Category: Market Movers

As the US debt default crisis has been averted, market attention now turns back to the US Federal Reserve’s rate outlook. Following a stronger-than-expected reading of the US May non-farm payroll, interest rate expectations are gaining conviction for another 25 basis-point move by the Fed in July. However, there is a growing view that rates may remain on hold for a more extended period this year. Despite promising signs of an uptick in the unemployment rate and softer wage growth, additional tightening measures may be one-off moves rather than part of an extended process.

The US dollar has resumed its upward trajectory, gaining 0.6%, accompanied by a broad-based increase in Treasury yields. Consequently, the prices of gold and silver have come under pressure. Although headlines about potential oil production cuts by Saudi Arabia in July initially boosted oil prices, optimism quickly faded during today’s session. This scenario reminds market participants of the short-lived rally experienced back in April, where downward surprises in global economic data overshadowed previous news of production cuts.

Market participants eye Fed’s rate decision as US debt default crisis fades

To witness a sustained upside in Brent crude prices, several resistance levels need to be overcome. Currently, prices are retesting the $78.60 level, where a near-term upward trendline intersects with the Ichimoku cloud resistance. Greater conviction would require a move above the $80.00 level to set the stage for a retest of its April 2023 high.

In the Asian markets, a positive opening is anticipated, with the Nikkei up by 1.30%, ASX by 1.21%, and KOSPI by 0.60% at the time of writing. These gains largely reflect a continuation of the rally seen in Wall Street at the end of last week. Notably, the Hang Seng Index recorded a 4% gain on Friday, possibly reflecting expectations of upcoming policy support following disappointing economic data thus far. However, further validation is needed, and today’s economic calendar includes the release of the Caixin services PMI data. The resilience of the economy will play a crucial role in determining if the gains can be sustained.

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For the Hang Seng Index, a bullish crossover on the moving average convergence/divergence (MACD) may provide some relief for the bulls in the near term. However, several resistance levels lie ahead. These include a downward trendline resistance that has persisted since January, as well as the key psychological level of 20,000, which coincides with the upper edge of the Ichimoku cloud on the weekly chart. Overcoming these levels is essential to build greater conviction for a sustained upside.

On the watchlist, gold prices are once again testing trendline support. Following the stronger-than-expected US non-farm payroll figures, US Treasury yields experienced a broad-based increase, indicating that interest rates could remain elevated throughout the year. As a result, gold prices have given back most of their gains from the past week. The latest data from the Commodity Futures Trading Commission (CFTC) reveals a continued unwinding of net-long positions among money managers for the third consecutive week. If Treasury yields remain supported, there is potential for further moderation from the previously bullish build-up.

Conclusion

From a technical standpoint, last week’s movement has brought gold prices back to test a key trendline support at the $1,950 level. Any further decline below the May 2023 low could signify a downward break of a significant support confluence zone, where the 100-day moving average (MA) and Ichimoku cloud reside. This breakdown could pave the way for a retest of the $1,875 level.

As the US debt default crisis recedes, the focus now turns to the Federal Reserve’s rate decision. The market’s anticipation of further interest rate moves, coupled with developments in global economic data, will continue to shape various asset classes, including currencies, commodities, and Asian markets. Investors and traders will closely monitor these key factors to make informed decisions in the weeks ahead.

Click here to read our latest article about the US Economy

Oil prices plummeted at the start of the pandemic, but demand has since rocketed back to a seven-year high.

Gasoline costs an average of $3.31 per gallon in the United States, up from $2.39 per gallon a year ago. It’s a similar story in the United Kingdom and the European Union. 

Gas prices have also risen, leaving people all over the world with eye-watering central heating bills. 

Prices have risen due to increased demand from Asia, as well as a cold winter in Europe last year, which depleted gas reserves. 

Consumers who were unable to go out to restaurants or on vacation due to the lockdown last year spent their money on household goods and home improvements.

Manufacturers in Asia, for example, have struggled to keep up with demand since then, with many forced to close due to Covid restrictions. 

It has resulted in material shortages such as plastic, concrete, and steel, driving up prices. Timber costs up to 80% more than usual in the UK in 2021, and it costs more than twice as much in the US. 

Because of higher supply chain costs, major US retailers Nike and Costco have raised their prices. 

Furthermore, microchips, which are critical components in automobiles, computers, and other household goods, are in short supply. 

Global shipping companies, which transport goods around the world, have been overwhelmed by the pandemic’s surge in demand.

As a result, retailers have had to pay significantly more to get those goods into their stores. As a result, prices have risen for consumers. 

A single 40ft container from Asia to Europe now costs $17,000 (£12,480), which is ten times more than the previous year’s cost of $1,500 (£1,101). 

It has been accompanied by an increase in air freight fees, which has been exacerbated by a lorry driver shortage in Europe. 

In December, transportation bottlenecks appeared to be easing, with the United States beginning to address record port congestion. 

However, Omicron and the emergence of future Covid variants have the potential to reverse these gains. 

During the pandemic, many people quit or changed jobs.

According to the US Department of Labor, more than four million people quit their jobs in April, the highest number on record. 

As a result, businesses are having difficulty recruiting employees such as drivers, food processors, and restaurant waiters. 

According to a survey of 50 major US retailers, 94% are having difficulty filling open positions. 

As a result, companies are having to raise wages or offer signing bonuses in order to attract and retain employees. McDonald’s and Amazon are both offering $200 to $1,000 in hiring bonuses. 

Those additional employer costs are being passed on to consumers once again. Next, a global clothing company, has blamed planned price increases for 2022 in part on rising wage costs.

Hurricanes Ida and Nicholas wreaked havoc on global oil supplies as they passed through the Gulf of Mexico, damaging US oil infrastructure. 

And problems meeting demand for microchips were exacerbated last year when a severe winter storm shut down major factories in Texas. 

Coffee prices have also risen as a result of a poor harvest in Brazil, the world’s largest producer, following the country’s worst drought in nearly a century. 

Imports that are more expensive are also contributing to price increases. New post-Brexit trade rules are expected to reduce EU imports to the UK by about a quarter in the first half of 2021.

Many British tourists visiting Europe this year will face roaming charges. 

Separately, almost all US import tariffs on Chinese goods have been passed on to US customers in the form of higher prices. 

Last year, Chinese telecoms giant Huawei stated that US sanctions imposed on the company in 2019 were affecting US suppliers and global customers. 

During the pandemic, governments around the world increased their spending and borrowing. As a result, tax increases have contributed to the cost-of-living squeeze, while most people’s wages have remained stagnant. 

Many developed economies have policies to protect workers, such as furlough, as well as welfare policies to protect the poorest.

Some economists believe that as the support measures expire, these policies will raise inflation.

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