During the Asian session on Friday (February 18), spot gold continued its gains, hitting an eight-month high of $1,902.39 an ounce. Gold prices rose sharply on Thursday (February 17), briefly topping $1,900 an ounce for the first time since June last year, as investors rushed to safety after U.S. President Joe Biden said there were ample signs that Russia planned to invade Ukraine gold. In addition, an unexpected increase in the number of initial jobless claims and a sharp drop in the stock market also supported further strength in gold prices. However, hawkish speech from Fed officials capped gold’s gains.
The main focus of the day is the speech of the Fed officials.
Bullish fundamentals
[US warns of imminent Russian invasion of Ukraine]
The United States has stepped up warnings about a possible Russian attack on Ukraine.President Biden said that the Russian military may have “directed and performed” the incident to create an excuse, and a senior diplomat also said that “the invasion is imminent.”
Russian officials said there was neither an invasion of Ukraine nor such plans. But the Kremlin said in a formal response to the Biden administration’s security proposals that the U.S. proposal was unsatisfactory and that Russia may have to resort to “military-technical measures.” They did not explain said measures.
U.S. Secretary of State Blinken changed his schedule on Thursday to address the United Nations Security Council on the crisis. in Moscow,Russia expels Bart Gorman, deputy head of U.S. mission. A State Department spokesman called the move unprovoked.
The stock market fell and the oil price soared between the two sides. Biden told reporters as he left the White House for a speech in Cleveland,The possibility of Ukraine being invaded is “very high” and he feels it will happen in the next few days.
“We have reason to believe that they are conducting self-directed and self-acting operations, making excuses for it,” he said, without elaborating.
A senior administration official declined to clarify Biden’s claims. Ukraine said earlier on Thursday that a kindergarten near a government-controlled town in the eastern part of the country and a line of contact with separatists had been hit by a mortar shell.
The Moscow-backed separatists claimed that Ukrainian government forces violated the ceasefire in many places on Thursday and also used mortars. Both sides accused the other of firing first.
“The evidence on the ground is that Russia is advancing an imminent invasion,” said U.S. Ambassador to the United Nations Linda Thomas-Greenfield.
The United States and NATO have said Russia has assembled as many as 150,000 troops around the border with Ukraine in preparation for a possible invasion, and said they have seen no evidence of what Russia said was a withdrawal.
Russia, for its part, called U.S. claims “hysterical” but would continue with its largest exercise in years in Belarus.The Russian army is also holding naval exercises in the Black Sea, which are scheduled to end over the weekend.
[The number of Americans filing for unemployment benefits unexpectedly increased last week, but the momentum of the labor market tightening has not changed]
The number of Americans filing for unemployment benefits unexpectedly rose last week but remained below pre-pandemic levels as labor market conditions continued to tighten.
Data on Thursday showed weekly jobless claims rose for the first time in a month, but that did little to change economists’ expectations for continued strong job growth in February.
There is a severe shortage of workers, and employers raise wages and offer other incentives to retain employees while attracting labor. Economists blamed weekly fluctuations in data and bad weather in parts of the country for the rise in jobless claims.
“We don’t think this jump in jobless claims is particularly alarming, given the constant noise in the data and a range of factors that could affect initial jobless claims,” said Daniel Silver, an analyst at JPMorgan in New York. Concerns. Overall, we think the labor market remains tight.”
As of the week of February 12,Initial jobless claims rose 23,000 to a seasonally adjusted 248,000. Analysts polled had expected 219,000 applicants in the latest week.
In mid-January, the number has been falling since the Omicron variant drove a nationwide surge in coronavirus cases and jobless claims hit a three-month high. The outbreak has cooled markedly in recent weeks.
There were nearly 10.9 million job openings in the U.S. at the end of December.Initial jobless claims have fallen sharply from an all-time high of 6.149 million in early April 2020
[S&P 500 hits biggest one-day percentage drop in two weeks as Ukrainian tensions escalate]
U.S. stocks closed lower on Thursday,The S&P 500 posted its biggest one-day percentage drop in two weeks,Rising U.S.-Russian geopolitical tensions over the Ukraine issue prompted investors to turn to defensive sectors, as well as safe-haven assets such as bonds and gold.
U.S. President Joe Biden said there were various signs that Russia was planning to invade Ukraine in the coming days and was preparing an excuse to justify the invasion after Ukrainian troops and pro-Moscow insurgents exchanged fire in eastern Ukraine.
Russia has accused Biden of escalating tensions and issued a strongly worded letter saying Washington ignored its security demands and threatened “military-technical action,” without specifying.
Growth-oriented tech and communications services stocks were the hardest hit. Financial stocks also fell as U.S. Treasury yields fell.
The developments in Ukraine have added to the uncertainty over the path of the Fed’s tightening program to fight inflation.
“The market is very tight, the weekend is approaching and nothing has been resolved between Russia and Ukraine,” said Michael James, managing director of equity trading at Wedbush Securities.
[Traders cut their bets on the Fed raising interest rates by 50 basis points in March]
Swap market traders currently expect,The Fed is more likely to raise rates by 25 basis points at its March meeting than by 50 basis points.
While higher-than-expected inflation and the Fed’s overtly hawkish stance sparked speculation of a bigger rate hike earlier this month, a slew of recent geopolitical news has fueled risk aversion, with the 25 basis point rate hike appearing to change. more likely. Traders’ bets on a 25 basis point were also fueled by the lack of any major clues to a sharp rate hike in the minutes of the Fed’s meeting released on Wednesday.
Tighter tensions in Russia and Ukraine spurred buying of U.S. Treasuries on Thursday, sending short-term yields lower. Overnight index swaps (OIS) tied to the timing of the March Fed rate meeting expect the federal funds target rate to be about 35 basis points above the current real effective rate of 0.08%. Given that Fed rate hikes are typically in multiples of 25 basis points, OIS prices suggest that traders believe at least a 25 basis point increase in March, but only about a 40% chance of a 50 basis point increase.
This is a noticeable change from a few days ago. At the open on Wednesday, market prices were pricing in a rate hike of around 40 basis points in March, suggesting a 50 basis point hike is relatively more likely.
bearish fundamentals
[Cleveland Fed President Mester: Support the Fed to raise interest rates faster if necessary to curb inflation]
Cleveland Fed President Mester said:She supports the Fed raising interest rates next month and tightening policy more quickly if necessary to curb inflation.
“I think it’s appropriate to raise the funds rate in March and further in the coming months,” Mester said Thursday in prepared remarks for an online event hosted by NYU’s Stern Center for Global Economics and Business “If by mid-year, I don’t think inflation has slowed as expected, then I would support a more rapid unwinding of easing in the second half of the year,” he said.
Fed officials at their January meeting concluded that they would raise interest rates soon and remain wary of persistent inflation, according to minutes of their Jan. 25-26 meeting released on Wednesday. Fed Chairman Jerome Powell told reporters after the meeting that officials were leaning toward taking action next month to curb the hottest inflation in 40 years.
For the Fed’s $8.9 trillion balance sheet — about double its pre-pandemic size — Mester reiterated that she would support selling some mortgage-backed securities at some point during the reduction. This will “help to return the composition of our portfolio to a more U.S. Treasury-dominant composition more quickly” and “minimize the impact of our balance sheet holdings on credit allocation across sectors of the economy.”
Mester said she expects inflation to stay above 2 percent this year and next, with a moderation in inflation “depending on the FOMC taking appropriate action to change the current level of emergency easing.”
She also stressed the importance of communication among central bank officials, saying the way policy communication that provides clear forward guidance needs to change.
[Fed’s Bullard says it may need to raise interest rates above 2% to curb inflation]
St. Louis Fed President Bullard said:Tackling inflation will likely require the central bank to move its benchmark rate above its neutral target rate – around 2 percent, in his view.
“If you want to put downward pressure on inflation, you actually have to hit neutral — or even beyond,” Bullard said Thursday at an event hosted by Columbia University and SGH Macro Advisers in New York. One of the main concerns – we can’t do it now, but we have to be able to do it in the future” in case inflation is not as tame as expected.
Brad reiterated his point,That is, the Fed should raise interest rates by 100 basis points cumulatively by July 1, and start shrinking its balance sheet in the second quarter,to tackle the fastest inflation in 40 years.
Even if the Fed did so, it would still be well below what Bullard sees as a neutral rate, while Federal Open Market Committee (FOMC) policymakers see 2.5 percent as the long-term target rate, according to the median forecast of Fed officials in December.
Fed officials concluded in January that they would start raising interest rates soon and were wary of persistent inflation that would make faster rate hikes plausible, according to minutes of their Jan. 25-26 meeting released on Wednesday.
While Fed staff had forecast inflation to be around 2.6 percent this year, Bullard said policymakers needed to prepare for continued price increases.
[US30-yearmortgageratesapproach4%thehighestsinceMay2019]
U.S. mortgage rates are approaching 4%.The 30-year mortgage rate averaged 3.92 percent, up from 3.69 percent last week and the highest level since May 2019, Freddie Mac said in a statement Thursday.
It was the second year in a row that mortgage rates climbed, tracking gains in the 10-year U.S. Treasury yield, which last week topped 2 percent for the first time since July 2019. The Federal Reserve is considering starting to raise interest rates to curb inflation at 40-year highs.
That could push mortgage rates even higher, further increasing the cost of home ownership for Americans. Many would-be buyers have had to back out as prices have been pushed up by tight supply.
“It’s definitely not good news on a psychological level, especially when you’ve made an offer three weeks ago and it’s gone, if you haven’t bought it yet,” said David Battany, executive vice president of capital markets at Guild Mortgage Co. A house, that’s definitely stressful, especially for first-time buyers, it’s a tough decision both emotionally and financially.”
Battany expects mortgage rates to hit around 4 per cent in the next 3-4 weeks, much faster than he had previously estimated.But he cited a possible surprise, which is that 10-year yields could fall if the global economy takes a hit from the Russia-Ukraine crisis.
Mortgage rates are more than a percentage point higher than about a year ago, when the 30-year average mortgage rate hit a record low of 2.65 percent.
(Spot gold daily chart)
In general, the situation in Russia and Ukraine has once again become the focus of market attention after a day of cooling. This concern may continue to provide strong support for the price of gold in the short-term, but it is necessary to be vigilant that once the situation improves, the price of gold may fall back quickly.
At 8:30 Beijing time, spot gold was reported at $1,902.10 per ounce.