During the Asian session on Tuesday (October 18), spot gold hovered near the 1650 mark. On Monday, Britain's new chancellor of the exchequer Hunt overturned Truss's economic plan, helping the pound and British government bonds soar, New York manufacturing data also underperformed, and the dollar and Treasury yields were dragged. The dollar tumbled 1.05% to a more than one-week low, providing rebound momentum for gold prices, which briefly rose to around $1668; however, the market's expectations for further sharp interest rate hikes by the Federal Reserve within the year lingered, U.S. Treasury yields turned into gains in late trading, and the surge in U.S. stocks also weighed on gold's safe-haven demand, and gold prices eventually fell back to near the 1650 mark.
In addition to the Federal Reserve, many central banks around the world, such as the European Central Bank, the Bank of England, and the Reserve Bank of New Zealand, are still biased to raise interest rates sharply in the future, which will further increase the opportunity cost of gold; Gold-backed ETF holdings are still declining, and the technical bearish signal is still strong, and before regaining the 21-day moving average of 1669.25, the gold price is still biased to the downward volatility.
Of course, in the short term, we need to pay close attention to the trend of the dollar, if the dollar pulls back further, it may provide gold prices with opportunities for shock rebound adjustment in the short term.
Bob Haberkorn, senior market strategist at RJOFutures, said: "The dollar has moved sharply lower... Yields are falling," he said, noting that there is some "safe-haven demand amid heightened geopolitical risks."
This trading day pays attention to the US industrial output monthly rate in September, the Eurozone ZEW economic sentiment index for October, the speeches of Atlanta Fed President Bostic and Minneapolis Fed President Kashkari, the speeches of ECB officials, and the further news on UK fiscal policy.
The fundamentals are mainly positive
[Britain's new Chancellor of the Exchequer Hunt overturns Truss's economic plan and staged a policy reversal drama]
Britain's new chancellor Chancellor Hunt Hunt on Monday overturned Prime Minister Truss's economic plans and scaled back a massive energy subsidy program, one of the biggest fiscal policy reversals in British history to stem a sharp drop in investor confidence.
Truss's spokesman denied that Hunter was running the country after Hunter's new strategy drove the pound soaring against the dollar and helped the price of British gilts begin to rebound from the plunge following the government's announcement of an unfunded tax cut on September 23.
Later Hunt detailed in Parliament the reasons for the need to reverse almost all of the growth plans, and Truss remained expressionless the whole time, which helped her become leader of the Conservative Party and prime minister of the United Kingdom less than six weeks ago.
"We are a country that funds our commitments and pays off debt," Hunt told parliament, adding that the "difficult" decision to cut public spending would follow.
The former foreign and health secretary was appointed last Friday after Truss removed her close ally Quartten.
Under the new policy, most of Truss's £45bn of unfunded tax cuts will be scrapped and a two-year energy support scheme for homes and businesses – expected to cost well over £100bn – will now be shortened to end in April next year. The plan will then be reviewed to develop a targeted plan that will cost significantly less than originally planned.
Truss is expected to defend the new policy at a weekly parliamentary question on Wednesday. Mr Hunt said removing the planned tax cuts would add £32bn a year to revenue
Economists say the measures will not fill the public finance gap or recoup the damage caused by the government's aggressive policies, but they are a step in the right direction.
Truss tweeted: "We have taken action to chart a new course for growth and support and services for people across the UK. ”
British gilts rebounded on Monday, but damage remains, with the 10-year yield still about 46 basis points above their September 22 close. While yield spreads with comparable bonds and US bonds have narrowed, the blow to UK gilts has remained particularly severe.
The Treasury said Hunt would submit a more comprehensive medium-term fiscal plan on October 31 as scheduled, along with forecasts from the independent Office for Budget Responsibility (OBR).
The pound rebounded more than 2% against the dollar on Monday, hitting a one-and-a-half-week high of 1.1439 and closing at 1.1358, up about 1.63%, which weighed down the dollar.
[USD plunges to more than a week low]
The dollar fell against a basket of major currencies on Monday, hitting as low as 111.92 to close at 112.10, down about 1.05%, as the former chancellor abandoned much of the government's "mini-budget" plans, while better-than-expected earnings support from Bank of America boosted risk appetite.
Adam Button, chief currency analyst at ForexLive, said: "The pound has been a driver of the FX market so far this month, and the big reversal announced by the UK government has restored confidence in the pound and taken away dollar buying. ”
Chris Beauchamp, IG's chief market analyst, said: "At the moment, the market seems happy to give the new Chancellor of the Exchequer time and space to clean up the government's mess. ”
Bank of America reported a weaker-than-expected quarterly profit decline and said its U.S. retail customer spending remained strong even after slowing, which weighed on safe-haven buying demand for the dollar.
[9,000 Russian soldiers are arriving in Belarus]
The Belarusian Ministry of Defense announced on the 17th that Russia will send about 170 tanks to Belarus as part of the deployment of regional forces in the alliance countries. In addition, up to 100 guns and mortars with a caliber of more than 100 mm will arrive from Russia to Belarus. The Ministry of Defense of Belarus said on the 16th that Russian servicemen participating in the formation of regional units of the Union of Russia and Belarus are arriving in Belarus one after another, and the total number of Russian troops participating in the regional forces of the alliance countries is expected to be close to 9,000.
[Ukrainian media: Russia launched 9 missile attacks and 39 air strikes on Ukraine in the past day]
In the past day, the Russian army launched nine missile strikes and 39 air strikes on Ukrainian territory and carried out about 30 shots using multiple launch rocket systems (MLRS), the Ukrainian state news agency reported on Monday.
The General Staff of the Armed Forces of Ukraine reported that more than 25 settlements were under artillery fire, including Kiev, Zaporozhye, Kozacharopany, etc. The Russian military has used cruise missiles, air-launched missiles and anti-aircraft missiles, as well as Iranian-made Shahed-136 suicide drones against Ukraine. The Russian army tried to hold the temporarily occupied areas and concentrate its forces on limiting the actions of the Ukrainian Defense Forces in certain directions. At the same time, the Russian army continues to try to conduct offensive operations in the Bakhmut and Avadiivka directions. Over the past 24 hours, Ukrainian forces have repelled Russian attacks near several settlements in the Donetsk region.
[Europe is experiencing an unprecedented energy shock]
Recently, Tabarelli, head of an Italian energy research institute, said in an interview with Italian media that the current Italian natural gas price has tripled compared with previous years, the price of electricity has almost doubled, and European countries including Italy are experiencing an unprecedented energy shock.
Earlier this month, Tabarelli said it would take at least two to three years for Italy to replace gas imports from Russia through other channels or means.
[U.S. manufacturers are pessimistic about the future of companies]
The data showed that manufacturing activity in New York State fell sharply in October, and manufacturers were pessimistic about the state of the business over the next six months.
The Federal Reserve Bank of New York reported on Monday that the manufacturing index, which measures current corporate conditions, fell to minus 9.1 in October and was expected to be minus 4.0. A reading below zero indicates that New York's manufacturing sector is shrinking.
The survey's new orders index was 3.7, unchanged from September. The price index for payments was at 48.6, compared with 39.6 in September. The employment index was at 7.7 and 9.7 in September. Manufacturers are generally pessimistic about the outlook for the next six months. The Future Business Status Index came in minus 1.8 this month and 8.2 in September.
[Model shows that the probability of recession in the US economy reaches 100% in one year]
Bloomberg Economic Research's new model projections suggest that the U.S. economy will almost certainly fall into recession over the next 12 months. This is not good news for US President Joe Biden's economic message ahead of November's midterm elections.
Bloomberg economists AnnaWong and Eliza Winger's latest recession probability model shows that the probability of recession has increased across all forecast periods, reaching 100% for the 12-month period ending October 2023, up from 65% in the last update.
The fundamentals are mainly bearish
[U.S. stocks rebound sharply, boosted by U.S. bank results and a sharp reversal in UK policy]
U.S. stocks rebounded sharply on Monday after a major reversal of economic plans in the United Kingdom and Bank of America became the latest financial firm to report solid quarterly results, boosting optimism about a corporate earnings season.
Britain appointed Hunt as Chancellor of the Exchequer, and as soon as he took office, he reversed many of Prime Minister Truss's fiscal measures that have rattled markets in recent weeks.
Bank of America shares jumped 6.06 percent as its net interest income was boosted by rising interest rates during the quarter.
Overall, the rate hike boosted banks' interest income in the third quarter, giving investors hope that the current earnings season could beat lowered expectations. According to Refinitiv data, analysts expect corporate earnings to grow 3 percent in the third quarter, lower than the 4.5 percent expected at the beginning of the month and the 11.1 percent expected on July 1.
Emily Roland, co-chief investment strategist at John Hancock Investment Management, said: "In such a fragile market, any type of good news can make a big difference. ”
The sentiment surrounding the current situation in the UK has improved, financial sector earnings are supported by a number of factors, improved net interest margins are one of the key factors, and higher rates will be good for banks, so Q3 earnings may not look as bad as feared, I would say, it may not necessarily be better than feared. ”
By the close, the Dow Jones Industrial Average was up 1.86% at 30,185.82, the S&P 500 was up 2.65% at 3,677.95 and Nasda was up 3.43% at 10,675.80
"Right now that the Fed dominates the market, Fed policy is the key driver, they are implementing the most aggressive tightening in the shortest time our generation has seen, and it's important to remember that there is a lag in the effectiveness of Fed policy," Roland said. ”
[The probability of a 75 basis point rate hike by the Fed in November is 94.7%]
According to CME "Fed Watch": the probability of the Fed raising interest rates by 50 basis points to the range of 3.50%-3.75% in November is 5.3%, and the probability of raising interest rates by 75 basis points is 94.7%; the probability of a cumulative rate hike of 100 basis points by December is 1.5%, the probability of a cumulative rate hike of 125 basis points is 30.5%, and the probability of a cumulative rate hike of 150 basis points is 68.0%
[U.S. long-term bond yields remain strong]
Longer-term U.S. government bond yields turned higher on Monday as markets traded lightly and money flows drove the market as investors' concerns eased slightly after Britain's new chancellor, Chancellor John Hunt, overturned much of Prime Minister Truss's economic growth plans.
After several days of political and financial turmoil, this injected overall optimism into global markets.
Analysts said U.S. Treasury yields moved lower in tandem with the U.K. bond market earlier in the session, but flows were driven in both directions from late morning to afternoon trading.
Gennadiy Goldberg, senior rates strategist at TDSecurities in New York, said, "Liquidity is quite thin and smaller flows have tended to move the market in recent days, so that could be the cause of volatility and some reversals." ”
He added: "Over the past few weeks, US debt has been more or less tied to the UK, especially at the long end of the curve because of the volatility. ”
The UK 30-year yields fell as much as more than 40 basis points, but broke off those lows at 4.359% in late trading. The 20-year yield also recovered from the sharp decline, holding flat at 4.457% on the day.
U.S. Treasury yields also recovered from their lows. The yield on the 10-year Treasury note rose 1.3 basis points to 4.019%. The yield on the 30-year Treasury note rose 4.3 basis points to 4.018%.
"I don't think there's really change on the (U.S.) domestic side," said Goldberg of TD Securities, "and the Fed is still hawkish." They're telling you that they're going to keep raising rates, and that's not going to change until the November meeting. ”
It should be reminded that although U.S. bond yields finally closed higher on Monday, making gold prices give up some gains in the short term, the 10-year Treasury yield daily K-line recorded doji, Tuesday Asian session slightly weaker, after the U.S. 10-year Treasury yield has been weekly eleven consecutive sunshine, the upward momentum has weakened, if this trading day recorded a black line, you need to be alert to the risk of peaking, is expected to provide gold prices with rebound opportunities in the medium and long term.
[ANZ: RBNZ expected to raise interest rates by 75 basis points in November and February next year]
New Zealand economists at ANZ said after the release of New Zealand's third-quarter inflation data that they expected the RBNZ to raise the official cash rate by 75 basis points at its policy meetings in November and February before stopping for a review. This would allow the official cash rate (OCR) to peak at 5% in February. Both rate hikes depend on consistency in global financial markets. There is no doubt that such a big move is risky later in the cycle and may well prove to be a mistake. But today's data leaves the RBNZ with little choice. They are much further behind in inflation than thought. New Zealand inflation is currently holding near a 32-year high, spurring bets on a rate hike by the RBNZ.
[ECB Governing Council Nagel: Policy stimulus must be quickly withdrawn and interest rate hikes must not be stopped prematurely]
ECB Governing Council Joachim Nagel said on Monday that the ECB must continue to rapidly taper monetary support and cannot stop raising interest rates prematurely. Given that inflation is "alarmingly high" and policy remains accommodative, officials "must quickly withdraw stimulus."
Bundesbank President Nagel told Harvard students on Monday. If necessary, borrowing costs will have to "go into restrictive areas."
"We must not relax until price stability is restored," Nagel said. "A premature halt could lead to a longer period of high inflation, after which tighter monetary policy would be needed, which could then lead to a deeper recession."
[Gold-backed ETF holdings continue to decline]
SPDRGoldTrust, the world's largest gold ETF, reduced its holdings by 2.03t on Monday from the previous session, and the current position was 939.1t, hitting a new low since the end of March 2020, suggesting that institutional and professional investors still tend to be bearish on gold prices in the medium and long term under the expectation that global central banks such as the Federal Reserve will raise interest rates sharply.
Overall, the short-term trend is more variable, fundamentally, after British Finance Minister Hunt overthrew Truss's economic plan, the pound led most non-US currencies to rebound, the dollar short-term downward pressure remains, if the dollar further pullback, it is expected to provide gold prices with further rebound opportunities; More important to watch is the performance of U.S. bond yields, which will put pressure on gold prices again if they remain strong.
This article is from Huitong.com