Gold’s up tend extended to as high as 1510.48 last week before forming a temporary top there and turned into consolidation. Downside of retreat should be contained by 1452.94 resistance turned support to bring rally resumption.
Break of 1510.48 will resume the up trend and target 161.8% projection of 1160.17 to 1346.71 from 1266.26 at 1568.08.
In the bigger picture, we’d be cautious on topping ahead of 61.8% retracement of 1920.70 to 1046.37 at 1586.70, at least on first attempt.
It’s reported that North Korea is ready to discuss denuclearization with the US, and thus, increasing the chance of meeting between it’s leader Kim Jong-un and US president Donald Trump in May. Financial Times quoted and unnamed National Security Council spokesperson saying that “I confirm that the United States and North Korea have been holding talks in preparation for a summit, and that North Korea has confirmed its willingness to talk about denuclearization.” Reuters also quoted an unnamed official saying “the U.S. has confirmed that Kim Jong Un is willing to discuss the denuclearization of the Korean Peninsula‎.”
Separately, China’s Ministry of Commerce announced it’s banned exports to North Korea with potential dual use in weapons of mass destruction. Details on 32 materials banned were released by the MOFCOM, including technologies and forms of equipment, including particle accelerators and centrifuges.
German ZEW Economic Sentiment rose sharply to 26.7 in January, up from 10.7, beat expectation of 15.2. That’s also the highest reading since July 2015. Current Situation Index rose to -9.5, up from -19.9, beat expectation of -12.4. Eurozone ZEW Economic Sentiment rose to 25.6, up from 11.2, beat expectation of 16.3. Current Situation Index rose 4.8 pts to -9.9.
“The continued strong increase of the ZEW Indicator of Economic Sentiment is mainly due to the recent settlement of the trade dispute between the USA and China. This gives rise to the hope that the trade dispute’s negative effects on the German economy will be less pronounced than previously thought. In addition, the German economy developed slightly better than expected in the previous year. Although the outlook has improved, growth is still expected to remain below average.,” comments ZEW President Achim Wambach.
Australia AiG Performance of Construction Index rose to 52.7 in October, up from 45.2. It’s the first expansionary result since August 2018.
Ai Group Head of Policy, Peter Burn, said: “The expansion of the Australian construction industry in October was driven by further strength in house building and smaller declines in the apartment and engineering construction sectors while commercial building fell further behind. Across the industry employment lifted modestly over the month. With activity restrictions in Victoria now easing and new orders rising strongly across the country, the near-term outlook is encouraging. There is a note of caution in that the improvement in the sector and elsewhere in the economy is still heavily reliant on wage and apprentice support measures and spurred along by exceptionally low interest rates.”
UK Cabinet Office Minister David Lidington, Prime Minister Theresa May’s de facto deputy, warned today that “There’s no plan B because the European Union itself is saying the deal that is on the table is the one that we have had to compromise over.”
He added “there is a bit of wishful thinking on the part of some people that a preference expressed by politicians in the UK will somehow lead to a different plan, an alternative being offered.”
And, “There is a binary choice for the House of Commons to make: they can accept the deal that is on table, that is a compromise but I think is a good compromise for our national interest, or they can vote it down. The EU 27 is very clear they are not going to reopen this package.”
Lidington also admitted that “If the vote were today, it would be a difficult one to win, but I think that we have time between now and (Dec. 11) to make the case.”
Chinese Yuan’s selloff picks up some momentum today. USD/CNH (offshore) break 6.9586 yesterday, as well as a near term channel resistance. The upside acceleration suggests that Yuan selling might intensify for the near term.
Now, it looks like a break of 6.9875 high in USD/CNH (2017) low is inevitable. That is, Yuan will hit the lowest level in a decade. The question now is whether there will be intervention of some sort to keep USD/CNH below 7.000 handle.
Reactions in the stock markets are muted though. At the time of writing, the Shanghai SSE is down just -0.46% at 2591. Hong Kong HSI is also down -1.09% only as recent down trend extends steadily.
OECD has suggested that BoJ should consider implementing a gradual rise in short-term interest rates and introduce more flexibility into its Yield Curve Control policy. This recommendation comes at a time when Japan appears to be at a crucial economic juncture, with inflation trends potentially stabilizing around BOJ’s 2% target, a goal set in 2013 but not consistently achieved since then.
In its report, OECD stated, “Japan is at a turning point, with inflation more likely to settle durably around the 2% inflation target than at any time since its inception.” To adapt to this changing economic landscape, OECD advised that “greater flexibility in the conduct of yield curve control and a gradual modest increase in the short-term policy interest rate are warranted.” This advice is predicated on projections of sustained inflation and evolving wage dynamics in Japan.
However, OECD also issued a cautionary note regarding the uncertainty surrounding Japan’s inflation outlook, which it described as “exceptionally large.” This uncertainty presents a significant challenge for BOJ as it navigates toward its inflation target. OECD emphasized the delicate balance BOJ must maintain, stating, “The key challenge facing the BOJ is how to durably achieve its inflation target without significantly overshooting.”
According to a latest study, more than 100 parliamentary seats have flipped from pro-Brexit in 2016 to pro-Bremain now. Focaldata, a consumer analytic company, compiled the breakdown data by modelling two YouGov polls conducted before and after Prime Minister Theresa May’s Chequers Deal. The study was jointly commissioned by anti-Brexit group Best for Britain and anti-racist group Hope Not Hate.
The study found that 112 seats out of 632 in England, Scotland and Wales have switched from leave to Remain. And there are now 341 seats with majority Remain support, up from 229 seats at the referendum in 2016. Among the switches, 97 was in England, 14, in Wales and 1 in Scotland. Also, there is now a majority for Remain in both Scotland and Wales.
Eloise Todd, the chief executive of Best for Britain, said: “the sands of public opinion are shifting and politicians risk falling behind”, and “the deal must be put to the people.” Nick Lowles, head of Hope not Hate, said “the rate of change appears to be quickening as the realities of what Brexit would mean become more apparent and the fears of a no-deal Brexit grow”.
The UK and EU are due to reconvene Brexit negotiation on Thursday in Brussels. UK is believed to be pushing the deadline for negotiation to October while EU is insisting to conclude it in September.
Gold finally broken out of consolidation and hit as high as 1452.94. 100% projection of 1160.17 to 1346.71 from 1266.26 at 1452.80 is breached but there is no sign of topping yet.
Near term outlook will stay bullish as long as 1414.62 minor support holds. Firm break of 1452.80 will target 161.8% projection at 1568.08. Though, break of 1414.62 will bring consolidations again.
The 1568.08. projection level is also in proximity to 61.8% retracement of 1920.70 to 1046.37 at 1586.70. Thus, strong resistance will likely be seen there to limit upside, at least on first attempt.
Eurozone CPI was finalized at 0.7% yoy in October, core CPI at 1.1%. The highest contribution to the annual Eurozone inflation rate came from services (+0.69%), followed by food, alcohol & tobacco (+0.29%), non-energy industrial goods (+0.07%), and energy (-0.32%),.
EU28 CPI was finalized at 1.1% yoy. The lowest annual rates were registered in Cyprus (-0.5%), Greece (-0.3%) and Portugal (-0.1%). The highest annual rates were recorded in Romania (3.2%), Hungary (3.0%) and Slovakia (2.9%). Compared with September, annual inflation fell in fifteen Member States, remained stable in eight and rose in five.
Dallas Fed President Lorie Logan said “This morning’s CPI data were a welcome relief, but there is still a long way to go.”
“I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving,” she added.
Australia retail sales rose 0.6% mom in February, beating expectation of 0.3%. But building approvals dropped -6.2% mom, worse than expectation of 54.5.
AUD is responding well to easing of risk aversion. But it’s not totally out of the dark yet.
For example, AUD/JPY 6H action bias just turned positive, indicating the the recovery is gaining momentum.
However, D action bias is just neutral.
W action bias is negative through and through.
Hence, for the near term, there could be more upside in the cross as recovery extends. But upside potential would be limited as it’s a corrective move. Or, until there is firm signal of trend reversal.
New Zealand GDP contracted -0.1% qoq in Q1 as expected. Primary industries fell -0.5%. Service industries fell -0.6%. Goods producing industries fell -0.4%.
StatsNZ noted, “The expenditure measure of GDP fell 0.2 percent this quarter. This decline was driven by run downs in inventories held by businesses, and a fall in exports of services.”
“A 2.4 percent increase in household consumption expenditure and 2.0 percent growth in investment in fixed assets partially offset the falls.”
Instead of giving market confidence a boost, Fed’s surprised -50bps rate cut overnight seemed to have knocked down sentiments instead. DOW closed down -2.94%, S&P 500 dropped -2.81% or 785.91 pts, NASDAQ lost -2.99%. 10-year yield broke 1% handle to new record low of 0.908, before closing at 1.010, down -0.078. Asia markets are mixed for now, with Nikkei flat, Hong Kong HSI down -0.80%, China Shanghai SSE flat, Singapore Strait Times down -0.36%.
With breach of 25859.60 minor support, DOW’s recovery from 24681.01 appears to have completed at 27084.59, after rejection by 50% retracement level. But for now, we’re not expecting the steep decline from 29568.57 to resume yet. Instead, DOW will likely gyrate towards 24681.01 low and recover from there to extend the consolidation pattern. In case of another rise, upside should be limited by 61.8% retracement at 27701.52.
When we talked about 0.8248 as downside target in 10-year yield back in late February, it looked a bit exaggerated. But it’s now suddenly so close. For now, we’d expect strong support from this 61.8% projection of 3.248 to 1.429 from 1.949 at 8.248 to contain downside to bring recovery. But even in that case, we’re not seeing any chance of a break back above 1.429 support turned resistance soon.
RBNZ raises Official Cash Rate by 50bps to 1.50%, larger than expectation of a 25bps hike. That’s also the biggest rate increase in 22 years.
It said in the statement that “moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations. Â A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment.”
Also, “the Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations and minimise any unnecessary volatility in output, interest rates, and the exchange rate in the future.”
Latest forecasts from New Zealand Institute of Economic Research anticipate a period of subdued economic growth over the next few years. The annual average GDP growth is expected to decline to 0.4% in the fiscal year ending March 2024, followed by modest growth of 1.1% in 2025.
This sluggish pace is partly attributable to the ripple effect of consecutive hikes in RBNZ’s OCR, currently standing at 5.50%, which have started to curb demand in the broader economy. Moreover, diminishing demand for exports, spurred mainly by China’s weaker growth outlook, poses downside risk to the nation’s economic vitality.
Shifting focus to inflation sphere, there has been a notable upward revision for the projections as of March 2024, with annual CPI inflation predicted to retreat to 4.3% in 2024, and further dip to 2.4% in the subsequent year.
As for currency outlook, NZD Trade Weighted Index forecasts have undergone revisions, showing a downturn for the approaching year but portraying an uplift in 2025.
NZD has not encountered significant fluctuations against other currencies in recent times in terms of yield attractiveness. This steadiness, however, is anticipated to meet challenges due to reduced export demand from China.
The forecast encapsulates expectation of NZD TWI oscillating between 70.8 and 71.6 in the period spanning 2024 to 2027.
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US retail sales rose 9.8% mom to USD 619.6B in March, well above expectation of 5.5% mom. That’s the best figure since Mary 2020. Ex-auto sales rose 8.4% mom, above expectation of 4.8% mom. Ex-gasoline sales rose 9.7% mom. Ex-auto, ex-gasoline sales rose 8.2% mom.
In the post meeting press conference, BoJ Governor Haruhiko Kuroda said, “the yen’s recent weakening, as a whole, is definitely positive for Japan’s economy. It’s good for exports and lifts the yen-based profits firms earn overseas. It more than offsets the negative impact from rising import costs.”
“At present, currency rates are moving in line with fundamentals,” he said. “I therefore see no problems with the moves”. He added, “there’s no pre-set norm on the desirable level of real, effective exchange rates. I won’t comment on specific levels.”
“In the long run, if growth accelerates and the output gap turns positive, we’ll likely see inflation accelerate and heighten inflation expectations,” Kuroda said. “Under current conditions, there are more merits than demerits in maintaining ultra-loose monetary policy.”
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WTI oil hits 7-yr high, EUR/CAD downside breakout
WTI crude oil surged through a key resistance overnight and hit the highest level since 2014. The outage of Turkey’s Kirkuk-Ceyhan pipeline after an explosion was a factor causing concerns over supplies. In the background, there are also geopolitical issues surrounding Russia.
With 85.92 resistance taken out, WTI crude oil is resuming up trend from the 2020 spike low. For the near term, further rally is expected as long as 81.60 support holds. Next target 90 handle. But WTI could try to hit 261.8% projection of 62.90 to 73.66 from 66.46 at 94.62 before topping.
EUR/CAD followed and broke 1.4162 low to resume the down trend from 1.5991. Near term outlook will now stay bearish as long as 1.4357 resistance holds. Next target is 61.8% projection of 1.5096 to 1.4162 from 1.4644 at 1.4067. Firm break there could trigger downside acceleration to 100% projection at 1.3710.