Equity markets took a slight step backward as US Retail Sales were better than expected, and Fed Chair Powell's made some hawkish remarks that seem to have put the brakes on any new rate cut for now. President Trump’s policies are starting to firm up as we get a better look at his presidency for the next four years. Commodity markets are trying to hold up, but traders are sceptical that economic conditions in China remain weak. Over the weekend, foreign direct investments into China plunged -29.8% YoY; although it was softer than the previous read of -30.4% YoY, it gives a worrying perspective of what’s potentially ahead. PBoC will hand down its decisions on Loan Prime Rates for 1Y and 5Y this week. Interest rates in China have been dovish since 2015, and expectations are that they will remain soft for the foreseeable future. The market expects no change at 3.1% and 3.6%, respectively. But are cautious, the PBoC will add another round of stimulus. In Australia, RBA Bullock remains hawkish on rates, as the Bank continues to be concerned about inflationary pressures. The RBA minutes will be a highlight for the week. 

But first, let’s look at the Trump administration’s policies.  As we get a clearer picture of President Trump’s policy agenda for his second term, markets are starting to react to the potential economic implications. His administration’s focus on tax cuts, deregulation, and increased infrastructure spending aims to boost domestic growth. Looking for economic growth is fine, but with the FED’s recent comments and hawkish statements, inflationary pressures could arise from these expansionary fiscal policies. The potential for higher inflation may prompt the Fed to maintain its hawkish stance for longer, further dampening hopes for rate cuts in the near term. Retail sales in the US increased 0.4% month-over-month in October 2024, following an upwardly revised 0.8% gain in September and above market forecasts of 0.3%. The revised figure is the concern. Given recent Retail Sales growth of 0.4%, YoY the chances of exuberant spending by Trump voters expecting better times to come will potentially see Powell’s hawkish statement realised. Better times should see commodity markets stabilise.

Commodity markets are attempting to stabilize, but traders remain skeptical due to the ongoing weakness in China’s economic conditions. Despite attempts to rally, key commodities like oil, copper, and iron ore have faced selling pressure, reflecting concerns about reduced demand from China, the world’s largest consumer of raw materials.  Iron Ore for instance has been tending down since heady heights of US$220 in 2021. It is currently trading at US102. Data revealed that property investment in China dropped by 10.3% in the first 10 months of the year, while new home prices in October saw their largest decline in over nine years. Over the weekend, data revealed a significant drop in foreign direct investment (FDI) into China, plunging -29.8% year-over-year. Although this decline was slightly softer than the previous reading of -30.4% YoY, it underscores a worrying trend that could signal deeper economic challenges ahead.

The decline in FDI highlights the broader uncertainty surrounding China’s economic outlook, driven by ongoing struggles in its property sector, rising geopolitical tensions, and weakening domestic demand. Investors are particularly focused on the upcoming policy decisions from the People’s Bank of China (PBoC), which is set to announce its stance on the 1-year and 5-year Loan Prime Rates (LPR) this week. The PBoC has maintained a dovish policy stance since 2015, consistently lowering rates to stimulate economic growth. Despite these efforts, the recent economic data suggests that China’s recovery remains fragile. Market expectations are for the PBoC to keep the 1-year LPR unchanged at 3.1% and the 5-year LPR at 3.6%. However, given the ongoing economic headwinds, there is cautious speculation that the PBoC might introduce another round of stimulus measures in the near future to support growth.

In Australia, Reserve Bank of Australia (RBA) Governor Michele Bullock has maintained a hawkish stance on interest rates, emphasizing the central bank’s ongoing concerns about inflationary pressures. Despite recent data showing a slight moderation in inflation, the RBA remains vigilant, indicating that further rate hikes are still on the table if necessary to bring inflation back to the target range.

The RBA’s minutes, set to be released later this week, will be a key focus for investors and economists, providing deeper insights into the bank’s policy outlook and its assessment of the domestic economic landscape. The minutes are expected to highlight the RBA’s commitment to containing inflation, even as global uncertainties and weaker economic data from China threaten to weigh on Australia’s export-driven economy.

Australia’s economic ties with China make it particularly vulnerable to any slowdown in Chinese demand. However, the RBA’s cautious approach suggests that it is willing to prioritize domestic price stability over short-term growth concerns, even if it means maintaining higher rates for an extended period. The hawkish tone from the RBA contrasts with the more dovish expectations for the PBoC, highlighting the diverging monetary policy paths of the two central banks.

It will be a relatively quiet week in the US, with the spotlight on manufacturing and services PMI data, along with housing market updates such as building permits, housing starts, and existing home sales. On the monetary policy front, speeches by Federal Reserve officials and ECB President Christine Lagarde will draw attention, as will interest rate decisions from China, Turkey, and South Africa and RBA Meeting Minutes. Inflation figures will be key in Canada, the UK, South Africa, and Japan, while Germany will release producer price data. Flash November PMI readings are expected from Australia, Japan, India, France, Germany, the Euro Area, and the UK. 

On the position front, we are still … out on small, … equity positions (ASX … and SP…). Wheat, we remain … but are still happy to … off for a longer time. We are … the AUDUSD. Gold and Silver, we have just gone along with … positions to feel our way as a potential low look in place.

Trade Focus:

Gold

Fundamentals:

Gold, is it time to buy? We exited our positions in Gold and Silver a while ago and now think it is time to have another look at the metals. The fundamentals are starting to line up. Trump's new policies, hawkish statements from Powell and a strong USD trading at 2-year highs that is slowly cutting down exports…

Technical Analysis:

The technical picture for Gold and Silver looks similar. Focusing on Gold we have bounced of a solid trend line support that comes in US… This trend line has been tested a few times, and it bodes well for a … position. Breaking back above US… confirms a … and we expect it to trade US … Momentum indicators show an…

Support              …

Resistance         …

Momentum        …