07 Nov

The US is preparing for the primaries. Investors are returning interest in gold

November 7, 2022

By JustMarkets

By the closing of the stock market on Friday, Dow Jones (US30) gained 1.26% (-1.07% for the week), and S&P 500 (US500) added 1.36% (-2.87% for the week). The Technology Index NASDAQ (US100) jumped by 1.28% on Friday (-5.02% for the week). Despite Friday’s gains, all indices closed the week with losses.

The US unemployment rate was 3.7% (forecast 3.6%, previous value 3.5%). The only unfulfilled marker of recession in the US at the moment is an overheated labor market. The Fed has repeatedly noted an imbalance in supply and demand for jobs. So rising unemployment is the last piece of the puzzle for the Fed to put the brakes on aggressive rate hikes.

The US is gearing up for Tuesday’s midterm elections, where control of Congress and President Joe Biden’s agenda for the remaining two years of his term are at stake. Republicans are leading in the polls, and many analysts believe the likely outcome will be a split government, with the Republican Party controlling the House and possibly the Senate in the second half of Biden’s term. Biden’s public approval rating has remained below 50% for more than a year, at 40% in a recent Reuters/Ipsos poll. Analysts say a surprise Democratic victory could heighten fears about increased budget spending and the prospect of inflation.

Canada’s plan to spend an additional C$6.1 billion ($4.5 billion) over the next five months could undermine the central bank’s efforts to curb inflation, despite Finance Minister Chrystia Freeland’s pledge not to complicate monetary policy.

Equity markets in Europe traded higher throughout last week. German DAX (DE30) gained 2.51% (+1.55% for the week), French CAC 40 (FR40) increased by 2.77% (+2.18% for the week), Spanish IBEX 35 (ES35) added 0.97% (+0.33% for the week), British FTSE 100 (UK100) closed Friday in plus 2.03% (+4.07% for the week).

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Last week’s fundamental catalysts boosted the indices. On the energy side, the warming in the Eurozone has helped lower energy prices, and this situation is expected to continue in November. Lower prices should provide further support to the euro against the US dollar. On the other hand, manufacturing orders are declining across European countries, which limits the growth prospects of the European currency.

Friday’s 5% rally in oil was fueled by talk that China is planning to soften its so-called zero COVID policy. It also became known that the G7 countries, along with Australia, finally agreed to set a fixed price for Russian oil. Expectations that the Fed could still resort to a rate hike were another factor in the rise in oil prices on Friday.

The Kremlin plans to retaliate against the G7 plan to cap the sale price of Russian oil to limit Moscow’s ability to finance its invasion of Ukraine without restricting global supplies. Russian President Vladimir Putin has in the past threatened not to do business with countries participating in the G7 plan or to suspend crude oil exports altogether in response to the scheme.

On Friday, gold showed its best percentage gain in 2.5 years. On a weekly basis, gold added 1.9%, its best week in four years. Hedge fund analysts believe that if gold manages to close the month above $1,735 an ounce, the short- and medium-term outlook will change to bullish.

Asian markets mostly rose last week. Japan’s Nikkei 225 (JP225) gained 0.38% over the week, Hong Kong’s Hang Seng (HK50) jumped by 8.97%, and Australia’s S&P/ASX 200 (AU200) gained 1.57%

Chinese and Hong Kong stocks rose sharply Friday amid rumors that China may soon ease its strict restrictions on COVID-19, but officials said Saturday that the country is sticking to its policy for now. China’s huge trade surplus rose less than expected in October, while exports and imports declined during the month. The data does not bode well for Asian markets, given that China is a major trading partner for much of the region.

In the commodities market, futures on cotton (+20.72%), natural gas (+13.36%), silver (+9.23%), copper (+7.93%), gasoline (+6.94%), sugar (+6.26%), orange juice (+5.89%), cocoa (+5.47%), WTI oil (+5.35%), soybeans (+4.45%), coffee (+3.47%), Brent (+3.11%) and gol (+2.49%) showed the biggest gain. Futures on lumber (-4.82%) showed the biggest drop.

S&P 500 (F) (US500) 3,770.55 +50.66 (+1.36%)

Dow Jones (US30) 32,403.22  +401.97 (+1.26%)

DAX (DE40) 13,459.85 +329.66 (+2.51%)

FTSE 100 (UK100) 7,334.84 +146.21 (+2.03%)

USD Index 110.79 -2.148 (-1.90%)

Important events for today:
  • – China Exports (m/m) at 05:00 (GMT+2);
  • – China Imports (m/m) at 05:00 (GMT+2);
  • – Switzerland Unemployment Rate (m/m) at 08:45 (GMT+2);
  • – German Industrial Production (m/m) at 09:00 (GMT+2);
  • – Eurozone ECB President Lagarde Speaks at 10:40 (GMT+2);
  • – US FOMC Member Mester Speaks at 22:40 (GMT+2).

By JustMarkets

 

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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