During the Asia-Europe session on Friday (October 28), spot gold fluctuated within a narrow range and is currently trading around $1,663.65 an ounce. The number of initial jobless claims in the United States is still at a low level, the euro weakened after the European Central Bank raised interest rates as scheduled, and the dollar index The rebound from more than one-month lows has put pressure on gold prices; however, U.S. demand has stagnated, and the market expects the Fed to raise interest rates in December to 50 basis points. Gold prices provide support. The K-line recorded a doji in the previous trading day, and the short-term trend variables increased, but it was still slightly biased towards the bulls.
This trading day, the market will pay attention to the PCE data of the United States in September. At present, the market expects that the core PCE price will increase by 5.2% year-on-year, which is expected to provide support for the Fed to raise interest rates by 75 basis points next week. It is slightly biased against the negative gold price. Investors need to pay attention to the specific data Performance.
In addition, investors also need to pay attention to the Bank of Japan interest rate decision, the third-quarter GDP data of France and Germany, and news related to the geopolitical situation.
Fundamentals are mostly bullish
[U.S. economy rebounds strongly on trade-driven third quarter, but demand stalls]
The U.S. economy rebounded strongly in the third quarter amid a shrinking trade deficit, but the data overstated the health of the U.S. economy as domestic demand was at its weakest in two years due to aggressive rate hikes by the Federal Reserve.
Specific data show that US GDP shrank by 0.6% in the second quarter, and grew at an annual rate of 2.6% in the third quarter.Economists had forecast a 2.4% increase, with estimates ranging from 0.8% to 3.7%
The Commerce Department’s preliminary third-quarter gross domestic product report on Thursday also showed residential investment contracted for the sixth straight quarter, the longest stretch of contraction since the housing market crash in 2006.The industry is struggling under the weight of soaring mortgage rates.
Still, GDP growth returned to growth after two straight quarters of contraction, providing evidence the economy isn’t slipping into recession, even as downside risks have grown as the Federal Reserve aggressively hiked rates to combat the fastest-rising inflation in 40 years.
“While the overall numbers are dazzling, the U.S. economy is much more dire in terms of the sub-data and is clearly losing momentum,Sal Guatieri, senior economist at BMO Capital Markets in Toronto. decline. “
The trade deficit narrowed sharply as slowing demand dampened imports of goods. Exports also increased in the third quarter. The narrowing of the trade deficit contributed 2.77 percentage points to GDP growth, the largest contribution since the third quarter of 1980.
Final sales to domestic consumers, which exclude trade, inventories and government spending, rose just 0.1%, suggesting rising borrowing costs are starting to erode demand. It was the smallest increase in the measure of consumer demand since the second quarter of 2020, when it rose 0.5%.
“GDP growth is not sustainable without domestic private sector growth,” said Chris Low, New York-based chief economist at FHN Financial.
There was also some encouraging news on the inflation front. A broader measure of inflation in the economy rose 4.6%, a slowdown from the 8.5% pace in the second quarter.
As a result, inflation-adjusted household disposable income rebounded at a rate of 1.7% after falling 1.5% in the second quarter. The savings rate slipped to 3.3% from 3.4%. The core personal consumption expenditures (PCE) price index, which excludes food and energy, slowed to 4.5% in the third quarter after rising 4.7% in the second.
[U.S. bond yields fell to near two-week lows, as slowing spending boosts hopes for the Fed to soften its stance]
U.S. Treasury yields fell further on Thursday, with the 10-year U.S. Treasury yield down 5.5 basis points late in the session to 3.960% and the 30-year U.S. Treasury yield down 6 basis points to 4.104% after data showed U.S. consumers and Business spending slowed in the third quarter, a sign that inflation may have peaked and could push the Fed to soften its aggressive rate hike stance.
Investors hope the third-quarter U.S. gross domestic product (GDP) report will push the Federal Reserve to signal a slower pace of interest rate hikes as soon as it meets in December.
The Commerce Department said consumer spending growth slowed to 1.4% from 2.0% in the second quarter. A separate report showed orders for non-defense capital goods, a measure of business spending, unexpectedly fell in September.
A key measure of price pressures, the GDP deflator, rose 4.1%, well below expectations for a 5.3% rise in a poll of economists, and a 9.1% rise in the second quarter.
“This fits with the broader narrative of inflation peaking, and that’s a big part of what’s driving Treasury prices higher right now,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
While Treasury yields fell and the prospect of the next rate hike softened slightly, the yield curve inverted further, signaling a growing likelihood of a recession.
The three-month/10-year U.S. Treasury yield gap was at minus 8.2 basis points, the first time since March 2020 that the curve had inverted on Wednesday, according to Tradeweb.
Joseph LaVorgna, chief U.S. economist at SMBC Nikko Securities, said inflation-adjusted real interest rates have fallen sharply over the past week amid expectations the Fed will soon slow the pace of tightening.
But real rates at around 1.5 percent, near a 13-year high, are restrictive enough to put the brakes on economic activity, he said, adding that the Fed needed to turn quickly and some more to avoid a “hard landing” that would trigger a recession luck.
[The market expects the Fed to raise interest rates in December to 50 basis points]
Economic data on Thursday further showed that the economic slowdown sought by the Fed is underway, with markets expected to slow the pace of aggressive rate hikes starting in December.
Futures traders tied to U.S. short-term interest rates still see a strong chance the Fed will raise interest rates by a fourth straight 75 basis points when policymakers meet next week. However, interest rate futures prices now point to a 50bps rate hike by the Fed at its December meeting — bringing the policy rate target range to 4.25%-4.5% — and no more than 50bps of further hikes at the next two meetings. .
Fed funds futures priced in an 81.4% chance of the Fed raising rates by 75 basis points at its Nov. 1-2 meeting, according to CME’s FedWatch tool, compared with 89.3% on Wednesday and edging closer last week. 100%. at the same time,Expectations of a 50bps rate hike in December have increased, and the probability of a 75bps rate hike in December has dropped to 37.1% (as high as 75% last week)。
The slowdown in consumer spending is “a good sign that rate hikes are eating into consumers’ wallets,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
Thursday’s data suggested that the trend may be reversing, and there may be more to come.
“Consumer spending in real terms on goods will fall further, spending on services will slow, there are signs of business investment hesitating, and the housing market is teetering under the weight of rising mortgage rates,” Regions economist Richard Moody wrote. “Also, the impact of the rate hikes hasn’t been fully reflected in the economy.”
[Putin’s speech blames Western incitement for Ukraine war]
Russian President Vladimir Putin expressed no regrets over the Ukraine war on Thursday, insisting that “special military operations” were still achieving their goals and that Western dominance of world affairs was coming to an end.
Putin, who lashed out at the West for more than three-and-a-half hours in a question-and-answer session at his annual foreign policy meeting in Moscow, appeared confident and relaxed, in contrast to the stiff, formal and restless demeanor of his public appearances early in the war. Compared.
Asked if he had any disappointments over the past year, Putin replied simply: “No,” although he also said he was always thinking about the Russians lost in Ukraine.
Putin accused the West of inciting war in Ukraine, creating chaos around the world and playing “dangerous, bloody and dirty” games.
“The historic period of Western domination of world affairs is coming to an end,” Putin said. “We are at the forefront of history: the future may be the most dangerous, unpredictable, and at the same time most important decade since the end of World War II.”
In his speech, Putin downplayed the nuclear standoff with the West, insisting that Russia had not threatened to use nuclear weapons, only responding to nuclear “blackmail” by Western leaders.
[U.S.-new nuclear bomb deployment trends cause concern]
U.S. “Political News” quoted a diplomatic document on the 27th as saying that U.S. officials told NATO allies at a closed-door meeting in Brussels this month that the arrival of the B61-12 tactical nuclear bomb at NATO bases in Europe will be brought forward from next spring. to December this year. Two people familiar with the matter said the nuclear bomb may have been deployed further ahead of the time indicated in the documents.
The report said that the U.S. may have more consideration for deploying new nuclear bombs ahead of schedule, because they believe they are particularly vulnerable to Moscow’s attack. Tom Colina, policy director of the disarmament organization American Ploughshare Foundation, analyzed that the Russians know that Europe has the B61 nuclear bomb, and the upgraded version will be updated to some extent, “but the difference is not big”, “When the allies feel threatened by Russia, this Might be a way to provide them with reassurance.”
The fundamentals are mainly bearish
[The number of initial jobless claims increased slightly last week]
Initial jobless claims rose by 3,000 to a seasonally adjusted 217,000 for the week ended Oct. 22, missing market expectations of 220,000. Despite reports of layoffs by companies, mostly in interest-rate-sensitive industries, the number of applicants remained markedly low.
“Employers seem reluctant to lay off workers even as the economy slows, and they have struggled to recruit and retain workers,” said Nancy Vanden Houten, chief U.S. economist at Oxford Economics in New York. We don’t expect jobless claims to be much lower than they are now, but we also don’t expect a significant increase in claims or unemployment before entering a recession. “
[The European Central Bank raised interest rates by 75 basis points again and limited bank subsidies, and also put the discussion on the reduction of the balance sheet on the agenda]
The European Central Bank raised interest rates again on Thursday and made shrinking its massive balance sheet on the agenda, but said it had made “substantial” progress in its fight against historically high inflation.
The European Central Bank is raising borrowing costs at the fastest pace on record amid fears that high inflation has become entrenched. Further rate hikes are all but certain, and the central bank’s move to unwind the economy’s stimulus of the past decade will take into next year and beyond.
The European Central Bank raised its deposit rate a further 75 basis points to 1.5%, the highest since 2009. Before the July rate hike, the ECB had kept rates below 0% for eight years in a row.
The ECB also announced the removal of subsidies for banks’ multi-year loans to encourage early loan repayments, a move aimed at draining excess cash from the system. The central bank also said it would begin discussions in December to reduce its large holdings of government bonds.
While the central bank dropped references to a possible rate hike at “several” future meetings in its policy statement, ECB President Christine Lagarde appears to have re-used the language.
“We will raise interest rates further in the future,” she told a news conference. “Possibly in the next few meetings.”
Markets, however, believed that the “substantial” part of what Lagarde said was the policy tightening was complete, suggesting that rates may not rise as high as previously thought.
Investors now see interest rates peaking at around 2.6% next year, up from earlier expectations of a peak near 3%
Konstantin Veit, portfolio manager at PIMCO, said: “We expect a 50bp hike in December and a transition to a 25bp hike next year, with the rate hike cycle shifting from policy normalization to policy tightening.”
Lagarde said the ECB’s actions may have to go “beyond” normalization, a remark that suggested interest rates could rise to levels that start to limit economic activity.
Lagarde also pushed back against political criticism that rapid rate hikes risked pushing the euro zone into recession, saying her job was to control inflation.
She acknowledged that the risk of economic contraction was rising due to soaring energy prices and higher interest rates, but said it was up to governments to support their most vulnerable populations through the crisis.
German Finance Minister Lindner welcomed the ECB’s determination to fight inflation, while Italy’s new Economy Minister Giancarlo Giorgetti said the ECB needed to take the slowdown into account.
With inflation in the euro zone hitting 9.9 percent, the European Central Bank has also taken the first step toward shrinking its 8.8 trillion-euro balance sheet, a move that could push up borrowing costs further and could have the effect of raising interest rates in disguise.
Lagarde said there was no discussion on reducing her holdings of government bonds, but a debate could soon begin, which could be intense. Policymakers will discuss how to scale back a 3.3 trillion euro asset-purchase program at a policy meeting in December. “Key Principles”.
[Dollar rebounds from more than five-week lows]
The U.S. dollar index rebounded sharply on Thursday, closing up 0.82%, the largest one-day gain in nearly three weeks, to close at 110.58. The euro fell 1.2% on profit-taking by bulls after the U.S. third-quarter GDP data and initial filings came in better than expected.
“It’s not surprising to see a little profit-taking at current levels,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “The euro has gained around 2.2% against the dollar since Monday, and the dollar has been volatile over the past two days.”
[Denmark’s central bank follows the action of the European Central Bank and announces a 60 basis point rate hike to a 13-year high]
Denmark’s central bank raised its benchmark interest rate by 0.60 percentage points on Thursday to a 13-year high of 1.25 percent. The European Central Bank also announced a rate hike earlier in the day.
Denmark was the first in the world to introduce negative interest rates in 2012, but last month raised its benchmark rate into positive territory, ending a decade-long era of negative interest rates.
“This rate hike follows the European Central Bank’s increase in its main monetary policy rate,” Denmark’s central bank said in a statement.
[Gold ETF holdings decline]
Data show that although the price of gold has rebounded in the past week, the holdings of SPDR, the world‘s largest gold ETF, only increased slightly by 0.29 tons on October 24, but decreased again by 3.19 tons on Thursday (October 27) to 925.2 tons , a new low since the end of March 2020, suggesting that institutional and professional investors are still biased against gold prices in the medium and long term.
On the whole, although the sharp rebound in the US dollar has made gold bulls scruples, and the PCE data in the evening is expected to show that US inflation is still at a multi-decade high, the Fed will still raise interest rates by 75 basis points next week, which may limit the price of gold. There is room for upside; but obviously, the market still generally expects that the Fed will slow down the pace of interest rate hikes in December, the Fed’s monetary policy will usher in an inflection point, and US bond yields will continue to weaken, which will provide gold prices in the medium and long term. , pay attention to the 55-day moving average at 1692.50 and the 1700 mark resistance, and pay attention to the support near the 10-day moving average at 1650.75 below.
At 09:43 Beijing time, spot gold is now at $1,663.60 an ounce.