Home » Weekly Commentary: The hawkish interest rate hike dissipates!The U.S. dollar rose slightly after Thanksgiving, and gold flats did not continue to close in black. Oil prices fell nearly 5% this week.

Weekly Commentary: The hawkish interest rate hike dissipates!The U.S. dollar rose slightly after Thanksgiving, and gold flats did not continue to close in black. Oil prices fell nearly 5% this week.

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Weekly Commentary: The hawkish interest rate hike dissipates!The U.S. dollar rose slightly after Thanksgiving, and gold flats did not continue to close in black. Oil prices fell nearly 5% this week.

  

24K99 News After the Thanksgiving holiday this week, the US dollar edged higher on Friday (25th), but it still hovered near a three-month low. The outlook for dollar pressure is uncertain given growing expectations of a policy shift by the Federal Reserve. Gold did not continue to close in the dark, as the dollar rebounded moderately and the gains were suppressed. Oil prices closed lower on Friday, recouping the small gains that they had held for a long time on the day, making this week’s decline nearly 5%, which has fallen for the third consecutive week.

November FOMC meeting minutes

On November 24, the Federal Reserve announced the minutes of its last monetary policy meeting, which has attracted much market attention. The minutes showed that most participants believed that the time may soon be right to slow the pace of rate hikes. This statement suggests that the Fed is inclined to reduce the rate hike to 50 basis points in December.

Given the uncertain lag in monetary policy, a slower pace of rate hikes would better allow the FOMC to assess progress toward its goals, participants said. Several officials concluded that the eventual peak level of the federal funds rate, which is critical for the committee to meet its goals, would be slightly higher than previously forecast.

The Fed’s in-house economist told members at the meeting that the probability of a recession next year had risen to about 50 percent. Participants agreed that inflationary pressures showed little sign of easing; participants generally noted that risks to the inflation outlook remained tilted to the upside.

At the November interest rate meeting, the FOMC voting committee unanimously decided to raise the benchmark interest rate to 3.75-4%, the highest level since 2008. Subsequently, Powell said at a news conference: “A series of new data released since the last meeting suggest that the level of terminal interest rates will be higher than previously expected.”

If the Fed FOMC event in November failed to convincingly signal a dovish shift, the minutes released are certainly more effective in that direction.Two key points in the minutes were interpreted by the market asDove statement:

1. “The vast majority of participants felt that a slowdown in growth could be appropriate soon”;

2. “Several participants noted that their assessment of the final level of the federal funds rate needed to achieve the Committee’s goals was slightly higher than they had previously expected.”

The first point just shows that there is a larger (substantial) committee majority in favor of a slower pace of tightening than expected, and if you add the lower-than-expected October CPI reading to the equation, December’s expected over 50 bps now looks Very counterintuitive, and a 25 basis point increase from the January meeting seems increasingly likely.

On the second point, the market may focus on the word “various”, suggesting that the consensus in favor of Chairman Jerome Powell’s post-meeting “higher and longer” statement is rather vague. This is very relevant, as Powell’s November press conference to push up long-term rate expectations was a major rebuttal to the “dovish pivot” narrative: it now appears that his approach may not have had much support from other FOMC members .

Fed officials divided

Previously, Nick Timiraos, a reporter known as the Fed’s megaphone, also said during the silent period before the interest rate decision-making meeting in November that Fed officials will release information on slowing down interest rate hikes in December. He said that he believes that the rate hike should be slowed down, but the number of rate hikes still needs to be increased in order to curb inflation, and there is still a chance of raising interest rates by 3 yards at the December meeting. Stop raising rates or consider cutting them.

The overall speech of Fed officials is still hawkish, and the price observation of the U.S. dollar index is also bullish. A place to observe the attitude and direction of the Fed’s internal and chairman’s recent interest rate hikes.

In the U.S. on Thursday, investors reacted to hawkish comments from policy makers, with St. Louis Fed President James Bullard saying the central bank would need to keep raising rates even based on a “dovish” analysis of monetary policy because so far Actions to tighten policy have limited impact on observed inflation.

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Recent Fed speeches certainly added a layer of caution to the dovish pivot enthusiasm, which could mean that investors may also be more reluctant to read too much into dovish signals in the minutes. With a very light US data calendar, there are a few speakers to watch today: Loretta Mester, James Bullard (both hawkish) and Esther George (more neutral).

Dollar

The U.S. dollar index edged higher on Friday, but still hovered near three-month lows. The U.S. dollar index ended the week in the dark as the prospect of the Fed slowing the pace of rate hikes weighed on the greenback. Simon Harvey, senior European foreign exchange analyst at Monex, said: “Compared to cross-asset drivers, all indicators today are dominated by dollar consolidation. Liquidity is very limited, and there are no major releases in other markets.”

The dollar has strengthened against other major currencies this year, underpinned by the Federal Reserve’s aggressive rate hikes, but investors are betting the greenback’s rally may be over after weaker-than-expected inflation data in mid-month. In addition, the minutes of the Federal Reserve’s meeting released this week showed that most policymakers believe that the pace of interest rate hikes will be slowed soon.

Federal Reserve Chairman Jerome Powell will go to the Hutchins Center on Fiscal and Monetary Policy on November 30 to speak on the economic outlook and the labor market. It will be Powell’s first speech since the Nov. 2 rate meeting. Harvey believes that Powell’s speech this time is very important. If he does not oppose the relaxation of financial conditions in the near future, the short-term support of the dollar may decline.

The euro was almost flat, inching down 0.14% to $1.0394, not far from a four-month high hit in the middle of this month. The euro was up about 0.7% against the dollar for the week. The economic data of the euro zone released on Friday was mixed. The good news is that the preliminary value of Germany’s gross domestic product (GDP) in the third quarter was slightly revised up to an annual increase of 1.2% and a quarterly increase of 0.4%. The December Gfk consumer confidence index The increase was weaker than expected.

Sterling fell 0.21% to $1.2084, but remained near a three-month high. It jumped 1.7% for the week. The dollar rose 0.5 percent to 139.17 yen, snapping a three-session losing streak, but was still down about 0.9 percent for the week. Data show that the core CPI in Tokyo, Japan, hit the largest increase in 40 years in November, with an annual increase of 3.6%, which was higher than the 2% target set by the central bank for six consecutive months, and inflationary pressures further expanded.

Concerns about the intensification of the epidemic continued to intensify, and the offshore yuan fell 0.3% to 7.190 yuan against the US dollar, and fell by about 1% this week, marking two consecutive weeks of decline. RRR cut news does not seem to bring support for the yuan. In order to boost the economy, the People’s Bank of China announced on Friday that it will cut the deposit reserve ratio of financial institutions by 0.25 percentage points starting from December 5. It is expected that this reduction will release about 500 billion yuan of long-term funds.

gold

Gold was restrained by a mild rebound in the dollar, but the minutes of the Federal Reserve’s recent meeting showed that it may slow down the pace of interest rate hikes, which still helped gold to close flat this week, not continuing last week’s weekly close.

Gold rose this week after the Federal Reserve released dovish meeting minutes on Wednesday. Caroline Bain, chief commodity economist at Capital Economics, mentioned: “The minutes of the meeting were slightly dovish, and real U.S. bond yields fell after that. We predict that the Fed may stop tightening next year and start to loosen in the third quarter, which means Gold demand could pick up in 2023.”

However, the greenback staged a modest rebound on Friday, especially as trading was light over the Thanksgiving holiday, making the greenback’s influence even more pronounced. The U.S. dollar index rose to flat on Friday, at 106.03. The yield on the 10-year U.S. Treasury note slipped to 3.668% on Friday, while the yield on the two-year U.S. note, which is sensitive to monetary policy, was steady at 4.480%.

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Craig Erlam, senior market analyst at OANDA, mentioned: “Gold fell slightly this morning. Gold is seeing some profit-taking pressure.”

On the other hand, China is going against the grain of global monetary tightening. The People’s Bank of China announced on Friday that it has cut the RRR for the second time this year by 1 yard, or 25 basis points, which is expected to release about 500 billion yuan in long-term funds, hoping to encourage the banking industry to increase lending to households and businesses.

“Nihon Keizai Shimbun” recently reported that central banks around the world are increasing their gold reserves. According to an international survey agency, gold purchases in 2022 will hit the highest level since the 1960s. According to a report released by the World Gold Council in November, the net purchase of gold by global central banks in the third quarter of this year was 399.3 tons, more than four times that of the same period last year. Compared with 87.7 tons in the first quarter and 186 tons in the second quarter, the net purchase of gold has gradually increased. The cumulative net purchase of the first three quarters has exceeded the largest net purchase in a single year since statistics began in 1967.

Over the past 10 years, central banks and public institutions around the world have begun to increase their gold reserves. Gold has high liquidity and no issuing entity, so the sovereign risk is extremely low, and it is called “stateless currency”. Nicos Cavallis of Metal Focus, a precious metals consulting company, believes: “In the future, given the stability of gold prices and the characteristics of gold as a stateless currency, central banks around the world will continue to act as net buyers of gold.”

Further reading: Why are central banks around the world renewing their interest in “gold”?

crude

Crude oil futures ended lower on Friday, paring small gains that had been held for a long time on the day, making it down nearly 5% for the week, the third straight weekly decline. Investors weighed the outlook for Chinese demand and focused on talks on a price ceiling for Russian crude. Black Friday (the day after Thanksgiving) shortened trading hours, and the post-holiday trading volume spread to most U.S. markets. U.S. stocks rose. The Dow Jones index closed at its highest point since April.

Crude oil prices fell sharply in November, partly because of disappointment with China’s continued epidemic prevention and control measures. China is one of the world‘s largest energy consumers, but the lockdown will depress energy demand. The price of crude oil futures in recent months has closed lower for three consecutive weeks, with a total decline of more than 17.6%. According to Dow Jones market data, this is the largest net decline in three weeks since the week ended March 27, 2020.

Craig Erlam, senior market analyst at Oanda, said that the implementation of epidemic prevention and control in major cities in China has once again seriously affected economic activity, which in turn affected demand. “The question now is how long the lockdown will last, but obviously investors have released their enthusiasm for unblocking too early.”

The People’s Bank of China took some economic stimulus measures on Friday, lowering the bank deposit reserve ratio and injecting 500 billion yuan, or about 69.91 billion U.S. dollars, of liquidity into the economy. Meanwhile, European diplomats failed to reach an agreement on the Group of Seven (G7) Russian oil price cap plan on Wednesday, and officials are expected to hold further talks to try to reach an agreement before the Dec. The price plan and the EU Russian oil embargo should come into effect together.

Morgan Stanley market analyst Martijn Rats said in the “Early 2023 Outlook Report”: “The EU still imported about 2.4 million barrels of Russian oil per day in October. In the next few months, it is not just Russia that will look for other buyers. It is also necessary to find other suppliers, although most of the applications can be matched, but it may not be comprehensive, smooth, fast and have no impact on the price.”

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Morgan Stanley’s analyst team is neutral to bullish on the outlook for crude oil prices heading into next year, taking into account Russian oil price caps, expectations of improving Chinese demand, continued air traffic growth, limited U.S. shale supply and other factors .

The Morgan Stanley team expects that the supply and demand settlement in the next few months will tend to be moderately oversupplied, so the Brent price trading range will first fall in the mid-$80s a barrel to the high-end of the $90s, and by the second quarter of 2023 The market returns to balance, but undersupply in the second half of 2023. “With limited supply buffers, we expect Brent to return to around $110 a barrel by the middle of next year.”

Important economic data next week:

Monday 11/28

Seasonally adjusted retail sales in Australia in October (monthly rate)

UK November CBI retail sales expectations index

Central bank dynamics

RBA’s Lowe to testify before Senate

ECB President Christine Lagarde makes introductory remarks at the hearing of the European Parliament Committee on Economic and Monetary Affairs

Tuesday 11/29

Japan’s unemployment rate in October

Switzerland’s GDP in the third quarter (quarterly rate)

Swiss GDP in the third quarter (annual rate)

Canada September GDP (monthly rate)

Canada’s third-quarter GDP (annualized quarterly rate)

Conference Board Consumer Confidence Index in November

financial event

The U.S. Commodity Futures Trading Commission (CFTC) released its weekly position report

Central bank dynamics

St. Louis Fed President Bullard speaks

New York Fed President Williams speaks at the Economic Club of New York

Wednesday 11/30

Changes in API crude oil inventories in the United States last week (10,000 barrels) (to 1125)

China’s official manufacturing PMI in November

The initial value of the French consumer price index (monthly rate) in November

The final value of France’s third-quarter GDP (quarterly rate)

German November seasonally adjusted unemployment rate (official)

The initial value of the consumer price index in the euro zone in November (annual rate)

The initial value of the consumer price index in the euro zone in November (monthly rate)

Changes in the number of ADP employment in the United States in November (thousands)

The revised value of the personal consumption expenditures price index in the third quarter of the United States (annualized quarterly rate)

The revised value of real GDP in the third quarter of the United States (annualized quarterly rate)

U.S. NAR seasonally adjusted existing home sales index in October (monthly rate)

EIA crude oil inventory change in the United States last week (10,000 barrels) (to 1125)

Thursday 12/01

Australia’s private new capital expenditure in the third quarter (quarterly rate)

The final value of the Markit/CDAF manufacturing purchasing managers index in France in November

The final value of the Markit/BME manufacturing purchasing managers index in Germany in November

The final value of the Markit manufacturing purchasing managers index in the euro zone in November

UK November Markit/CIPS Manufacturing Purchasing Managers Index

Unemployment rate in the euro zone in October

U.S. personal consumption expenditure in October (monthly rate)

The number of people applying for unemployment benefits in the United States last week after seasonal adjustment (thousands) (to 1126)

U.S. October personal consumption expenditures price index (monthly rate)

US personal income in October (monthly rate)

U.S. November ISM Manufacturing Purchasing Managers Index

U.S. construction spending in October (monthly rate)

Central bank dynamics

Fed Governor Lisa Cook speaks on economic and monetary policy outlook

Fed Chair Powell speaks on U.S. economic outlook and job market

Fed releases Beige Book on economic conditions

Dallas Fed President Logan Speaks at Dallas Fed Breakfast

Fed Governor Bowman speaks at a strategy forum

Friday 12/02

Germany’s October unadjusted trade account (billion euros)

October Producer Price Index (annual rate) in the Eurozone

Changes in non-agricultural employment population after seasonal adjustment in November in the United States (thousands)

U.S. Unemployment Rate in November

Central bank dynamics

ECB President Lagarde joins panel on growth and inflation

Gold.com statement: Gold.com reprints the above content, does not mean to confirm its description, is for investors’ reference only, and does not constitute investment advice. Investors operate accordingly at their own risk.

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