Our thoughts and prays remain will all the innocent in all conflicted regions.
The wars in the Middle East and the Ukraine sadly seem to be taking a second seat to machinations in the financial sector. Powell’s comments last week combined with some poor ISM data is providing some credence to the prospects the Federal Reserve has finished raising rates in this cycle. The USD remains under pressure as the new monetary regime seems not to be dollar friendly. Commodities markets are on a tear, especially, Gold which has traded past the record high of 2075 made on August 2020. It is currently trading at US2120. Talk of cuts in the supply of oil at the last OPEC meeting have done little to push prices high. Traders feel that the cartels increase in supply cuts will do little to affect the current supply. The RBA meets this Tuesday to decide on what to do with official interstates after last month’s increase to 4.35%. Overall, the rallies in the global equity and commodities markets are looking hollow so hoping that the economic data due out this week will support the current levels.
But first on to the Federal Reserve Governors comments last week. Powell in a statement said that evidence has been emerging that the rate increases have stopped inflation, albeit they have started to cut into economic activity. A more balanced approach is needed as he ushers in a more dovish stance to monetary policy. The PCE data from last week helped reiterate his story. Personal Income (0.2%) the least in over four months and Personal Spending (0.2%) the smallest advance in five months suggests that consumers are earning less and spending less. The ISM Manufacturing Index also came in way less than expected at 46.7 verses an expected 47.6. Well off from Septembers read of 49. All data is pointing to a slow down which will rachet through the official inflation numbers but also into sentiment for profits from the corporate market. Corporate profits from the last quarter only just limped across the line at an increase 0.5% well done from the forecasts of 1.7%. Whilst in China Industrial Profits were marginally lower at a fall of 7.8% and NMS General PMI came in at 50.7 verses a forecast of 51.7. Once again indicating that economic growth in the powerhouse economies are slowing or remaining soft as is the case in China.
Investors are looking at the last increase in rates, inflation is under control and economic activity is slowing. But why is gold reaching record highs? Several past comments we mentioned that the run-in gold was at an end. This last move has caught us by surprise. Trading to a record high of $2123USD this morning. It doesn’t make too much sense as to why gold would be trading at these levels (we took a small, short at US2101). There is no reason to buy on an inflation basis, the US dollar although it has been under pressure has not collapsed. We did see some geopolitical issues with a flare up in attacks from Houthi rebels on commercial ships in the Red Sea and expectations that Israel/Hamas conflict could spread to other regions. However, Oil did not move in fact it traded lower so suspect the move was more trader induced rather than event driven.
The delayed OPEC meeting appears to have back fired on the cartel. Continued need to support the Crude price via supply cuts seems to have fallen on deaf ears. The market feels that any cut in supply by the cartel will not affect supply. This is a real turn around from recent times as it reiterates sentiment that the cartel doesn’t really have as much power as it did years ago. The US continues to be then the main global supplier and with Russia’s need for dollars to help fund is war in the Ukraine ample supply will be a feature for the commodity in sessions to come. At the moment the Brent contract is trading at US78.37 well off from its yearly high of US97.50 and failed breach of US85 last week. It looks soft.
This week’s focus will be on Factory Orders MoM in the US Tuesday. The previous was +2.8% the consensus is for a negative 2.3% adding weight to the dovish tone mentioned above. Most importantly we have ISM and Jolt numbers on Wednesday which are followed up by employment numbers in the US on Friday night and Chinese inflation data on Saturday.
Closer to home, this week’s see the RBA Interest rates decision on Tuesday. Whilst we do not expect any movement, with the rate remaining at 4.35%, it will be interesting to see the wording from the new Governor. Today’s TD-MI Inflation gauge was outside expectations at a lift of 0.3% whilst Company Gross profits were down -1.3% and Retail Sales Final Mom was also down 0.2%. Steady as she goes. The AUD/USD has been trending higher. The weakness in the USD has helped commodities and also the local currency as it is considered a commodity-based currency. Although the yield differently between the Australia and US places the currency at a disadvantage the potential prospects of a dovish tone in rates in the US should be supportive of commodities and hence the local currency.
On our positions, we continue to hold the AUD/USD and also the AUD/CHF. On the AUD it continues to edge higher, … is however a big level and with momentum indicators on highs we expect some profit taking to come into play. We see the trend is still intact as long as US… remains in play. Momentum needs to build for a push onto US … so expect some consolidation. On US equities we did trigger a short position on the NASDAQ at … and the Dow at … as feel it is unjustified to be trading close to record highs given the currently macros we are dealing with. Stops are in place. We have taken a short Gold position at US… as it was a knee jerk Monday morning trade that looked trader induced and did not make sense. We remain …
Trade Focus:
Gold: ....
Technical Analysis:
From technical perspective this looks like …
Support …
Resistance …
Momentum …
