Gold Signals Caution: A Shift In Trend Ahead?

Titan FX

Economic

Commodity

Summary:

Gold failed to clear the $2,725 resistance and corrected gains.

Key Highlights

Gold failed to clear the $2,725 resistance and corrected gains.

A connecting bullish trend line is forming with support at $2,630 on the 4-hour chart.

Oil prices are struggling to clear the $71.50 resistance.

EUR/USD could decline if it breaks the 1.0450 support level.

Gold Price Technical Analysis

Gold prices remained well-bid near the $2,615 zone against the US Dollar. The price formed a base and started a fresh increase above $2,640 and $2,680.

The 4-hour chart of XAU/USD indicates that the price even climbed above $2,700 but struggled to clear the $2,725 level. As a result, there was a bearish reaction below the $2,700 and $2,680 levels. The price dipped below the 50% Fib retracement level of the upward move from the $2,613 swing low to the $2,726 high.

It even settled below the 100 Simple Moving Average (red, 4 hours) and the 200 Simple Moving Average (green, 4 hours). On the downside, initial support is near the $2,630.

There is also a connecting bullish trend line forming with support at $2,630 on the same chart. The first major support is near the $2,610 level. The main support is now $2,600. A downside break below the $2,600 support might call for more downsides.

The next major support is near the $2,575 level. On the upside, immediate resistance is near the $2,665 level. The first major resistance sits near the $2,670 level.

A clear move above the $2,670 resistance could open the doors for more upsides. The next major resistance could be $2,700, above which the price could rally toward the $2,720 level.

Looking at Oil, there was a decent increase, but the bulls seem to be facing hurdles near the $71.50 level.

Economic Releases to Watch Today

Euro Zone CPI for Nov 2024 (YoY) – Forecast +2.3%, versus +2.3% previous.

Euro Zone CPI for Nov 2024 (MoM) – Forecast -0.3%, versus -0.3% previous.

US Housing Starts for Nov 2024 (MoM) – Forecast 1.340M, versus 1.311M previous.

US Building Permits for Nov 2024 (MoM) – Forecast 1.430M, versus 1.419M previous.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Justin

Commodity

SINGAPORE (Dec 18): Oil prices traded in a narrow range early on Wednesday as investors remained cautious ahead of an expected interest rate cut by the US Federal Reserve, while weighing up the potential supply impact of tighter sanctions on Russia.

Brent futures inched up one cent at US$73.20 a barrel at 0420 GMT, while US West Texas Intermediate crude rose one cent to US$70.08 a barrel.

The market is watching out for clues on interest rate moves for 2025 following the Federal Open Market Committee's (FOMC) meeting, which ends later on Wednesday, analysts said.

"Additional sanctions from the West may limit some losses in today's session, but a cautious tone persists in the lead-up to the FOMC meeting," said Yeap Jun Rong, market strategist at IG.

"Looking ahead, oil prices are likely to remain constrained within their current range, with subdued price action expected to persist through the end of the year," Yeap added.

The Fed on Wednesday is widely expected to cut interest rates for the third time since its policy easing cycle began.

"Projections for rate cuts in 2025 are being second-guessed, especially with Trump planning a comeback on January 20," said Priyanka Sachdeva, senior market analyst with Phillip Nova.

"There is a prevailing narrative that Trump's policies may lead to inflation, which, coupled with concerns about potential interference with the Federal Reserve's autonomy, is causing oil investors to remain cautious," she added.

Lower rates decrease borrowing costs, which can boost economic growth and demand for oil.

Meanwhile, the European Union on Tuesday adopted a 15th package of sanctions against Russia over its invasion of Ukraine, adding an additional 33 vessels from Russia's shadow fleet used for transporting crude or petroleum products. Britain also sanctioned 20 ships for carrying illicit Russian oil.

The fresh sanctions could stoke further oil price volatility though so far they have not succeeded in shutting Russia out of the global oil trade.

In the US, American Petroleum Institute data on Tuesday showed that crude stocks fell by 4.69 million barrels in the week ended Dec 13, a source said. Gasoline inventories rose by 2.45 million barrels, and distillate stocks rose by 744,000 barrels, according to the source.

Analysts projected US energy firms pulled about 1.6 million barrels of crude from storage during the week ended Dec 13, according to a Reuters poll on Tuesday.

The US Energy Information Administration will release its oil storage data on Wednesday.

Source: Theedgemarkets

Risk Warnings and Disclaimers

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Pepperstone

Economic

Central Bank

WHERE WE STAND

Anyone else getting the vibe that folk have already put their feet up for Christmas, and are done with 2024?

That’s certainly the feeling I got while commuting on comparatively empty trains yesterday, and also the feeling that financial markets appear to have, with price action subdued for a second straight day yesterday.

Of course, we can’t be ‘officially’ done and dusted just yet, and there’s the small matter of an FOMC decision to navigate later today, but it’s clear that participants lack conviction to do anything much at all as the final ‘proper’ trading week of 2024 progresses.

That isn’t to say there’s a shortage of catalysts, with Tuesday actually presenting a fair few things of note for participants to digest.

Let’s start here in the UK, where the latest employment data – which remains rather unreliable – showed joblessness holding steady at 4.3% in the three months to October, while both regular and overall earnings grew by 5.2% YoY over the same period, these latter prints being considerably above consensus expectations. Not only that, such a pace of earnings growth is clearly incompatible with a sustainable medium-term return to the BoE’s 2% inflation aim, even if earnings growth was boosted by an unfavourable base effect from last year, and the start of summer’s above-inflation public sector pay rises feeding into the data.

In any case, the figures killed stone dead the already-slim chances of any BoE action tomorrow, with the GBP OIS curve also trimming the chances of a 25bp cut in February to around a 60% chance, from over 80% at the start of the week. The pound also strengthened, with cable reclaiming the 1.27 handle intraday, while gilts sold off across the curve, as 10-year yields rose north of 4.50%, and 30-year yields climbed above 5% to the highest level since 2023. Fading GBP strength would also be my preferred play.

I do think, on the whole, that the market might be getting overly hawkish here, and would be inclined to fade any further selling if, say, 10-year yields rise another 10bp. My base case remains that the MPC will probably cut 25bp once per quarter next year, with the next such cut coming at the February meeting. Risks to that view are tilted to the dovish side, given the potential for increased labour market softness to crush demand, thus quickening the pace of services disinflation, and unlocking a potential faster pace of policy normalisation from the second quarter onwards.

Across the pond, participants deftly dealt with the November US retail sales report, which showed headline sales having risen by 0.7% MoM last month, marginally above expectations. Meanwhile, the key ‘Control Group’ metric, broadly representative of the basket used in the GDP report, rose 0.4% MoM, bang in line with consensus. The old adage of ‘never betting against the US consumer’ continues to ring true, while sales are likely to be further boosted in December, given the late occurrence of Thanksgiving this year, which will push a significant degree of holiday spending into the final month of the year.

Stocks, though, did trade marginally softer on the day, with both the S&P 500 and Nasdaq 100 losing ground, as conviction remains somewhat lacking, both ahead of the FOMC, and as year-end approaches and participants seek not to chase further returns with the index already >25% higher YTD.

Back in Europe, pigs might well be flying soon, with that rarest of occurrences taking place yesterday – German economic data surprising to the upside!

The data in question was the monthly ZEW sentiment survey, where the ‘expectations’ index rose to 15.7, its highest level since August. Still, before those pigs do take off, it’s worth bearing in mind that the IFO sentiment survey, also out yesterday, pointed to the lowest ‘business climate’ figure since May 2020. Clearly, the German economy is far from being out of the woods, particularly as elections loom in mid-February.

The EUR, though, remains relatively impervious to negative catalysts for now, having yesterday spent a 4th straight day treading water around the $1.05 handle. It feels too early to call ‘peak pessimism’ just yet, though as we conveniently sit right in the middle of this range, I stand by my call that spot trades to $1.10 before printing parity.

LOOK AHEAD

Here we go then, the final ‘Fed Day’ of 2024 is upon us and, dare I say it, probably the final ‘proper’ trading day of the year for most as well.

What to expect from Powell & Co., then? A 25bp cut is nailed on, after unemployment unexpectedly rose to 4.2% in November, and after both headline and core CPI rose in line with expectations, at 2.7% and 3.3% respectively, last month. Furthermore, given the FOMC’s longstanding desire not to ‘rock the boat’, the USD OIS curve discounting a 95% chance of a 25bp cut is probably enough on its own to see one delivered, no matter what the data may be saying.

Such a cut, though, is likely to be a ‘hawkish’ one, as Powell attempts to build greater optionality into the FOMC’s policymaking in 2025, amid increasing upside inflation risks, with the labour market still tight, and with potential trade tariffs set to be imposed once President-elect Trump takes office. Hence, we are again unlikely to see any firm pre-commitments as to the future path that the fed funds rate will take, with Powell instead likely to repeat that data will guide the FOMC in terms of the speed at which rates return to neutral, and that the FOMC can be “cautious” in finding said neutral rate, while also being able to slow the pace of easing were data to permit them.

The updated ‘dot plot’, meanwhile, will likely show a more hawkish path than that issued in September. Then, the median expectation saw the fed funds rate falling to 3.375% by the end of next year, while the December plot will likely see that median revised 25bp higher, with the longer-run rate estimate likely also nudged higher by the same magnitude. The dispersion of 2025 dots, meanwhile, is set to be considerably tighter, as downside risks to the dual mandate recede.

Besides the FOMC, today presents another couple of interesting events. This morning’s UK CPI figures should show inflation having risen once more last month, to 2.6% YoY on a headline basis, and to 3.6% on the core print, both +0.3pp compared to October. Elsewhere, the Bank of Japan should hold rates steady in the early hours of Thursday morning, as has already been indicated by an inordinate number of pre-meeting ‘sources’ reports.

To stay updated on all economic events of today, please check out our Economic calendar

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TD Securities

Economic

Slower price growth was broad based across the eight major components. The one exception was transportation costs which rose to 1.1% y/y, from 0.3% in October.

Shelter inflation has been a key challenge for Canadians for some time now and cooled in November to 4.6% y/y, from 4.8% y/y in October. Mortgage interest costs were a key factor, as the year-on-year increased slowed from 14.7% to 13.2% y/y in November. Unfortunately, rent inflation continues to heat up, rising 7.7% y/y in November, up from 7.3% y/y in October.

The Black Friday deals were particularly good this year, keeping goods inflation flat both on the month and versus a year ago. Deals were to be had on cellular services (-6.1% m/m), furniture, clothing, and particularly children’s clothing.

The impact of Taylor Swift’s Eras Tour in Toronto in November was seen in hotel prices, which had their largest November increase ever in Ontario. This drove higher prices for traveller accommodation at the national level (+8.7% y/y).

The Bank of Canada’s preferred “core” inflation measures were steady at 2.7% y/y on average, matching October’s pace.

Key Implications

November’s inflation data came in line with the Bank of Canada’s expectations for inflation to average close to 2% over the next couple of years. Headline was only a tenth cooler than expected, but this was mitigated by a lack of progress in the Bank of Canada’s Core inflation measures.

Our forecast calls for headline inflation to rise somewhat above the Bank’s 2% target next year as likely tariffs raise goods costs (see forecast). However, we don’t expect that this is high enough to dissuade the BoC from cutting interest rates further. With an America-First agenda south of the border, Canada’s economy faces a challenging backdrop, and lower interest rates are required for support. That said, at 3.25% on the overnight rate, we are now at the edge of “neutral” territory, further cuts are expected to come at a more measured pace next year.

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Economic

SEOUL (Reuters) - South Korea's central bank will maintain its inflation target of 2% until the next policy review, as the era of "low-inflation" is unlikely to come in a year or two, the bank's governor said on Wednesday.

"The Bank of Korea (BOK), through consultation with the government, has decided to maintain the current price stability target of 2% until the next review," Governor Rhee Chang-yong said.

Rhee said mechanisms to stabilise high inflation in recent years had been effective. He also said inflation was expected to be stable in the next two years, and other major central banks were also maintaining their targets at 2%.

The central bank will continue to assess if there is any need for improvements in its inflation-targeting system, Rhee said at a press conference held after a bi-annual review of the bank's inflation-targeting monetary policy.

According to the central bank, the economy is "unlikely to enter a low-inflation phase of below 1% in the next year or two," as economic growth is expected to be in the upper-1% range while accumulated price pressure from a strong dollar and climate change persists.

Last month, South Korea's consumer inflation came in weaker than expected at 1.5%, allowing the central bank to lower interest rates for a second straight meeting, to 3.00%, to shore up a slowing economy.

In 2025, consumer inflation is expected to rise to the upper-1% range in the first half and show a stable trend near the target from the second half, the BOK said.

The BOK cited a weaker local currency and higher public utility costs as factors increasing upward price pressures and lower oil prices as a factor offsetting them.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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JPMorgan

Central Bank

Economic

When testifying to the Senate Banking Committee back in 1987, the newly-appointed Fed Chairman, Alan Greenspan, provided some insight into his views on communication: “Since becoming a central banker”, he said, “I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.”

His successors have generally tried to be more open with regard to both their opinions and their intentions. However, there are times, when the Fed will want to communicate to financial markets without piquing the interest of either the general public or the administration.

At this Wednesday’s meeting, the Fed may well signal a shallower path for interest rate cuts over the next year or two. The reasons for this will be recent data showing more resilient economic growth and stickier inflation, frothier equity markets and the potential for the policies of the new administration to add to inflation pressures. The Fed will also likely be concerned that if they cut too much and ought to reverse course, they could be bullied into too easy a policy by the incoming administration or, at an extreme, see their independence threatened. They will not want to communicate most of this on Wednesday, so investors will need to read between the lines, and ask themselves whether, given high valuations and market concentration, they are appropriately positioned for a higher path on interest rates and the volatility that could emerge from a period of conflict between monetary and fiscal policy.

The Statement, the Press Conference and the Summary of Economic Projections

Recently, futures markets have priced in a roughly 95% chance of a 25-basis-point cut in the federal funds rate this week and this is what the Fed will likely deliver. However, apart from noting this cut, it’s not clear what other edits the FOMC will make to their statement.

They might indicate that recent indicators suggest that economic activity has continued to expand at a “strong” pace, rather than the “solid” pace they mentioned in their November statement. At that time, the Atlanta Fed’s GDPNow model was forecasting 2.5% real GDP growth for the fourth quarter – now that number has climbed to 3.3%. Moreover, the November jobs report showed a strong 227,000 increase in non-farm payrolls, while job openings rose in October. However, the unemployment rate is 4.2% compared to 4.1% in October and wage growth remains muted, so it is still accurate to say that labor market conditions have eased since earlier in the year. Nor will the Fed likely want to change its characterization of inflation progress, at this stage.

However, in his press conference, Jay Powell may be a bit more explicit about the strength in recent economic data. Apart from GDP and jobs data, the stock market has continued to rally, with the S&P500 climbing by a further 2.1% since the last FOMC meeting. This could continue to fuel strong consumer spending, as could further gains in real wages and rising consumer confidence.

In addition, he will have to acknowledge changes to the Fed’s Summary of Economic Projections. For the fourth quarter of 2024, recent data suggest that, relative to their September forecasts, they will have to boost year-over-year real GDP growth from 2.0% to 2.5% and year-over-year PCE inflation from 2.3% to 2.5%, while cutting their estimate of the unemployment rate from 4.4% to 4.2%. Beyond this, forecasts for the next few years may well show somewhat stronger economic growth and inflation and somewhat lower unemployment than they projected in September. They might even increase their estimate of long-term real economic growth from 1.8% to 1.9%, in a nod to recent strong productivity data.

However, the most important piece of information conveyed on Wednesday will be the expected path of the federal funds rate in 2025, 2026 and in the long run. In September, having delivered an initial 50-basis point cut, they projected another 50 basis points in cuts in 2024, 100 basis points in 2025 and 50 basis points in 2026, bringing the rate down to their estimate of the long-run neutral rate of between 2.75% and 3.00%.

Futures markets are now expecting just a further 50 basis points in rate cuts in 2025, following this week’s cut, bringing the rate down to a range of 3.75% to 4.00% by the end of the year, and Fed officials, when putting together their own projections, may be tempted to validate this view. If they do, long-term interest rates could edge higher, as the Fed signals that they expect growth to be too strong and inflation to be too hot for a full normalization of monetary policy.

Valuations and Concentration

Higher long-term rates would obviously be a negative for the stock market. However, investors should also continue to pay attention to valuation and concentration.

Despite a small pullback in the last few days, the S&P500 has seen a spectacular 27% gain year-to-date, following a 24% increase last year. While this has added over $27 trillion to household wealth over the past two years, it has left valuations elevated, with the S&P500 trading at 22.1 times forward earnings – about 1.7 standard deviations above its 30-year average.

Overall index valuations, however, mask some very significant concentration issues. The top 10 stocks in the S&P500 now account for an astonishing 39% of its market cap and sport an average forward P/E ratio of 30.5 times compared to a much more reasonable 18.8 times for the rest of the index. In addition, the P/E range between the 20th and 80th percentiles among S&P500 stocks has now climbed to 17.3 P/E points – wider than it has been 92% of the time over the past 28 years.

Investors have every reason to be concerned about high valuations at a time when the economy is already at full employment, margins are already high and there is limited room for long-term interest rates to fall, in the absence of recession. Sometimes, people argue that it is a TINA market – that There Is No Alternative to continuing to overweight mega-cap U.S. growth stocks. However, there are, in fact, many alternatives.

Within public markets, while large-cap growth stocks have led the way in 2024, all the other styles in the U.S. style-box have provided double-digit returns so far this year, with most of them trading at much cheaper valuations. The dispersion among valuations also suggests that there are plenty of undervalued individual stocks within U.S. indices. Despite a rising U.S. dollar, international equities have also provided nearly double-digit dollar-denominated returns this year and generally have much cheaper valuations. Fixed income, while not cheap by pre-financial crisis standards, does generally offer positive real yields. Finally, a wide swath of alternative investments should be able to add return and income to a portfolio while providing some diversification relative to richly-valued U.S. equity indices.

In short, there are plenty of ways to reallocate within a portfolio to reduce overall risk, although doing so in a tax-efficient manner is, as always, more tricky. The last two years have seen extraordinary returns from one particular sector of global financial markets. However, managing risk, going forward, will require a broader, more diversified approach to investing.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Justin

Economic

SYDNEY (Dec 18): Australia's government on Wednesday trimmed its likely budget deficit for the current fiscal year, but flagged bigger shortfalls ahead due to "unavoidable spending" on health, cost-of-living relief and veterans care.

Facing a tough election next year, the centre-left Labor government said the economy had slowed under the weight of high interest rates and elevated inflation, but insisted public spending would help ensure a soft landing.

Recent data for the third quarter showed that without public investment in infrastructure and rebates on electricity costs, the economy would have been in recession.

In its Mid-Year Economic and Fiscal Outlook (MYEFO), the government still had to trim its forecast for economic growth in the current fiscal year to end June 2025 to 1.75%, down from 2.0% in its main Budget last May.

Wage growth was also marked down to 3.0% in a blow to government claims it would deliver faster pay gains than the Liberal National opposition.

The economic slowdown was enough for the Reserve Bank of Australia (RBA) last week to open the door to policy easing, having held interest rates at 4.35% for all of this year.

Treasurer Jim Chalmers on Wednesday suggested more cost of living relief could be on the way, on top of the tax cuts, electricity rebates, cheaper medicines and other policies the government has already delivered to date.

"From budget to budget, if we can afford to do more and there is a case to do more to help people with the cost of living, of course then we will consider that," Chalmers said in a press briefing.

All this government spending meant its budget was back in deficit after two years of rare surpluses, though the shortfall this year was not as large as first feared.

The Treasury projected a deficit of A$26.9 billion (US$17.04 billion or RM76.06 billion) for the current 2024/25 year. That compared with a forecast of A$28.3 billion in its main Budget last May.

From there, the red ink only gets worse due to A$25 billion in extra payments. The projected deficit for the three years to 2027/28 is now A$117 billion, or A$23 billion more than expected in May.

"The slippage in subsequent years is largely because of urgent, unavoidable or automatic increases in spending in areas like pensions, Medicare and medicines," Treasury said in a statement.

Expected tax revenues from companies have also been downgraded as subdued demand in China weighs on prices for some of Australia's main commodity exports, notably iron ore. It retained the long-term iron ore price assumption at US$60 per tonne by the third quarter 2025, compared with US$104 per tonne currently.

The government's net debt was now seen expanding to A$1.16 trillion by 2027/28, from an expected A$940 billion this year. At 36.7% of gross domestic product, net debt would still be low by international standards.

Estimated overseas migration has been revised up to 340,000 for the 2024/25, from 260,000, as the government struggled to bring migration to more sustainable levels.