Gold recovered ahead of 1275/6 support zone, maintains bullishness

    Gold drew support from rising channel line and recovered after hitting 1280.85. So far, it’s held above 1276.76 cluster support (38.1% retracement of 1160.17 to 1346.17 at 1275.45). Thus, there is no indication of trend reversal yet. Rise from 1160.17 could extend further. Break of 1346.71 will target key fibonacci level of 38.2% retracement of 192.070 to 1046.37 at 1380.36. For now, we don’t see enough momentum to break through this 1380.36 key fibonacci level yet.

    On the downside, decisive break of 1275.45/1276.76 should confirm completion of whole rise from 1160.17. In that case, gold should have started another falling leg inside the long term range pattern. Deeper fall should then be seen back towards 1160.17 support.

    Japan PMI manufacturing rose to 53.1, export sales rose for the first time since May

      Japan PMI manufacturing rose to 53.1 in October, up from 52.5 and beat expectation of 52.6. Markit noted that “growth of key macroeconomic variables (output, new orders and employment) all accelerate”, and “rates of input cost and output price inflation both quicken to multi-year highs.”

      Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

      “Following a rather disappointing slew of PMI data over the third quarter, Japan’s manufacturing sector looks set to start Q4 on a more upbeat note. The latest survey indicated stronger expansions in all the key barometers of macroeconomic health, with output, new order and employment growth quickening since September. Furthermore, export sales rose for the first time since May, despite several respondents highlighting problems arising from global trade tensions.

      “That said, next month’s data will be important to assess whether the latest growth rebound is a transitory response to weakness resulting from recent natural disasters.”

      Full release here.

      ECB bulletin: Market-based inflation indicators in line with transient but more persistent rise

        In the monthly economic bulletin, ECB said the current phase of higher inflation will “last longer than originally expected”, but it’s “expected to decline in the course of next year”. The factors include sharply risen energy prices, recovering demand outpacing supply, and based effects due to end of VAT cut in Germany. It added, “the influence of all three factors is expected to ease in the course of 2022 or to fall out of the year-on-year inflation calculation”.

        Meanwhile, ECB also noted that market-based indicators of longer-term inflation expects reached “new highs”. Five-year forward inflation-linked swap (ILS) rate five years ahead rose above to 2.1%, highest since August 2014. But it also noted that the increase in ILS rate was “pronounced in short and medium-term maturities”. That’s “in line with a transient but more persistent increase in near-term inflation”.

        Full ECB monthly bulletin here.

        UK payrolled employment down -9k in Jun, median pay accelerated to 9.7% yoy

          In June, UK payrolled employment decreased by -9k, comparing with May. But payrolled employment was still up 439k comparing with the same month last year. Median monthly pay was up 9.7% yoy, accelerated from May’s 8.4% yoy. Claimant count rose 25.7k, above expectation of 20.5k.

          In the three months to May, unemployment rate rose 0.2% to 4.0% compared with the previous three month period. Employment rate rose 0.2% to 76.0%. Economic inactivity rate was down -0.4% to 20.8%. Total weekly hours rose 4.5%. Average earnings including bonus rose 6.9, up from April’s 6.7%. Average earnings excluding bonus rose 7.3%, same as the prior period.

          Full UK employment release here.

          Eurozone CPI slowed to 6.1% yoy in May, core CPI down to 5.3% yoy

            Eurozone CPI slowed from 7.0% yoy to 6.1% yoy in May, below expectation of 6.3% yoy. CPI core (ex-energy, food, alcohol & tobacco) slowed from 5.6% yoy to 5.3% yoy, below expectation of 5.3% yoy.

            Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in May (12.5%, compared with 13.5% in April), followed by non-energy industrial goods (5.8%, compared with 6.2% in April), services (5.0%, compared with 5.2% in April) and energy (-1.7%, compared with 2.4% in April).

            Full Eurozone CPI release here.

            Fed Kashkari: Recovery looks like it’s going to be slow

              Minneapolis Fed President Neel Kashkari told NBC today that tomorrow’s NFP report might show unemployment rate surging to 17%. But the actual rate might be even higher at 23%. Also, “that bad report tomorrow is actually going to understate how bad the damage has been.”

              He emphasized that “the Federal Reserve is acting aggressively, we will continue to act aggressively,” to support the economy. But “Unfortunately, the recovery looks like it is going to be slow,” after the coronavirus pandemic.

              “The virus is still spreading throughout much of the country,” he said. “We have to continue to be very measured and not reopen too quickly because we may pay the price for that.”

              US ADP jobs grew 978k, upstick in companies of all sizes

                US ADP private sector employment grew 978k in May, well above expectation of 695k. By company size, small businesses added 333k jobs, medium term businesses added 338k, large businesses added 308k. By sector, goods-producing jobs grew 128k, service-providing jobs grew 850k.

                “Private payrolls showed a marked improvement from recent months and the strongest gain since the early days of the recovery,” said Nela Richardson, chief economist, ADP. “While goods producers grew at a steady pace, it is service providers that accounted for the lion’s share of the gains, far outpacing the monthly average in the last six months. Companies of all sizes experienced an uptick in job growth, reflecting the improving nature of the pandemic and economy.”

                Full release here.

                China: US Provoking trade dispute is naked economic terrorism, economic homicide, economic bullying

                  Rhetorics from Chinese officials regarding trade war with US continued to be hard-line. The ruling Communist Party is clearly preparing their citizens for the “new long march” in prolonged trade war.

                  Chinese Vice Foreign Minister Zhang Hanhui said today “we oppose a trade war but are not afraid of a trade war.” He went further to accuse the US that “this kind of deliberately provoking trade disputes is naked economic terrorism, economic homicide, economic bullying.”

                  He added: “This trade clash will have a serious negative effect on global economic development and recovery… We will definitely properly deal with all external challenges, do our own thing well, develop our economy… At the same time, we have the confidence, resolve and ability to safeguard our country’s sovereignty, security, respect and security and development interests.”

                  Yesterday, stock markets were rocked by news that China is going to weaponize its rare earths in the trade war. The state-run China Daily newspaper said today “it would be naive to think that China does not have other countermeasures apart from rare earths to hand”. “As Chinese officials have reiterated, they have a ‘tool box’ large enough to fix any problem that may arise as trade tensions escalate, and they are ready to fight back ‘at any cost’.”

                  Eurozone economic sentiment ticks down to 93.3

                    Eurozone Economic Sentiment Indicator fell slightly from 93.4 to 93.3 in October. Employment Expectations Indicator fell from 102.9 to 102.8. Economic Uncertainty Indicator rose from 21.5 to 22.7. Industrial confidence fell from -8.9 to -9.3. Services confidence rose from 4.1 to 4.5. Consumer confidence ticked down from -17.8 to -17.9. Retail trade confidence fell from -5.7 to -7.8. Construction confidence rose from -6.0 to -5.9.

                    EU ESI rose from 92.9 to 93.1. EEI fell from 102.6 to 102.3. EUI rose from 21.1 to 22.2. Amongst the largest EU economies, the ESI improved in Poland (+1.4), Spain (+1.2) and Germany (+0.5). By contrast, sentiment deteriorated markedly in France (-2.9) and, to a lesser extent, Italy (-0.9). The ESI remained unchanged in the Netherlands (±0.0).

                    Full Eurozone economic sentiment release here.

                    US CPI rose to 2.5%, but core CPI slowed to 2.1%

                      US headline CPI accelerated to 2.5% yoy in October, up from 2.3% yoy and matched expectations. However, core CPI slowed to 2.1% yoy, down from 2.2% yoy and missed expectation of 2.2% yoy.

                      BLS noted that gasoline was responsible for “over one-third” of the headline advances. On the other hand, food index “decline slightly”. For core CPI, ex-food and energy, medical care, household furnishing, motor insurance, tobacco all increased. But communications, new vehicles and recreation all declined.

                      Full release here.

                      Canada’s GDP grows 0.2% mom in Nov, primarily driven by goods-production sectors

                        Canada’s GDP grew 0.2% mom in November, above expectation of 0.1% mom. Growth was primarily driven by goods-producing industries, which marked the highest expansion rate since January 2023 at 0.6% mom.

                        Services-producing industries experienced a modest increase of 0.1% mom during the same period. This slight rise came despite the adverse impacts of strikes within Quebec’s public sector, which began in November.

                        Overall, 13 of 20 industrial sectors increased in November.

                        Additionally, preliminary data suggests continued upward trend, with an anticipated increase of 0.3% mom in real GDP for December.

                        Full Canada GDP release here.

                        EU Malmstrom still working on negotiated solution with US on tariffs

                          EU appeared to be still working on avoiding trade war escalation with US. Earlier this week, WTO gave US the go ahead for tariffs on as much as USD 7.5B of EU imports, as retaliation for EU subsidies to Airbus. US Trade Representative quickly announced 10% on large civil aircraft and 25% on agricultural and other products, effective October 18.

                          EU has already drafted retaliation plan to target US 4B of American goods, on a WTO case from 22 years ago. But European Trade Commissioner Cecilia Malmstrom said that “until the American tariffs take effect, we haven’t given up” on reaching a “negotiated solution”. Yet, she added, “we are looking at all options and we are discussing that with member states.”

                          In the US, Specialty Food Association warned in a statement that the new tariffs would decrease sales and adversely impact employment at 14,000 specialty food retailers and 20,000 other food retailers. Distilled Spirits Council warned that the tariffs could lead to a loss of approximately 13,000 jobs, including truckers, farmers, and bartenders and servers in the hospitality industry.

                          US ISM manufacturing falls to 48.5, prices down to 52.1

                            US ISM Manufacturing PMI fell from 48.7 to 48.5 in June, missed expectation of 49.3. That’s the third month of contraction reading.

                            Looking at some details, new orders rose from 45.4 to 49.3. Production fell from 50.2 to 48.5. Employment fell from 51.1. to 49.3. Prices tumbled sharply from 57.0 to 52.1.

                            ISM said: “The past relationship between the Manufacturing PMI and the overall economy indicates that the June reading (48.5 percent) corresponds to a change of plus-1.7 percent in real gross domestic product (GDP) on an annualized basis.”

                            Full US ISM manufacturing release here.

                            US 10-yr yield in another rally attempt after defending 55 day EMA

                              While S&P 500 and NASDAQ continued to make record highs overnight, it’s the development in treasury yields that’s worth more a mention. 10-year yield hit as high as 0.716, then pared back some gains to close at 0.682, up 0.036. It’s now trading above 0.71 handle in Asian session.

                              Unlike what happened after June’s spike, TNX is holding on to 55 day EMA this time, suggesting some resilience there. Focus is back on 0.727 resistance. Firm break there will firstly resume the rebound from 0.504. Secondly, that will suggest that the triangle pattern form 1.266 has completed. Stronger rise would then be seen back towards June’s high at 0.957. That could give Dollar a lift for the overdue corrective rebound. The next move would very much depends on Fed Chair Jerome Powell’s Jacksonhole speech.

                              Canada GDP grew 0.1% mom in Sep, to be unchanged in Oct

                                Canada GDP rose 0.1% mom in September, below expectation of 0.2% mom. Goods-producing industries grew 0.3% while services-producing industries were essentially unchanged.

                                Advance information indicates that real GDP was unchanged in October. Increases in the public, transportation and warehousing, construction and wholesale trade sectors were offset by decreases in the manufacturing and mining, quarrying and oil and gas extraction sectors.

                                Full release here.

                                Markets expecting 75bps Fed hikes this week and in Jul

                                  US stocks closed sharply lower overnight with DOW, S&P 500 and NASDAQ making new lows of the year. As continued aftermath of last week’s CPI data, markets are now adding bets to more aggressive tightening by Fed. The original plan of 50bps hike per meeting seems out of favor.

                                  Fed fund futures are now pricing in 99.4% chance of a 75bps hike this week (Wed) to 1.50-1.75%. Further, there is 79.9 chance of another 75bps hike in July to 2.25-2.50%. A pause in September is now a definite no, as markets are expecting another 50bps hike.

                                  Still, the overall expectations would be reshaped by the updated economic projections and the dot plot to be published along with the rate decision.

                                  US initial jobless claims dropped to 199k, lowest since 1969

                                    US initial jobless claims dropped -71k to 199k in the week ending November 20, well below expectation of 260k. That’s the lowest level since November 15, 1969. Four-week moving average of initial claims dropped -21k to 252k, lowest since March 14, 2020.

                                    Continuing claims dropped -60k to 2049k in the week ending November 13, lowest since March 2020. Four-week moving average of continuing claims dropped -48k to 2117k, lowest since march 21, 2020.

                                    Full release here.

                                    Hong Kong HSI surges on optimism over US-China relations

                                      Hong Kong stocks responded exceptionally well to US election results, which could an indication on optimism over US-China relations going forward. This week’s rally suggests that rise from 23124.25 is the third led of the pattern from 21139.16. Test of 26782.61 resistance should be seen next. Firm break there will confirm resumption of the whole rise from 21139.16.

                                      Nevertheless, the price actions from 21139.26 are still rather corrective looking. Firm break of 55 week EMA would be a sign of medium term reversal. Yet, the key resistance level lies in long term channel resistance (now at around 27500). Reactions to this resistance could reflect the real development in US-China relations, after the initial honey moon period.

                                      Fed Bullard: Getting to neutral isn’t going to be enough

                                        St Louis Fed President James Bullard said in an FT interview, there’s “a bit of a fantasy” in current policy in centrals banks to think thank inflation could be brought down by moving interest rate to neutral.

                                        “Neutral is not putting downward pressure on inflation. It’s just ceasing to put upward pressure on inflation,” he said. “We have to put downward pressure on the component of inflation that we think is persistent.”

                                        “Getting to neutral isn’t going to be enough it doesn’t look like, because while some of the inflation may moderate naturally . . . there will be a component of it which won’t,” he added.

                                        Bullard also warned that this week’s CPI report just ” underscores the urgency that the Fed is behind the curve and needs to get moving.”

                                        “If markets and households get the idea that the Fed’s not going to do the right thing and not going to keep inflation under control, then you have to gain credibility by actually doing things that show them that you are serious,” he said.

                                        ECB ends net APP purchase, to hike 25bps in Jul, again and maybe larger in Sep

                                          ECB leaves interest rates unchanged today as widely expected. That is, The main refinancing rate, marginal lending facility rate and deposit rate are held at 0.00%, 0.25% and -0.50% respectively. However, it explicitly said, “the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting.”

                                          Besides, ECB said is expects to “raise the key ECB interest rates again in September”. The size would depend on the updated medium-term inflation outlook by then. “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting,” it added. Beyond September, “a gradual but sustained path of further increases in interest rates will be appropriate.”

                                          Also as expected, ECB decided to end net asset purchases as of July 1, 2022. It will “continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.”

                                          In the new economic projections, annual inflation will hit 6.8% in 2022, then decline to 3.l5% in 2023 and then 2.1% in 2024. Excluding energy and food, inflation is projected to it 3.3% in 3022, then slow to 2.8% in 2023 and then 2.3% in 2024. Inflation projections were revised up “significantly” due to surging energy and food prices, including due to the impact of war”.

                                          GDP growth is projected at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024 (revised down slightly for 2022 and 2023, but up for 2024).

                                          Full statement here.