The situation in the Middle East has quietened, with both parties reconciled over their recent operations. The chances of the conflict spreading have been thwarted for the moment. Oil has retraced recent gains, and the market seems content to focus on over-supply issues, which have helped the commodity return to US73.50. In the US, VP Harris is pulling ahead of Trump in the polls. The first interview, late last week, showed her as being “one who is confident, intelligent and at ease with her authority”. Our money is on her. We have 65 days to go for the US General Election. Regarding the economy, the Core PCE came in at +0.2%. This number will appease the FED and perhaps see the central bank ease rates at the Sept FOMC meeting. The market is looking at 0.25%. Traders are currently mulling over the next move in interest rates. Does a cut suggest that the economy is faltering and in need of some stimulus akka recent weak employment data, or is the economy weathering the tight monetary policy, and a rate reduction is just about normalising rates? Over the weekend, in China, NBS Manufacturing, Non-Manufacturing, and General PMI data showed the economy was still spluttering, with the numbers coming in weaker than expected. Traders are expecting the PBoC to provide further stimulus in order to get the economy going again.  The Monthly CPI data in Australia was higher than expected, albeit it was softer. The local equity market is back on its highs, which is super frustrating.  

But first, let’s take a look at the numbers coming out of China as this will also help provide a read on where we feel the Australian equites market will be going. China, the world's second-largest economy, continues to face headwinds. Over the weekend, China released a series of economic indicators, including the National Bureau of Statistics (NBS) Manufacturing, Non-Manufacturing, and General Purchasing Managers' Index (PMI) data. These indicators collectively painted a picture of an economy that is still sputtering.

The PMI data, provides a snapshot of economic activity in the manufacturing and services sectors, came in weaker than expected. NBS Manufacturing PMI came in at 49.1 previous 49.4, NBS Non-Manufacturing PMI 50.2, previous 50.2 and NBS General PMI 50.1 previous was 50.2.  The General PMI has been declining since March this year and is the lowest since December 22. Beijing is struggling to spur an economic turnaround amid mounting challenges such as disinflation risks, sluggish exports, and housing market crisis. Factory activity shrank the most in six months during August while growth in the service sector was near its lowest level since November 2023. The Chinese government has continuously vowed to boost consumption and expand domestic demand but offered little to no details on its implementation. This weakness suggests that China's economic recovery is far from complete and that the country may need additional stimulus measures to reignite growth. The Chinese government, through the People's Bank of China (PBoC), has already implemented several rounds of stimulus, but the latest data indicates that more may be needed.

Traders are closely watching the PBoC's next moves, expecting further monetary easing to support the economy. Any stimulus should also help the Australian Equity markets. Australia's economy has been grappling with its own set of challenges. The latest Monthly Consumer Price Index (CPI) data revealed that inflation was higher than expected, albeit softer than in previous months. Inflation has been a significant concern for the Australian economy, as rising prices erode consumer purchasing power and increase the cost of living.

The higher-than-expected CPI reading has complicated the outlook for monetary policy in Australia. The Reserve Bank of Australia (RBA) has been walking a tightrope, trying to balance the need to control inflation with the risk of stifling economic growth. The local equity market has responded by returning to its recent highs, a development that many investors find frustrating given the broader economic uncertainties.

The resurgence in the equity market suggests that investors are betting on continued monetary support from the RBA, despite the inflationary pressures. However, this optimism may be misplaced if inflation continues to rise, forcing the RBA to take more aggressive action and the economy in China continues to falter.  We continue to suggest that the local market is overvalued and remain short.

What can we expect this week? Most of the action starts Wednesday, when in the US we get ISM Manufacturing PMI, the forecasts are all looking mixed but feel a focus for the FED will be on ISM Manufacturing Prices where consensus is for 0.4% lower than the previous read of 52.9. On Thursday we have the Beige Book and Factory Orders MoM, where we are looking for a bounce from last month’s dreadful read of -3.3%. Then Employment Data is due Friday which will be the focus for traders and the FED. Check for signs of revisions in the data, we are expecting gains of 100k. Locally, on Wednesday we get GDP Growth Rate QoQ previous print was 0.1% forecast is 0.3% and then on Thursday we have RBA Gov Bullock saying a few words. 

On the position front, we remain short both SP500 and SPI. Both indexes have been consolidating at record highs, which suggest more gains. We are looking for a breach and then pull back this week which would signal a high. Unwound the AUD for small loss.  We took on a cheeky short position in Gold at 2513, added to our wheat position and remain long crude.

Trade Focus:

Gold

Fundamentals:

We have always been … the precious metal and still believe in its worth to trade ... Albeit sometimes it makes sense to look for a …-term trading opportunity. Fundamentals in this case do not provide much gravity towards the position. Albeit the USD has been firm for the last few days as investors get, they head around some consolidation in the Middle East …

Technical Analysis:

Technically, the picture looks great. In looking at the chart below momentum indicators are pointing lower where we can see some divergence in price action. We have resistance at … A break below … will see the start of a correction…

Support              …

Resistance         …

Momentum        …