Article by: ETO Markets
In 2023, major central banks successfully controlled inflation, which turned out to be much lower than expected. Surprisingly, China's shift away from zero-Covid measures, initially seen as a risk to inflation, had the opposite effect. China's economic struggles didn't contribute to inflation but rather helped mitigate it.
The Federal Reserve (Fed) appears more cautious compared to European central banks. Despite significant drops in inflation in Europe and Britain, their weaker economies suggest a need for more relaxed monetary policies. In contrast, the US economy remains robust, as evidenced by a 5.4% increase in durable goods orders in November. The growing disparity in economic conditions between the US and Europe raises questions about the divergence in policy stances between the dovish Fed and the more hawkish European central banks.
Gold is trading above $2,060 per ounce in the early European session on Wednesday, driven by expectations of potential interest rate cuts by the Federal Reserve (Fed). Traders have priced in a 15% probability of a cut on January 31, and full cuts are anticipated by March 20, with six cuts expected by the end of 2024.
Geopolitical tensions in the Middle East are contributing to a risk-off sentiment, increasing demand for Gold as a safe-haven asset. Despite concerns, major shipping companies like Maersk and CMA CGM are returning to the Red Sea, signaling a tentative normalization with the presence of a multinational task force. The decision of Hapag-Lloyd on resuming shipments is awaited on Wednesday. While there are worries about potential disruptions in the Gibraltar Strait by Iran, many doubt the feasibility of such an action.
WTI Crude Oil is pausing after a 2% gain last week due to disruptions in Red Sea transportation caused by Houthi rebel attacks on cargo ships in Yemen. Despite ongoing rebel threats, shipping has resumed with a joint task force presence.
High Crude Oil production, outpacing demand even with OPEC+ cuts, is keeping bearish pressure. U.S. Crude Oil stocks defy expectations, with API reporting a 939K barrel increase and EIA showing nearly three million barrels added. Both will release updated figures this week, with EIA expecting a -2.6 million barrel reduction.
