16 Sep

Gold continues to fall in price. The focus is on CPI data in Europe

September 16, 2022

By JustForex

Rosenberg Research’s chief economist expects the US Central Bank to raise interest rates by 75 basis points when it meets later this month. However, he urged the Fed to temporarily suspend its hike program because the US economy is already under pressure. According to Rosenberg, the Fed’s current rate hike program will punish long-term bondholders whose fixed-income assets are particularly sensitive to interest rate changes. Rosenberg added that he expects the US economy to come out of the Fed-induced recession (which will be 100%) only after it has gone through a period of deflation, allowing policymakers to start lowering interest rates.

The US retail sales rose unexpectedly after falling the previous month. The value of total retail purchases increased by 0.3% last month after a downwardly revised drop of 0.4% in July. Excluding fuel prices, retail sales increased by 0.8%.

The S&P 500 Index fell Thursday as energy and technology stocks fell, with the latter under pressure from rising Treasury yields as investors expect the Federal Reserve to raise its interest rate further to curb inflation. At yesterday’s close of the stock market, the Dow Jones Index (US30) decreased by 0.56%, and the S&P 500 Index (US500) lost 1.13%. The NASDAQ Technology Index (US100) fell by 1.43%.

According to the Fed’s rate monitoring tool, a 75 basis point rate hike next week is already priced in. But rising inflation and continued strength in the labor market are forcing a bet on higher and longer rates.

Equity markets in Europe traded without a single dynamic yesterday. Germany’s DAX (DE30) decreased by 0.55%, France’s CAC 40 (FR40) lost 1.04%, Spain’s IBEX 35 (ES35) added 0.37%, Britain’s FTSE 100 (UK100) closed by 0.07%.

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New inflation data will be published today in the Eurozone. Analysts forecast that the consumer price index will not change and will remain at the same level. But there may be surprises in the form of a new round of price acceleration, so investors should keep a close eye on the report.

European Union lawmakers voted Thursday overwhelmingly to condemn the damage to democracy in Hungary under Prime Minister Viktor Orban, increasing pressure on the bloc to cut funding for the former communist country. Citing corruption risks, the European Commission is expected to recommend later this week that billions of dollars earmarked for Budapest be suspended from the bloc’s total 1.1 trillion-euro budget. “The situation has deteriorated to the point where Hungary has become a ‘selective autocracy’ rather than a democracy,” the chamber said in a statement. The European Commission has already blocked about 6 billion euros owed to Budapest from the bloc’s separate economic stimulus package for COVID-19, citing insufficient measures against bribery in Hungarian public procurement.

Gold is approaching a 2.5-year low due to excessive investor panic over interest rates. Tighter monetary policy is taking its toll on precious metals, and until rates stop rising and US Treasury yields start to decline, gold and silver will continue to be under selling pressure.

Asian markets were trading higher yesterday. Japan’s Nikkei 225 (JP225) gained 0.21%, Hong Kong’s Hang Seng (HK50) added 0.44% on the day, while Australian S&P/ASX 200 (AU200) gained 0.21%.

Alarming signals are emerging for the Chinese economy. Last week’s trade data showed export growth well below expectations and slowed for the first time in four months. It is very likely that China’s exports will slow further or even contract in the coming months as leading economic indicators point to slower global growth or even recession. Other data showed that retail sales and industrial production in China beat expectations in August. Core investment in the first eight months of the year also exceeded expectations despite major problems in the real estate sector.

The Governor of the Reserve Bank of Australia, Philip Lowe, said that the number of cases of excessive increase in interest rates has decreased. Lowe also said the Central Bank would discuss the benefits of a quarter-point or half-point increase at its October 4 meeting.

A Reuters poll showed that core inflation in Japan would reach an eight-year high in August. The nationwide core Consumer Price Index (CPI), which excludes food and fuel prices, will reach an annualized rate of 2.7%.

S&P 500 (F) (US500)  3,901.35  −44.66  (−1.13%)

Dow Jones (US30) 30,961.82 −173.27 (−0.56%)

DAX (DE40) 12,956.66 −71.34 (−0.55%)

FTSE 100 (UK100)  7,282.07 +4.77 (+0.066%)

USD Index 109.71 +0.05 (+0.04%)

Important events for today:
  • – China Industrial Production (m/m) at 05:00 (GMT+3);
  • – China Retail Sales (m/m) at 05:00 (GMT+3);
  • – China Unemployment Rate (m/m) at 05:00 (GMT+3);
  • – UK Retail Sales (m/m) at 09:00 (GMT+3);
  • – Eurozone Italian Consumer Price Index (m/m) at 12:00 (GMT+3);
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

By JustForex

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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