Gold Prices Vulnerable

Asian stocks dropped on Monday as investors mulled the implications of a surprise hawkish shift last week by the U.S. Federal Reserve, while the Treasury yield curve flattened further with 30-year yields dropping below 2%.

Though investors have been spoiled by the most generous stimulus ever, both from the Fed and the Biden Administration, a healthy economic expansion must include the US central bank managing the pace of inflation. Otherwise, the recovery could become a short-lived affair, with the economy falling back into recession. Nevertheless, markets have been broadcasting their displeasure.

Here are the key market moving factors for the week:

The US

• The US Dollar not only saw its best weekly performance in about 15 months against its major peers, but that strength also dominoed into Emerging APAC Markets, including ASEAN. On the chart below, my ASEAN-based US Dollar index soared to its highest since early April. That was also its best weekly gain in roughly 15 months, could this be a meaningful shift in trend?
• This follows the Federal Reserve monetary policy announcement. There, the central bank released updated economic projections and where policymakers see rates going in the long run. The key takeaway was that the central bank seems to see that it could deliver 2 rate hikes by the end of 2023. That was a notable hawkish shift from before, which also entails the possibility of policy tapering arriving sooner than expected.

The UK

• Following the operational decision to adjust its weekly asset purchases, it seems as though the BoE will retain the current course for monetary policy as the “Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”
• As a result, the Monetary Policy Committee (MPC) may stick to the same script on June 24 as the BoE is slated to update the quarterly Monetary Policy Report (MPR) in August, and Governor Andrew Bailey and Co. may merely attempt to buy time as “most members of the Committee judged that the existing stance of monetary policy, which included the previously announced £150 billion increase in the target stock of purchased assets, remained appropriate.”
• Britain’s top central bank officials look set to remain divided this week over whether to pull the plug on their 875 billion-pound ($1.2 trillion) government bond purchase programme after inflation hit its highest in nearly two years.
• Bank of England chief economist Andy Haldane was alone in May when he voted to halt the quantitative easing (QE) bond purchases in August once they reached 825 billion pounds.

Europe

• Last week’s FOMC meeting could prove to have been a watershed moment for EUR/USD. It’s now even more clear that the Federal Reserve’s rate-setting committee is more hawkish than the ECB’s, and that will likely weaken EUR/USD further in the weeks ahead.
• Even in the short term, EUR/USD could fall some more as traders who have shifted from short to long positions are forced into liquidating those longs as the markets digest confirmation that the Fed will almost certainly tighten monetary policy faster than the ECB in this cycle.

JAPAN

• The Bank of Japan’s meeting concludes on June 18. There have been modest policy adjustments that have had little impact and have drawn little attention. The BOJ has reduced its bond-buying, but no one has confused it with tapering.
• For the first time in eight years, the BOJ did not buy any equity ETFs for a month, and still, the Topix rose 1.3% in May. Without the BOJ’s bid, short-sellers may be emboldened. On the other hand, valuations are lower in Japan than in the US and Europe, and the economy is poised to recover in H2.

AUSTRALIA

• The total value of retail sales in Australia was up a seasonally adjusted 0.1 percent on month in May, the Australian Bureau of Statistics said on Monday – coming in at A$31.069 billion.
• That missed expectations for an increase of 0.5 percent following the 1.1 percent increase in April.

CHINA

• China’s reforms to the way banks calculate deposit rates will have only a limited impact on financial institutions and depositors, and banks do not need to sharply adjust deposit rates, an industry body overseeing rates said on Monday.
• The body said the previous practice of multiplying the benchmark rate helped push up long-term rates and led to competition among banks to lure deposits by raising rates or unveiling innovative products.
• From Monday, June 21, China will allow banks to set ceilings on deposit rates by adding basis points to the benchmark rate, a shift from the previous practice of multiplying the benchmark rate, the Self-Disciplinary Mechanism for the Pricing of Market-Oriented Interest Rates said.

Market Overview:

Gold

• Gold prices paused a six-day decline as the US Dollar retreated from a two-month high
• Hawkish-biased comments from a Fed official hinted at 2022 rate hikes, spurring a new round of selling in gold
• Traders are eyeing $1,770 for support, breaching which may lead to further losses

Oil

• Oil prices rose on Monday, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear deal that could indicate a delay in resumption of supplies from the OPEC producer.
• Brent crude for August gained 35 cents, or 0.5%, to $73.86 a barrel by 0344 GMT. U.S. West Texas Intermediate (WTI) crude for July was at $72.05 a barrel, up 41 cents, or 0.6%.

Below are the major market moving events for the week:

All times listed are EDT

Monday

10:15: Eurozone – ECB President Lagarde Speaks

Tuesday

10:00: US – Existing Home Sales: forecast to decline to 5.72M from 5.85M.

14:00: US – Fed Chair Powell Testifies 

Wednesday

3:30: Germany – Manufacturing PMI: expected to dip to 63.4 from 64.4.

4:30: UK – Manufacturing and Services PMI: printed last month at 65.6 and 62.9 respectively.

8:30: Canada – Core Retail Sales: anticipated to plunge to -5.0% from 4.3%.

10:00: US – New Home Sales: predicted to climb to 875K from 863K.

10:30: US – Crude Oil Inventories: expected to jump to -3.290M from -7.355M.

Thursday

4:00: Germany – Ifo Business Climate Index: forecast to rise to 100.1 from 99.2.

7:00: UK – BoE Interest Rate Decision: presumed to remain steady at 0.10%.

7:00: UK – BoE MPC Meeting Minutes

8:30: US – Core Durable Goods Orders: outlook is for 0.7% from 1.0%.

8:30: US – GDP: anticipated to jump to 6.4% from 4.3% QoQ.

8:30: US – Initial Jobless Claims: seen to shrink to 380K from 412.K.

Friday

8:30: US – Personal Spending: forecast to slip to 0.3% from 0.5%.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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