Wednesday (July 13) at the beginning of the Asian session, spot gold shock slightly fell, currently trading near $1724, the Federal Reserve's interest rate hike prospects and recession safe haven demand, help the dollar to hold near the high of nearly 20 years, which makes gold prices continue to be under pressure, this trading day will also usher in the Bank of Korea interest rate decision, The Reserve Bank of New Zealand interest rate decision, Bank of Canada interest rate decision, the market is generally expected to raise interest rates by 50 basis points respectively, is expected to further increase the opportunity cost of holding gold, which is not good for gold prices.
Daniel Pavelonis, senior market strategist at RJOFutures, said: "Investors are buying a lot of dollars, as well as expectations of higher interest rates at a time when inflation is more sustained, are putting pressure on gold. ”
Hovering around 20-year highs, the dollar index has strengthened its position as a safe-haven asset of choice amid rising recession risks, while making gold more expensive for buyers holding other currencies.
A series of U.S. data, including consumer prices, retail sales and factory output, that will also be released this week will provide clues about the extent to which inflation has risen sharply ahead of the Fed's policy meeting next week. On Wednesday, the Fed will also release a Beige Book of The State of the Economy, which investors also need to keep an eye on.
Han Tan, chief market analyst at Exinity, said: "A higher overall consumer price index (CPI) than expected on Wednesday should pave the way for another 75 basis point rate hike by the Fed later this month; This situation is widely considered to be bad for gold. ”
Fundamentals are mainly bearish
[RBNZ expected to raise interest rates by another 50 basis points, raising fears of excessive austerity]
Markets are expecting the Fed of New Zealand to raise rates for a third consecutive 50 basis points on Wednesday, the most aggressive policy tightening in more than 20 years, but there are growing signs that a potential sharp economic downturn could blunt that hawkish tendency.
The decline in confidence and sluggish economic data have left markets wondering whether the RBNZ's actions to contain the surge in inflation will do more harm than good.
Sharon Zolner, chief economist at ANZ, said: "The effect of monetary policy is lagging behind: first it affects confidence, then economic activity, and finally inflation. So focusing on just these inflation indicators is like looking in the rearview mirror while driving, and there's a fairly good chance you'll miss the turn and end up with excessive tightening. ”
As a pioneer in pulling out stimulus, the RBNZ has raised interest rates by 175 basis points since October.
Another 50 basis point hike on Wednesday would mean that rates would rise 10-fold from a record low of 0.25%. Economists predict that the central bank will raise interest rates by another 50 basis points in August, the most aggressive tightening cycle since the introduction of the official overnight rate (OCR) in 1999.
[Survey: Bank of Korea to raise interest rates by an unprecedented 50 basis points on July 13]
A Reuters survey showed that the Bank of Korea will raise interest rates for the first time ever at 50 basis points on Wednesday (July 13), raising the benchmark rate to 2.25%, and stepping up the rate hike as inflation breaks through 24-year highs and has not yet peaked.
The Bank of Korea began raising interest rates in August 2021, becoming one of the first central banks to raise interest rates, but the central bank is still grappling with inflation, which reached 6.0% in June, the highest since the Asian financial crisis broke out in full swing in November 1998.
According to a Reuters survey on July 4-8, 27 of the 32 economic analysts expect the Bank of Korea to raise rates by an unprecedented 50 basis points on July 13 to stem further price gains and cushion the impact of a fall in the local currency. Only five analysts expect a 25 basis point hike by then.
The Fed is aggressively raising interest rates, which has pushed the dollar up to a 20-year high. The Bank of Korea is one of many central banks currently feeling pressure from the Fed to raise interest rates.
"At a time when South Korea's (balance of payments) situation is under pressure, the Fed's hawkish stance justifies tightening policy more aggressively," Tan said. He thinks he will raise rates by 50 basis points on Wednesday.
[Survey: Bank of Canada expected sharp rate hike of 75 basis points in July]
According to a Reuters poll of 29 economists, the Bank of Canada is expected to raise rates sharply by 75 basis points on Wednesday and another 50 basis points in September, shifting the focus of monetary policy tightening towards the previous period.
The Bank of Canada is currently following the Fed's aggressive interest rate hikes. But the survey predicts that the Bank of Canada will halt its actions sooner than the Fed and will remain on hold for the whole of next year, in part because Canadian households have a heavy debt burden and are more vulnerable to rising borrowing costs.
The Bank of Canada has raised rates by 50 basis points each in two previous meetings, and after the Fed raised rates by 75 basis points in June, more than 90% of respondents believe that the Bank of Canada will also raise rates by 75 basis points to 2.25% on July 13.
That would be the biggest single rate hike since August 1998, when the Bank of Canada raised interest rates by 100 basis points to protect the Canadian dollar at a time of global exchange rate turmoil.
Most analysts predict that the Bank of Canada will raise rates by another 50 basis points in September, bringing the overnight rate to 2.75%, steadily entering the neutral interest rate range. Analysts surveyed estimate the neutral interest rate at 2-3%.
Most respondents predicted that the Bank of Canada's rate hike in October and December would shrink to 25 basis points or less, with benchmark rates rising to 3.25% by the end of the year, but more than a quarter of respondents predicted that interest rates would be higher than that figure at the end of the year.
"We now expect the Bank of Canada to raise rates to 3.25% by the end of October 2022, raise rates by 75 basis points in July, and then raise rates by 50 basis points each in September and October," noted Robert Both, macro strategist at TD Securities, noting that due to household debt factors, the Bank of Canada is unlikely to go as far as the Fed.
(Chart: Outlook for Canada's Economy and Monetary Policy)
Fundamentals are mainly bullish
[Fed Barkin said it "absolutely" saw signs of economic weakness and that a downward trend in inflation would not happen overnight.
Richmond Fed President Thomas Barkin said Tuesday the U.S. economy is slowing as consumer demand for goods driven by inflation returns to more normal levels.
"I definitely see signs of weakness," Barkin said, with "low-income households" and the economic sectors that saw surges in demand during the pandemic being the most pronounced.
While hiring is still strong, Barkin said he's still trying to determine if that's driven by underlying economic forces, or if employers are torn by previous hiring difficulties and determined to reserve workers.
The Fed is undergoing what is arguably the fastest monetary policy shift ever made in an effort to contain inflation at a four-decade high. Barkin said he expected the June consumer price data, released Wednesday morning, to rise again.
Barkin said he believes the Fed will eventually pull inflation back to its 2 percent target, depending on the measures used, but that could be a long struggle. The current level of inflation is three to four times the target.
"I expect inflation to fall, but not immediately, not suddenly, not predictably," he said, "and my expectation was that it would be a slow road, not an immediate drop to 2 percent." ”
So far, fed rate hikes have heightened fears that fed action could push the economy into recession. Policymakers approved a 0.75 percentage point hike at their June meeting, much larger than the usual one-quarter percentage point hike, and expect to approve such hikes again later this month.
Barkin said it is possible for the U.S. to steer clear of the economic downturn, but that will depend on the extent to which controlling inflation requires "demand disruption" in the economy, rather than suppressing prices without the need to slow growth, as has improved labor supply and global commodity prices.
[IMF Cuts U.S. Growth Forecast for 2022 again to 2.3 Percent as Consumer Spending Slows]
The International Monetary Fund (IMF) cut its U.S. growth forecast again on Tuesday, now expecting the U.S. economy to grow by 2.3 percent in 2022, compared with a forecast of 2.9 percent at the end of June. Officials cited the downward revision of the first-quarter gross domestic product (GDP) and consumer spending growth figures as the reason for the downward revisions.
The IMF included new forecasts in its annual assessment of the U.S. economy, which highlights the challenges posed by high inflation and the Need for a Sharp Rate Hike by the Federal Reserve to control prices.
Inflationary pressures in the United States are widespread, and the slowdown in price growth for durable goods has largely been offset by accelerated prices for housing, health care and other services and rising food and energy prices, the IMF said.
"The policy focus now must be on rapidly slowing wage and price growth without triggering a recession," the IMF said in a staff report. ”
The IMF said the Fed's monetary policy tightening should help reduce inflation to 1.9 percent in the fourth quarter of 2023, compared to a forecast of 6.6 percent for the fourth quarter of 2022.
This will further slow U.S. economic growth, but the IMF still predicts that the U.S. will avoid a recession. The IMF cut its 2023 U.S. real GDP growth forecast to 1.0 percent from 1.7 percent on June 24 as data corrections show a "marked decline" in private consumption and spending that has accumulated during the pandemic.
Andrew Hodge, an economist at the IMF's Western Hemisphere Division, said in a blog post that fed rate hikes and reduced government spending will slow consumer spending growth "to around zero by early next year," thereby alleviating supply tightness.
"Slowing demand will see unemployment rise to around 5 percent by the end of 2023, which should bring wages down," Hodge said. ”
[The three major U.S. stock indexes closed lower, recession fears intensified before CPI data came out]
U.S. Wall Street stocks closed lower on Tuesday, with increasing signs of recession pulling buyers off the market ahead of inflation data.
Earlier in the session, the three major stock indexes fluctuated slightly above and below the flat, but later fell sharply, with the Labor Department's consumer price report coming out on Wednesday and the big banks reporting later this week.
"(Investors) are waiting for the consumer price index (CPI) and corporate earnings," said Brent Schutte, chief investment officer at NorthwesternMutualHealthManagement Company. ”
"Investors are really confused and they choose not to buy at all," Schutte added, "I don't hear a lot of people say 'buy low.'" ”
While the CPI report is expected to show inflation continuing to climb in June, the core CPI, net of volatile food and energy prices, is expected to further confirm that inflation has peaked, which has the potential to convince the Fed to slow down its policy tightening plans in the fall.
Paul Kim, CEO of SimplifyETFs, expects CPI to rise year-over-year to reach "the high end of the 8%-9% range, and possibly even into the 9% range, with the Fed having only one idea at such high inflation."
There are concerns that the Fed's overly aggressive move to contain inflation at decades highs could push the economy to the brink of recession. The inversion of the two-year/10-year Treasury yield curve has been at its largest since at least March 2010, a potential signal of near-term risks and economic contraction that heightens concerns.
The Fed is expected to raise the key federal funds target rate by 75 basis points at the end of its July policy meeting, which will be the third consecutive rate hike by the Fed.
As of the close, the Dow Jones Industrial Index fell 192.51 points, or 0.62 percent, to 30,981.33 points; the S&P 500 fell 35.63 points, or 0.92 percent, to 3,818.8 points; The Nasdaq fell 107.87 points, or 0.95 percent, to 11,264.73.
[Nomura expects the Fed, the European Central Bank, and the Bank of England to cut interest rates next year]
Nomura expects that as inflation eases and a recession is expected, central banks in major developed markets will begin cutting interest rates next year, with rates expected to peak early next year.
Economists at the Japanese bank expect the Fed's rate hike to peak at 3.50-3.75 percent in February, despite the expected recession starting in the fourth quarter.
They expect the Fed to pause rate hikes until core inflation slows to 2-2.5% a year, then cut rates by 25 basis points per meeting from September 2023. They expect that the balance sheet reduction will also end at that time to avoid the backlash of policy instruments.
As for the ECB, Nomura expects six rate hikes by March 2023, raising rates by 175 basis points. But with the expected recession weighing in, they expect a 25 basis point rate cut in June.
They added that if Germany is completely cut off from Russian gas supplies, the ECB's policy tightening could end sooner than expected.
Nomura expects the Bank of England to raise rates by another 100 basis points by the end of the year. The bank added that the expected drag on the recession and the slowdown in inflation means there could be a 25 basis point rate cut in May and June 2023.
Money markets are also digesting expectations of interest rate cuts from the Fed and the Bank of England next year.
[Ukraine hit the Russian-controlled area with a long-range rocket and prepared to counterattack and retake Unann]
Ukraine said on Tuesday that it had used long-range rockets to launch an attack on Russian troops and military installations in the south, planning to mobilize hundreds of thousands of troops for a counteroffensive to retake the southern region.
The Ukrainian military said the attack hit a Russian ammunition depot in Nova Kakhovka, Kherson region, killing 52 people.
But the Russian side's account is very different, according to the Russian TASS news agency, the Russian side said at least seven people died in the attack, about 70 people were injured. A Russian-backed official in Kherson city said civilians and civilian infrastructure were hit.
The areas ukraine is currently occupied by Russia, has Black Sea access, is strategically important, and is close to Russian-controlled Crimea.
Ukrainian government officials have spoken of mobilizing up to a million troops with the aim of retaking the now Russian-controlled region of Unanan.
A local pro-Russian official said the Ukrainian army was using advanced HIMARS missiles provided by the United States. The Ukrainian Ministry of Defense did not immediately respond to inquiries about the types of weapons used.
The Russian-Ukrainian conflict has hampered ukraine's food and cooking oil supplies and exacerbated the global food crisis. More than 20 million tons of grain are stranded in granaries in the important black Sea port of Odessa.
Obviously, most central banks around the world follow up with the Fed's aggressive interest rate hike, which will increase the opportunity cost of holding gold, which is not good for gold prices, and there is still a risk of further downward exploration in short-term gold prices. However, it is expected that the upward momentum of the US dollar index will weaken, as the market's fears of the US recession have also heated up, gold's safe-haven buying demand may gradually recover, coupled with the still tense situation in Russia and Ukraine, the short-term downside space of gold prices is also somewhat limited, continue to pay attention to the 1700-1720 area support.
At present, short-term gold prices are biased towards a small shock downwards. However, it also maintains the possibility of bottoming out, watching for resistance near the 10-day moving average at 1759.14 above, and if it can recover this level, it will weaken the short-term bearish signal.
This article originated from Huitong Network