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While gold’s sleigh is flying high, is a crash on the horizon? With so many narratives floating around, bullish seasonality, recession fears and consumer resilience have combined to create a mixed picture on Wall Street. However, with the gold price running well above its fundamental value, investors’ game of hide-and-seek should end in substantial liquidations.  For example, the S&P 500 has fallen by more than 17% in 2022. Yet, the bulk of the decline has been driven by four sectors. Source: Fidelity To explain, the red box above shows how communication services, consumer discretionary, real estate and information technology have been the worst-performing S&P 500 sectors year-to-date (YTD). In contrast, financials and materials (where the PMs live) have endured low double-digit declines, while defensive sectors like utilities, consumer staples and health care have fallen modestly.  Now, the four laggards have largely suffered due to higher interest rates, while economically-sensitive sectors like financials, materials, industrials and energy have mostly escaped investors’ wrath. For context, their outperformance is another example of why positioning does not support the ‘imminent recession’ narrative.  But, the important point is that with recession winds poised to grow stronger in late 2023, economically-sensitive sectors should catch up to the laggards… Read More »Will Santa Claus save Gold from bearish prospects?

Next week, the ECB Governing Council will decide on the next interest rate step. The decision will be a rate hike of 50 or 75 basis points (bp). The public statements of the members were different during the last few weeks and did not give clear indications on the amount of the coming interest rate step. The environment remains difficult to assess. There are considerable uncertainties. Inflation has probably peaked and the economy is weak. However, it remains to be seen how many companies will pass on increased costs or take advantage of the situation and thus continue to fuel inflation, at least for the time being. The level of wage settlements is also a risk factor. So far, however, wage settlements are still within the ECB's expectations. Finally, it is still unknown what impact the interest rate hikes to date will have on the economy. Depending on the weighting of these factors, the assessment will be whether a smaller rate hike is already appropriate after two rate hikes of 75bp each or not. We expect a majority in favor of a 50bp rate hike next week. An additional argument in favor is that the ECB's decision to change the… Read More »Will the ECB slow down?

Summary Varying economic conditions have left consumers dazed and confused. Despite expecting joblessness to rise, consumers also expect income to go up; even as the Fed raises rates, consumers expect rates to go down. Short-term inflation expectations fell, longer-term did not. See The Full Report

PPI and core PPI came above expectations, fuelling a sharp S&P 500 decline upon the data release. Similarly to yesterday though, the market reaction isn’t unequivocal as neither USD nor yields are correspondingly up. Real assets aren’t tanking either, not even the 3m Treasury yield has moved much. And that leads me to think the bearish gap on the news release, will be taken on at least to the 3,965 level degree, after an otherwise positive, bullish turn in paper assets yesterday, which was accompanied by a not at all contradictory real assets message. Summing up, the (especially the one that Fed is looking at – the core) PPI figure has spooked the markets, but there is no deleveraging panic kicking in. Gold and silver are up – and so is oil, with copper likely to improve later today as well. The dollar isn’t barking (remember yesterday’s article featuring similar theme), and that’s a telltale sign that a sharp selling spree isn’t likely to kick in after today’s opening bell. Being ready for all eventualities, watch for the opening selling pressure to ideally dissipate within dozens of minutes after the bell, and for solid bid lifting prices above 3,965 to… Read More »Telltale sign

A 50bp hike by the Fed is firmly expected. With concerns over the recent steep falls in treasury yields and the dollar, we are likely to end up at a higher ultimate interest rate than the bank indicated back in September. For the ECB, we think the risk of a 75bp hike has increased – still, we expect a 50bp hike, supported by hawkish communication as a compromise. US: A hawkish Fed message will likely fall on deaf ears Markets are firmly expecting the Federal Reserve to opt for a 50bp hike at the 14 December Federal Open Market Committee (FOMC) meeting after already implementing 375bp of rate hikes, including consecutive 75bp moves at the previous four meetings. The central bank has been at pains to point out that despite smaller individual steps, we are likely to end up at a higher ultimate interest rate than the central bank indicated was likely back in September. Its forecasts are likely to show the Fed funds rate rising above 5% with potential slight upward revisions to near-term GDP and inflation and a lower unemployment rate to justify this. Officials have been suggesting they may not cut rates until 2024 and we suspect Fed Chair Jerome Powell will echo… Read More »Key events in developed markets next week

GBP/USD snapped a four-week uptrend, gearing up for the Bank of England policy decision. US Dollar recovery faded ahead of the United States inflation, Federal Reserve meeting next week. GBP/USD held fort above the critical 200-Daily Moving Average, will it sustain for longer? GBP/USD ended the week almost unchanged, snapping a fourth straight weekly advance after being unable to find acceptance above the 1.2350 threshold. A pause in the recent United States Dollar (USD) decline capped the upside in the Pound Sterling amid a relatively quiet week, as traders geared up for a critical week ahead. The US Federal Reserve (Fed) and the Bank of England (BoE) interest rate decisions will be announced next week while the Consumer Price Index (CPI) from the United States will also hold the key for a fresh direction in the GBP/USD pair. GBP/USD bulls took a breather with US Dollar bears The British Pound extended its upbeat momentum against the United States Dollar at the start of the week and refreshed its six-month highs at 1.2344. The Cable entered a phase of upside consolidation thereafter, although it managed to sustain above the critical 200-Daily Moving Average (DMA). The first two trading days of the… Read More »GBP/USD Weekly Forecast: Pound Sterling looks north, gearing up for a critical week

Gold price managed to shake off the bearish pressure following Monday’s slide. The technical outlook suggests a bullish bias remains intact. US CPI data and Federal Reserve’s policy announcements will dominate the market action next week. Gold price started the week under bearish pressure and lost more than 1.5% on Monday before regaining its traction. XAU/USD extended its rebound toward $1,800 in the second half of the week but ended up closing the week virtually unchanged. Inflation data from the US and the Federal Reserve’s policy announcements next week will help investors decide whether Gold price will be able to extend its bullish rally into the end of the year. What happened last week? Although several cities in China decided to ease coronavirus curbs over the weekend, markets turned risk-averse after the data from China showed that the business activity in the service sector continued to contract at an accelerating pace in November. In turn, the US Dollar gathered strength as a safe haven and forced XAU/USD to stay on the back foot at the beginning of the week. On Tuesday, the data from the US showed that the ISM Services PMI improved to 56.5 in November from 54.4 in October, helping the… Read More »Gold Price Weekly Forecast: Fed dot plot to trigger next big action in XAU/USD

US PPI Inflation and Consumer Sentiment Eyed; EUR/USD Nears Resistance The main economic highlight in Thursday’s session was the (weekly) unemployment filings out of the US for the week ending 3 December. According to the US Department of Labour, unemployment claims rose 230,000, 4,000 higher than the previous upwardly revised 226,000 reading; the release was largely in line with economists’ forecasts. The 4-week average also ended at 230,000, up 1,000 based on the previous week’s moving average value (revised). Continuing claims was higher at 1,671,000 from 1,609,000 the week prior. Overall, however, this data was largely ignored across the markets. The full release can be accessed here www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20222290.pdf.  Economic Calendar Today? YoY Chinese Inflation Rate for November at 1:30 am GMT (Expected: 1.6%; Previous: 2.1%). MoM US Producer Price Index (PPI) for November at 1:30 pm GMT (Expected: 0.2%; Previous: 0.2%). US Preliminary University of Michigan (UoM) Consumer Sentiment for December at 3:00 pm GMT (Expected: 56.9; Previous: 56.8). Technical View for Key Markets (09/12/2022) EUR/USD: Buyers at the Wheel? It has been a somewhat muted week thus far for the EUR/USD currency pair. Kicking things off with the weekly scale, price remains comfortable north of its support level from… Read More »US PPI Inflation and Consumer Sentiment Eyed: EUR/USD nears resistance

Summary The pandemic and the associated macroeconomic policy response imparted some outsized imbalances to many economies. How households, businesses and policymakers respond to the trade-offs that they face will collectively determine economic performance in 2023. Surging demand in conjunction with constrained supply has caused inflation in the United States to shoot up to its highest rate in decades. The Federal Reserve now faces an unpleasant dilemma: the FOMC needs to raise rates further to ensure that inflation recedes back toward target, but excessive tightening could lead to recession. We believe the FOMC will err on the side of bringing down inflation at the expense of a U.S. economic downturn in 2023. Inflation has eroded real personal income in the United States. Yet American households have been able to maintain solid growth in spending by bringing down saving rates and incurring more credit card debt. Admittedly, these trends could potentially continue in 2023, but we look for consumer spending to begin a period of retrenchment. Some households must decide whether to buy a house, which has become less affordable due to surging mortgage rates and the skyrocketing of home prices since the pandemic began, or to rent, the cost of which… Read More »Collective bargain: How trade-offs will define the economy in 2023

S&P 500 didn‘t break the3,905-3,910 zone, not even overnight. Most tellingly, USD couldn‘t catch a proper bid on yields turning sharply up, and commodities in the black merely confirm risk-on sentiment to win today. The bears fumbled during the European sessions, and the relative performance of value and tech highlights where to look for gains today (in the cyclicals). See the turn in intraday appreciation for oil (always good when the laggard wakes up – silver with copper continue to lead gold, and miners are to do very well) as it relates to the dollar, and how USD‘s intraday reversal reflects on what‘s to come today – already today, and not after tomorrow‘s PPI release: (…) The key catalyst to look for in terms of upside fuel, is Friday‘s PPI that‘s likely to show slowdown in inflation, and then Tuesday‘s CPI probably to come at 7.5 or 7.6% YoY, which would once again (in both cases) feed into the „Fed would now really go slow on tightening aka pivot“ angle that markets are way too willing to run with. Willing as in misguided, because the Fed isn‘t getting less restrictive at all – see rate hiking and balance sheet shrinking… Read More »The dog that didn‘t bark