Gold trading reminder: The Fed may only raise interest rates by 50 basis points in December, pay attention to US GDP data
During the Asian session on Thursday (October 27), spot gold fluctuated and rose, hitting the 1670 mark at one point and currently trading around $1663.38 per ounce. Expectations of a 50-basis-point rate hike rose, dragging the dollar to a more than one-month low, and U.S. bond yields hitting a new low in more than a week, providing support for gold prices. The Bank of Canada only raised interest rates by 50 basis points to provide evidence that the global central bank has gradually slowed down the pace of interest rate hikes. Gold prices tend to be bullish in the short term, focusing on the resistance near 1686.46, which is the 38.2% retracement of the 1729-1617 decline.
“Over the past few sessions, we’ve seen yields come down, the dollar has pulled back, and as a result, we’ve seen a return to buying in the gold market,” said David Meger, director of metals trading at High Ridge Futures.
Gold could breach the $1,700 level if a 50-basis-point rate hike in December becomes a possibility, Edward Moya, senior analyst at OANDA, said in a note.
However, bulls still have scruples, as the Fed is still widely expected to raise interest rates by 75 basis points in November. Gold is highly sensitive to rising U.S. interest rates because they increase the opportunity cost of holding non-yielding gold. Focus now turns to Thursday’s U.S. gross domestic product (GDP) data, followed by Friday’s U.S. core inflation (PCE) data, which may provide more clarity on the Fed’s rate hike trajectory, both of which are currently in the market. The data is expected to be slightly negative for gold prices, which may drag down the rebound speed of gold prices.
In addition, this trading day also needs to pay attention to the European Central Bank interest rate decision and changes in the number of initial jobless claims in the United States. The market generally expects the European Central Bank to raise interest rates by 75 basis points.
Fundamentals are mostly bullish
[U.S. goods trade deficit widens in September due to weak exports, new home sales plunge]
The U.S. goods trade deficit widened sharply in September, likely as a stronger dollar and weaker global demand weighed on exports, but that did little to change expectations that trade would bolster a rebound in economic growth in the third quarter.
The Commerce Department report on Wednesday also showed a modest increase in wholesale and retail inventories last month, suggesting slowing domestic demand forced businesses to become more cautious about ordering more goods.
The data comes ahead of the government’s preliminary third-quarter gross domestic product (GDP) figures on Thursday.
“Net exports will make a significant contribution to GDP growth in the third quarter, adding about 3.0 percentage points,” said Daniel Silver, an economist at JPMorgan in New York.
The goods trade deficit rose 5.7% last month to $92.2 billion. The September increase reversed only some of the declines seen in previous months, narrowing the deficit considerably in the third quarter. Trade and consumer spending were the only bright spots for the economy in the second quarter.
Gross domestic product is likely to rebound at an annualized rate of 2.4% in the third quarter, after contracting at a 0.6% pace in the second quarter, according to a survey of economists. The U.S. economy shrank in the first half of 2022, but may not have slipped into a recession, creating more than 2.5 million jobs during the period.
Merchandise exports fell 1.5% to $177.6 billion last month. The decline was due to a 14.0% plunge in food exports.
The dollar has gained nearly 11 percent against the currencies of America’s major trading partners this year, potentially making U.S. goods less competitive but helping fight inflation.
Imports of goods rose 0.8 percent to $269.8 billion. Imports of capital goods rose 4.4%, which bodes well for business spending on equipment. Imports of autos and consumer goods also rose, likely as businesses stockpiled for the holiday season. But imports of food, industrial supplies and other goods fell.
“While a stronger dollar will help both moderate cost pressures from higher global food and energy prices and narrow the nominal trade deficit, it will almost certainly lead to lower net exports over the coming year,” Moody’s “Slowing economic growth abroad and rising risks of a global recession could further weaken real net trade and its contribution to domestic production,” said Mark Hopkins, senior economist at the analyst firm.
But the trade deficit is not expected to worsen significantly as trade flows remain well below pre-pandemic levels.
The Commerce Department also reported that wholesale inventories rose 0.8% last month after rising 1.4% in August. Inventories at retailers rose 0.4% after rising 1.4% in August. Retailers find themselves stuck with a surplus of merchandise, a combination of easing supply chain bottlenecks and slowing demand for merchandise, forcing them to sell at discounts.
Inventories were the biggest drag on GDP in the second quarter. Economists expect a neutral impact in the third quarter. Higher borrowing costs continue to put downward pressure on the housing market, weighing on the economy.
A second report from the Commerce Department on Wednesday showed new single-family home sales fell 10.9% in September to a seasonally adjusted annual rate of 603,000 units. Sales in September plunged 17.6% from a year earlier.
The average contract rate on a 30-year fixed-rate mortgage rose 22 basis points to 7.16% in the week ended Oct. 21, the highest level since 2001, data from the Mortgage Bankers Association (MBA) showed on Wednesday. .
The median new home price in September was $470,600, up 13.9% from a year ago. However, there are signs that fading demand for housing is slowing home price growth.
There were 462,000 new homes on the market at the end of last month, up from 457,000 in August. At September’s sales pace, it would take 9.2 months to clear the supply of homes on the market, up from 8.1 months in August.
After the data was released, the US dollar oscillated and weakened.
[The US dollar fell to a new low in more than a month due to the softening of the Fed’s hawkish stance]
The dollar fell more than 1 percent against a basket of currencies on Wednesday, with the U.S. dollar index at 109.67 after falling to 109.54 in early trade on Thursday, its lowest level since Sept. 21, as weak economic data reinforced the view that the Federal Reserve will slow the pace of interest rate hikes.
Derek Holt, director of capital markets at Scotia Economics, said: “The broad dollar weakness and the continued decline in U.S. Treasury yields, but less than Tuesday’s decline, appear to reflect wishful thinking that the Fed will reverse its stance next week.”
Aggressive tightening by the Federal Reserve this year to curb stubbornly high inflation has sent the dollar soaring.
Traders and economists predict the Fed will raise interest rates by 75 basis points for the fourth straight time next Wednesday.But speculation is growing that the Fed will cut rates to 50 basis points in December.
Data on Tuesday showed U.S. home prices tumbled in August as a surge in mortgage rates hit demand, reinforcing the view that the Federal Reserve may begin to pivot in December.
Data on Wednesday showed U.S. new single-family home sales fell in September and data from the previous month was revised down, supporting the view that the Fed’s interest rate hikes have put the brakes on the world’s largest economy.
[U.S. bond yields fell, the market again speculated that the Fed will slow down interest rate hikes]
The yield on the 10-year U.S. Treasury note continued to fall from a multi-year high of 4.338% hit last week, and was last at 4.01%, down about 2.3%, the second consecutive day of declines. Helped by a weaker dollar and a further inversion of a closely watched part of the yield curve, investors have renewed speculation that the Federal Reserve may slow the pace of rapid rate hikes in response to high inflation.
The spread between three-month Treasury bills and 10-year Treasury yields turned negative intraday on Tuesday, but has not closed inversions since March and February 2020. An inversion of this part of the curve signals an imminent recession.
The Fed’s dual mandate of ensuring price stability and maximum employment has fueled speculation that the central bank will ease its aggressive rate hikes to prevent the economy from plunging into a sharp downturn.
The consumer price index due in November and December will determine in the short term how the Fed handles its rate strategy, said Jim Vogel, interest rate strategist at FHN Financial.
“The Fed has to see a cooling trend in inflation from the next two CPI numbers, and without that, they’ll add another 75 basis points in December,” Vogel said.
CME Group’s FedWatch tool shows fed funds futures pricing in an 89.3% chance of the Fed raising rates by 75 basis points at its Nov. 1-2 policymakers meeting, and a 38.6% chance of the same in December. Rate hikes (49% the day before, as high as 75% a week ago).
Tom di Galoma, managing director of Seaport Global Holdings LLC, said the gap between three-month Treasury bills and 10-year Treasury yields is minus 1.7 basis points, which has been an important indicator for the Fed in the past.
[Bank of Canada slows down the pace of interest rate hikes, recession fears intensify]
The Bank of Canada raised interest rates less than expected on Wednesday and said it was getting closer to the end of a historic round of tightening, which it also forecasted the economy would stall for the next three quarters.
The Bank of Canada raised its policy rate by 50 basis points to 3.75%, with expectations for a 75 basis point hike.The central bank has raised rates by 350 basis points since March, in one of the fastest tightening cycles on record.
“This tightening cycle is coming to an end. We’re getting closer, but not quite there,” Bank of Canada Governor Macklem said after the decision was announced.
“How much more rate hikes are needed will depend on how monetary policy slows demand, how supply challenges are resolved, and how inflation and inflation expectations respond,” he said.
Asked whether those considerations would prompt the central bank to not raise rates at its next meeting, or merely reveal the magnitude of the inevitable rate hike, he said it was “closer” to the latter.
“We expect further rate hikes will be needed,” Macklem said. “That could mean another larger-than-normal rate hike, or it could mean a move to a more regular 25 basis point hike.”
He said the central bank was still far from its stable and predictably low inflation target of 2 percent, but was struggling to balance the risks of under-tightening and over-tightening.
The Bank of Canada also lowered its 2023 growth forecast and said economic activity will be close to flat from the fourth quarter of 2022 to the first half of 2023.
Asked if that meant a recession was likely, he said: “Yes, a few — two, three quarters — slightly negative growth versus two or three quarters of slightly positive growth It’s just as likely. It’s not a severe contraction, but there will be a marked slowdown.”
Analysts said the bleak forecast could be behind the Bank of Canada’s smaller-than-market rate hike. They noted that warnings of future rate hikes discounted surprises and that the Bank of Canada could become more cautious.
“Today’s dovish turn supports our view that the Bank of Canada will continue to moderate its pace of tightening through the end of the year, raising rates by 25 basis points in December, allowing the The terminal rate stops at 4%.”
The Bank of Canada has been one of the most hawkish major central banks in the current round of tightening, and its policy rate is now the highest among 10 large advanced economies. The central bank unexpectedly raised rates by just 50 basis points, also seen by some investors as an important sign that global central banks are slowing some rate hikes.
[The Ukrainian army is holding on to the eastern town while preparing for the fierce battle in Kherson in the south]
Ukrainian troops are fending off repeated attacks by Russian troops in two towns in the east, while troops on the southern front are bracing for a battle for the strategic Kherson region where Russia appears to be strengthening.
Ukrainian President Volodymyr Zelensky said in a video address Wednesday night that there would be good news from the front, without elaborating.
He did not mention the situation in Kherson, which officials and military analysts predict will be one of the most important battles since Russia’s invasion of Ukraine.
Zelensky said the fiercest fighting in Udon took place near Awadivka and Bakhmut on the outskirts of Donetsk.
“This is where the madness of the Russian command is most evident,” he said. “For months, day in and day out, they were there pushing people to their deaths, focusing on the highest levels of shelling.”
Russian forces have repeatedly tried to capture Bakhmut, which is on a main road to the Ukrainian-controlled cities of Slavyansk and Kramatorsk.
Fighting looms over the city of Kherson, at the mouth of the Dnieper River, which will determine whether Ukraine can weaken Russia’s grip on the south.
[Syrian media: Syrian government forces expelled the illegal U.S. military convoy for three consecutive days]
According to a report by Syrian state television on the evening of October 26, local time, the Syrian government forces, with the assistance of local villagers, intercepted and expelled two armoured vehicles in two villages east of Hasakah province in northeastern Syria. A convoy of illegally garrisoned U.S. troops. This is the third day in a row that Syrian government forces have intercepted and expelled a convoy of illegal U.S. troops stationed in Syria.
[Syria and Russia hold joint land and air live-fire exercises]
According to a report by the Syrian State News Agency on October 26, local time, according to the Syrian army’s combat training plan this year, a combat formation of the Syrian army conducted a several-day land and air tactical live-fire exercise with the cooperation of the Russian army. The two sides of the exercise dispatched a variety of weapons and equipment including fighter jets, helicopters, mortars, and rockets.
The fundamentals are mainly bearish
[New Zealand Fed President Orr: New Zealand is in relatively good shape, but inflation is still too high]
Reserve Bank of New Zealand President Orr said on Thursday that while the country is relatively well positioned to meet the challenge, inflation remains too high. The central bank is firmly focused on achieving its 1%-3% inflation target.
“New Zealand is doing relatively well, but absolute inflation is still too high,” he said in a speech. The speech was also posted on the central bank’s website.
The Reserve Bank of New Zealand raised interest rates to a seven-year high in early October and said more pain lies ahead as the central bank struggles to suppress inflation near a 30-year high in an overly tight economic environment.
Orr added that New Zealand’s financial system remains well-positioned to support the economy – banks are well capitalized and liquid, with high profitability and asset quality.
“However, as interest rates and asset prices adjust, businesses and households will feel the pressure,” he said.
The Reserve Bank of New Zealand will release its semi-annual financial stability report on November 2.
Orr’s speech means that the New Zealand Federal Reserve will further raise interest rates in the future, and the market currently expects the New Zealand Federal Reserve to raise interest rates by another 50 basis points on November 23.
[ANZ: RBA rates to peak at 3.85% as inflation accelerates]
ANZ economists raised their forecast for the Reserve Bank of Australia’s official cash rate, which is expected to peak at 3.85% in May next year, after Australia’s third-quarter CPI annual rate was higher than expected. A 50bps rate hike by the RBA in November is possible, but given the rationale behind the 25bps hike in October, economists believe the RBA would prefer more frequent and smaller hikes rather than back to 50 A substantial rate hike of one basis point. Higher inflation will continue into 2023 due to stronger CPI data in the third quarter, and due to ongoing cost pass-through, floods, depreciation of the Australian dollar, and persistent global inflationary pressures.
[IMF: I hope central banks will continue to raise interest rates to reach a “neutral” interest rate level]
IMF Managing Director Georgieva said on Wednesday that high inflation would undermine economic growth, with the poorest hit hardest. Central banks should keep raising interest rates to fight inflation until they reach a “neutral” level, which most countries have not yet reached.
Georgieva said the positive effects of global central bank rate hikes would not be apparent until 2024. Georgieva’s speech came on the eve of the European Central Bank’s interest rate decision, which is widely expected to raise interest rates by 75 basis points on Thursday. The ECB has said for months that its first step would be to raise interest rates to a neutral level, but some policymakers are now advocating more aggressive action, arguing that inflationary pressures should be eased further.
On the whole, although most central banks in the world will continue to raise interest rates further, which makes bulls have some scruples, there are various signs that these central banks, especially the Federal Reserve, will slow down the pace of interest rate hikes. 1 basis points, the US dollar and US bond yields fell sharply, providing rebound momentum to the gold price. The technical bullish signal has increased. The short-term gold price is still biased towards the bulls, and it is expected to test the resistance near the 1680 mark and the 1700 mark respectively. Of course, investors also need to pay attention to the performance of the US GDP data and PCE data.
At 10:25 Beijing time, spot gold is now at $1,663.45 per ounce.