Gold looks to have bounced from its recent lows, with investors returning to the metal after a good correction. This is regardless of the strength of the USD, which usually has an inverse relationship. The USD has taken centre stage, trading at a 4-year high. Investors moved to the USD as a result of Trump’s victory, not only as president and the popular vote but also his win extending victories in both houses of Congress. Providing him with a strong mandate for change. US Equity markets are still undecided as to whether or not Trump’s policies will be bullish or bearish. We may get more of an idea once Trump has appointed Treasury secretary. The Treasury Secretary can impact policy. S+P Global PMI showed us that the US economy is doing very well, especially in the private sector. Last week’s read showed a gain of 55.3, a level in confidence that we have not seen since May 2022. Whilst Euro PMI provides a dismal outlook for the eurozone. US equity markets all finished the week with positive gains. China revealed further measures to boost foreign trade as PBoC tries in vain to stimulate the economy. In Australia, the RBA head Bullock in a speech, said core inflation remains far too high and rates will remain on hold at 4.35%. Interesting, as we are in line with other Western trading partners. On the geopolitical front, Ukraine dialed up the war against Russia, sending coalition missiles into Russia. A step that caused a major response from the Kremlin and saw crude oil close the week up 5%.
But first, let’s take a look at the RBA decision to keep rates on hold. The Reserve has maintained its cautious stance on monetary policy. In a recent speech, RBA Governor Michele Bullock highlighted the challenges posed by persistently high core inflation, which remains well above the central bank's target. As a result, the RBA has decided to keep interest rates on hold at 4.35%, aligning with the policies of other Western trading partners.
The decision reflects the RBA's focus on balancing inflationary pressures with the need to support economic growth. While Australia’s economy has shown resilience, challenges such as rising household debt, a slowing housing market, and external risks from global trade tensions continue to weigh on the outlook. However, the recent Consumer Price Index (CPI) in Australia increased by 2.1% year-on-year in September 2024, coming in below market forecasts of 2.4% and August's reading of 2.7%. This was the lowest figure since July 2021, bringing inflation within the central bank's target range of 2 to 3% for the second consecutive month. However, this was largely due to the ongoing impact of the Energy Bill Relief Fund rebate, it is still within the target. So why keep rates elevated?
We have learned from the past the RBA tends not to be as aggressive in guiding monetary policy as much as other CBs. This is good and bad. Whether it is to lower rates and create a base to put them up again if Trump’s policies are inflationary. Or to get to a level to accommodate the ongoing weakness out of China. We are hoping that they lower rates sooner rather than later as we feel the opportunity window is closing for the RBA.
Global Inflation Rates
USA Grey, Euro Red, UK Black Aust Blue (Trading Economics)
Further, when compared to other western trading partners (above), Australia’s RBA is in good company with other economies to ease. So it should.
In the US recent economic data paints a picture of robust growth. The latest S&P Global PMI reading underscores the strength of the private sector, with the index climbing to 55.3. This marks the highest confidence level since May 2022, reflecting strong demand and business activity. The positive data has reinforced investor confidence in the U.S. economy’s resilience, even amid shifting political ideas from Trump and general economic conditions.
The strength of the U.S. economy is further evidenced by the labor market's continued recovery, rising consumer spending, and solid corporate earnings. These factors have supported equity market gains, with all major U.S. indices closing the week in positive territory. However, the sustainability of this momentum will depend on how effectively Trump implements his policies.
Europe continues to face significant challenges. The latest European PMI readings highlight the stark contrast between the two regions, with the eurozone struggling to gain traction. Weak demand, sluggish growth, and geopolitical uncertainties have weighed on European economies, raising concerns about the region's recovery prospects.
The dismal PMI data underscores the ongoing divergence between the U.S. and European economies, creating additional pressure on the euro and boosting the relative appeal of the USD. This dynamic has further complicated the European Central Bank’s efforts to stimulate growth and combat deflationary pressures. As a result, the eurozone remains a source of concern for global investors, contributing to the heightened demand for safe-haven assets like gold.
China has again unveiled additional measures aimed at boosting foreign trade and supporting its slowing economy. The People’s Bank of China (PBoC) has been at the forefront of these efforts, implementing monetary easing and fiscal stimulus initiatives. However, the impact of these measures has been limited, reflecting the structural challenges facing the world’s second-largest economy.
China's struggle to sustain growth has raised concerns about the broader implications for global trade and economic stability. As a key driver of global demand, any slowdown in China’s economy could have ripple effects across emerging markets and commodity-producing countries. Despite the government’s efforts, the PBoC’s actions have yet to deliver the desired results, leaving investors cautious about China’s outlook. The uncertainty provides a risk on attitude that will support Gold. Overall all it seems that “risk on” is the theme for the day.
Gold’s resurgence underscores its enduring appeal as a safe-haven asset. Historically, gold has served as a hedge against inflation, currency devaluation, and market volatility. Its recent recovery highlights the growing demand for stability in an increasingly uncertain world. All these seem to be coming into play.
Gold’s performance is particularly notable given the strength of the USD, which typically exerts downward pressure on the metal. The simultaneous rally in both assets suggests that investors are seeking protection against a wide range of risks, from inflation and interest rate hikes to geopolitical instability and economic slowdown.
The shortened holiday week in the United States will center on the FOMC meeting minutes, PCE inflation data, personal income and spending figures, the second estimate of Q3 GDP growth, and the Conference Board's consumer confidence index. Additionally, attention will be on durable goods orders, corporate profits, new and pending home sales, and the S&P/Case-Shiller Home Price Index. Elsewhere, Inflation figures from Australia, will be closely watched. As we look for the RBA to ease.
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 … time. We have done well out of the Gold and Silver trades and remain with this trade. We are … AUD, which is not performing.
Trade Focus:
Oil
Fundamentals:
Oil remains in a range and is currently testing the top end. Geopolitical events are supporting the commodity. As a result of Ukraine making its first attack on Russia using U.S. and British weapons and with Russia retaliating by firing a hypersonic ballistic missile, it is raising fears of supply interruptions. Further, Iran said it will …
Technical Analysis:
As we can see the price of oil has been in a range and is currently at the top end. This is all base building price actions. We are happy to buy dips to US…, looking for US… and beyond.
Support …
Resistance …
Momentum …
