Sat, Jan 22, 2022 @ 15:38 GMT
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Bank Bash Continues, UK Retail Data May Disappoints, Oil and Gold Under Focus

  • Bank Bash Continues While UK Retail Data Disappoints
  • Oil Traders Still Feeling Scorched
  • Gold Traders Underwhelm
  • Hawkish or Dovish? Market Not Satisfied Either Way

Bank Bash Continues While UK Retail Data Disappoints

Central bank bash is not done yet as it is the Bank of England and SNB which are going to gauge investors attention today. In the UK, investors are concerned about the rising inflation, anaemic wage growth and fragile consumer spending, a story which is very much tangled with the concussion of Brexit. When you look at the Sterling, it becomes evidently clear that no action is expected from the BOE. However, investors are going to see if the bank is going to put their views about the current election situation and most importantly, the new picture of Brexit which was previously not part of the equation.

We do anticipate that the bank would remain reticent and avoid any sort of remarks on the ongoing situation. The place where we may see some flare would be from the speech of Philip Hammond, the Chancellor of the Exchequer. He is going to put more focus on jobs and economic growth. Again the impact on the currency from this could be very limited because this would be nothing more than just a speech to calm the nerves- if that. Brexit secretary, David Davis ,is also going to set a new vision for Brexit – a more liberal version under which the EU citizens are expected to have a lot more rights. However, if the EU leaders are going to pay any attention to this, it remains a question well worth keeping under consideration before triggering any button.

The UK retail sales data is going to charm a lot of attention amid investors. The sharp rise in inflation is alarming and this could hamper consumer spending and have a negative influence on the retail data. We do expect the number to be below the market expectations -0.9%.

Oil Traders Still Feeling Scorched

The black gold is suffering losses and traders are keeping a close eye towards the low of the day. A break of 44.46 is going to open the floor towards the support of 42. The crude inventory data released yesterday confirmed that the US shale oil producers are picking up the slack in the production fairly quickly but when the price is in the early 40s, the equation does change for them. Many bargain hunters are also interested in getting back in around early 40s level.

Gold Traders Underwhelm

Janet Yellen, the Fed Chairwomen, has rescued the dollar yesterday with her somewhat hawkish statement. Simply put, the Fed is just fearless and they are not afraid of turning up the heat. Hence there is another rate hike on the table for this year. From the statement, it also appeared that the Fed is confident about the labor market and moderate GDP growth. Given that they have laid out the plan with respect to reducing the size of their balance sheet, this sends a hawkish signal and for gold investors it was a sell sign. Therefore upcoming meetings will attract a lot more attention towards this affair. In terms of levels, we do think the support is at the 1250 mark and if we break that level, the downward trend could pick up more strength. The upside is capped by the resistance of double top pattern which is at 1296.

Hawkish or Dovish? Market Not Satisfied Either Way

A hike in Fed rate has caused much chaos and investors are unconvinced over in Europe. The sell-off is pretty much across the board. Over in the US, traders do not like the idea of the Fed normalising the monetary policy when the economic conditions are still anaemic. The fall in consumer price index earlier this day has led investors to question the Fed on the interest rate hike just now. The probability of next rate hike within 2017 fell from 48% to 28% after the release of less favourable data results this afternoon. FOMC readjusted their expected inflation rate from 1.9% to 1.6%.

The Fed feels confident about the economy but inflation is the part of the equation where they have made changes. Janet Yellen expects the inflation to fall short of the bank’s target and this keeps the Treasuries in demand. The part where we are not comfortable with the Fed statement is the consumer spending (which for the Fed appears to be something not to worry about).

The US retail sales number provides a very good idea about how comfortable investors are with respect to their spending. The number released on Wednesday took the steam out of the dollar and confirmed that consumers are anxious. Therefore, we hold the view that the economic weakness is making the outlook a lot more cloudy.

Investors do feel a little a bit confused because the Fed didn’t really provide any meaningful information in relation to the new size of the balance sheet which they think will be acceptable. All that we know is that it is going to be below the current level, but above the level before the financial crisis.Also, no date has been provided in relation to when they will start with this project. This is too vague and a confusing statement. In other words, the information provided was boring and it was designed in that way.

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