Tightening of the Fed momentary policy started to play its role
President Trump’s tax reform could hang up in negotiations
Illegal referendum taking place over in Spain
Smart money is actually busy in hedging their risk while the gold price drops
The US futures are trading higher as the dollar index makes its sudden comeback. This is despite the fact that there is a higher probability that President Trump’s tax reform could hang up in negotiations or that we could see an extremely watered down version. Nonetheless, the month of September has brought good news for the US equity markets as president Trump announced the initial framework on tax reforms. The US markets are set to close the month at a new record high. The US dollar index has been under pressure pretty much this year however, with the announcement of the tax reforms, the trend for the currency has reversed because investors do see the currency improving due to the better economic growth.
The tightening of the momentary policy by the Fed has also started to play its role and the dollar is looking much firmer on the back of this. Having said that, the prospects of another rate hike for this year aren’t that solid yet, as we do think that the chances of another rate hike for this year are still fifty percent.
Unlike the US equity market, the performance of the FTSE 100 index has been lacklustre this year. Thanks to the strength of the currency which is having a major impact. After falling sharply last year, the rebound in the currency is dragging the index lower. The British pound is set to post its best monthly performance against the mighty dollar and also three consecutive quarters of gain. Later today, we will also see the UK Q2 GDP reading. No surprise is expected here and the forecast is for 0.3%. The business investments are expected to remain under the influence of the Brexit woes and the forecast is for 0%.
The event which is going to gain an enormous amount of attention over the weekend is the illegal referendum taking place over in Spain. Catalonia will stage an illegal referendum and a yes vote would depend on the country’s crisis. The potential impact would be on the country’s bonds unless the county’s PM manages to stop the vote. The Spanish equity markets had outperformed the European peers so far this year but the recent illegal referendum situation has taken the toll on the IBEX index.
Over in the US, we expect a lot of noise in the personal spending and income data. The numbers would show a lot of distortion due to the influence of the recent hurricanes. We expect the spending number to drop and the core PCE deflator may not show any change.
The recent rise in the oil prices should provide some sort of tailwind for the upcoming CPI data for the Eurozone. The forecast is for 1.6% while the previous reading was at 1.5%.
As for the precious metal, the strength in the dollar is pushing the price lower. However, it is important to pay attention to the holdings of the biggest gold exchange holding fund. It clearly shows that smart money is actually busy in hedging their risk while the gold price drops. The 30-day volatility index for the gold price has also surged and this provides an evidence that the shining metal could bounce soon. The near-term support is at 1266.