Gold has reasons to rise further. Chinese business activity recovers

April 6, 2023

In the United States, the ISM manufacturing and services business activity index fell short of expectations in March, indicating a clear deterioration in demand conditions. If the business activity does not recover soon, layoffs could accelerate in the coming months, exacerbating labor market problems and pushing the country into a painful recession. The ADP National Employment report showed that US private employers hired far fewer workers than expected in March, adding to the signs of a cooling labor market after Tuesday’s weak jobs data. Stock indices are once again under pressure. As the stock market closed Wednesday, the Dow Jones Index (US30) increased by 0.24%, while the S&P 500 Index (US500) fell by 0.25%. The NASDAQ Technology Index (US100) lost 1.07% yesterday.

Cleveland Fed President Loretta Mester said Wednesday that it is too early to tell if the Fed needs to raise the benchmark rate at its next policy meeting in early May. The US interest rate futures markets currently estimate a 60.5% chance that the Fed will leave rates unchanged at its next meeting.

Recent Bloomberg research has unexpectedly shown that the biggest “short” in the banking industry in the world is not in Switzerland or Silicon Valley in the US but in the relatively quiet financial center of Canada. In recent weeks, sellers have increased their bearish positions against Toronto-Dominion Bank, Canada’s second-largest lender, with $3.7 billion in total capital, more than BNP Paribas (BNPP) and Bank of America (BAC). There is little indication that the Canadian lender has any liquidity problems. But analysts point to concerns about TD’s exposure to the domestic housing slowdown, as well as its ties to the US market through its stake in Charles Schwab (SCHW) and its planned acquisition of a regional US bank.

Equity markets in Europe traded flat on Tuesday. German DAX (DE30) decreased by 0.53%, French CAC 40 (FR40) lost 0.39%, Spanish IBEX 35 (ES35) gained 0.35%, and British FTSE 100 (UK100) was up by 0.37% yesterday.

According to analysts, the ECB will continue to tighten monetary policy with no signs of any disinflationary process, discounting energy and commodity prices and the fact that inflation is increasingly dependent on demand. Two more interest rate hikes of 0.25% at each meeting are currently expected.

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In the precious metals market, the situation has not changed. Falling government bond yields, caused by the dovish review of the Fed’s monetary policy course, will continue to act as a tailwind for gold and silver. The US Treasury curve has shifted sharply downward since mid-March following the turmoil in the US banking sector, and recent macro data have reinforced investors’ views that the US economy is in trouble.

The weekly US inventory report on Wednesday showed that the government has again cut reserves to boost market supply and limit fuel price spikes. Clearly, there is a standoff between the US and OPEC+ countries. The Biden administration has relied heavily on reserves since late 2021 to offset limited inventories and lower black gold prices. In turn, OPEC+ countries are cutting production to create shortages and allow oil prices to continue their upward rally.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.07%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) did not trade yesterday, India’s NIFTY 50 (IND50) gained 0.77%, and Australia’s S&P/ASX 200 (AU200) ended the day negative by 0.09%.

The latest Caixin report showed that service sector activity in China grew at its fastest pace in 2.5 years in March, thanks to solid new orders, new job creation, and a post-pandemic recovery. The Caixin Global Services Purchasing Managers’ Index (PMI) rose to 57.8 in March from 55.0 in February, increasing for the third straight month. The 50-point mark separates expansion and contraction in activity.

India’s Central Bank left the interest rate unchanged at 6.5%. This was a surprise, as analysts had expected a 0.25% increase. But the Reserve Bank of India said it was ready to act against inflation if further conditions warranted.

S&P 500 (F) (US500) 4,090.38 −10.22 (−0.25%)

Dow Jones (US30)33,402.38 −198.77 (−0.59%)

DAX (DE40) 15,520.17 −83.30 (−0.53%)

FTSE 100 (UK100) 7,662.94 +28.42 (+0.37%)

USD Index 101.94 +0.35 (+0.34%)

Important events for today:

– Australia Trade Balance (m/m) at 04:30 (GMT+3);
– China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
– China Caixin Services PMI (m/m) at 04:45 (GMT+3);
– Indian Interest Rate Decision at 07:30 (GMT+3);
– Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3).
– German Industrial Production (m/m) at 09:00 (GMT+3);
– UK Construction PMI (m/m) at 11:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– Canada Unemployment Rate (m/m) at 15:30 (GMT+3);
– Canada Ivey PMI (m/m) at 17:00 (GMT+3);

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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Gold has reasons to rise further. Chinese business activity recovers