bank gold-buying trends, long-term inflation concerns, and the fragmented geopolitical landscape all provide underlying support for gold.

Overall, this flash crash in gold prices serves as a reminder that the performance of safe-haven assets is always closely linked to the macroeconomic environment. Until the Federal Reserve's policy path becomes clearer and the direction of the Middle East conflict becomes more transparent, gold may continue to face volatility pressures. However, for long-term investors, the current price level may present a noteworthy entry window. Future price movements will depend on close monitoring of every geopolitical and monetary policy maneuver.

Conclusion:

Overall, this flash crash in gold prices serves as a reminder that the performance of safe-haven assets is always closely linked to the macroeconomic environment. Until the Federal Reserve's policy path becomes clearer and the direction of the Middle East conflict becomes more transparent, gold may continue to face volatility pressures. However, for long-term investors, the current price level may present a noteworthy entry window. The future trend will require close monitoring of every geopolitical and monetary policy maneuver.

Trade Surplus Buffers Yuan's Exchange Rate Against the Dollar

China's June trade data was stronger than expected, with exports up 27% year-on-year and imports up 36%, mainly driven by global demand for artificial intelligence infrastructure. He pointed out that the booming external account contrasts sharply with weak domestic consumption, but the persistent trade surplus and the CFETS RMB index above 102 supported the resilience of the yuan, although the USD/CNY and offshore yuan (USD/CNH) rose slightly due to the overall strengthening of the dollar.

Trade Surplus Supports Yuan's Strength

China's June trade data delivered a positive surprise, consolidating the export boom driven by artificial intelligence, which has become a major force shaping the country's external account. Exports grew by 27.0% year-on-year in June (Bloomberg consensus forecast: 19.0%), up from 19.4% in May.

The market is currently focused on the second-quarter GDP data to be released on Wednesday. The Bloomberg consensus forecast is for a year-on-year growth of 4.5%, a slowdown from 5.0% in the first quarter. On Monday, Premier Li Qiang pledged to increase counter-cyclical adjustments and unleash the potential of domestic demand, reinforcing our view that policymakers are wary of the risks of a slowdown and prepared to act should data fall short of expectations.

The structural divergence between external sector prosperity and persistently weak domestic consumption remains the core contradiction in China's K-shaped economic narrative.

Conclusion:

Strong trade data further supports the view of continued resilience in the renminbi. The CFETS renminbi index has been trading above 102 since the end of June, a level not seen in four years.

Persistent trade surplus inflows provide fundamental support for the renminbi's strength. In the foreign exchange market, the USD/CNY and offshore USD/CNY exchange rates rose, reflecting a moderate strengthening of the dollar ahead of the trade data release.

Overview of Key Overseas Economic Events and Matters This Week:

Monday (July 20): New Zealand Trade Balance (NZD) (Month-on-Month) (June); China's Loan Prime Rate (LPR) (July); US Leading Economic Index (Month-on-Month) (June)

Tuesday (July 21): New Zealand CPI (Quarter-on-Quarter) (Q2); UK Jobless Claims (June); Australia's Westpac Leading Economic Index (Month-on-Month) (June); Eurozone ZEW Economic Sentiment Index (July); ADP Employment Change (Weekly)

Wednesday (July 22): US API Crude Oil Inventory Change (Barrels); UK Core CPI (Year-on-Year) (June); UK Unadjusted Input PPI (Month-on-Month) (June); US EIA Crude Oil Inventory Change (Barrels) Thursday (July 23): Australian Unemployment Rate (June); Australian Employment Population (June); ECB Interest Rate Decision (July); ECB Monetary Policy Statement; US Initial Jobless Claims; ECB Press Conference

Thursday (July 23): Australian Unemployment Rate (June); Australian Employed Population (June); European Central Bank Interest Rate Decision (July); European Central Bank Monetary Policy Statement; US Initial Jobless Claims; European Central Bank Press Conference

Friday (July 24): Japan National Core CPI YoY (June); Japan Services PMI (July); UK Seasonally Adjusted Retail Sales YoY (June); Eurozone Markit Manufacturing PMI (July); UK Markit Manufacturing PMI (July); US Markit Manufacturing PMI (July)

Disclaimer: The information contained herein (1) is proprietary to BCR and/or its content providers; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely; and, (4) does not constitute advice or a recommendation by BCR or its content providers in respect of the investment in financial instruments. Neither BCR or its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.