Markets take stock while Gold rallies

Headlines

* US government shutdown averted as President Biden-Xi talks end

* Oil at lowest since July ahead of OPEC+ meeting

* US dollar stands neutral despite report of soft economic data

* Stocks eke out small gains as November rally takes a breather

FX: USD continued to consolidate Tuesday’s plunge. The DXY is finding support at the 100-day SMA is at 104.18. The 200-day SMA sits at 103.61. Weekly US labour market data was softer than expected. This helped the cooling job market theme.  The Fib level (38.2%) of the July rally is at 104.38. The early November bottom is at 104.84.  

EUR was marginally higher on the day, consolidating near recent highs in a possible bull flag pattern. Near-term resistance is the 50% point of the July drop at 1.0862. Support below could be the 100-day and 200-day SMAs around 1.08. There is very little in Europe until next Thursday’s PMIs.

GBP printed a doji candle denoting indecision between buyers and sellers. Prices are currently in a confluence zone. The 200-day SMA is at 1.2442. The 100-day SMA sits above at 1.2511 with the 38.2% Fib level of the summer decline at 1.2459. This week’s encouraging disinflation theme has seen markets price in the first full 25bp cut in June. Just under 80bps of easing are priced by the end of 2024.

USD/JPY fell as 10-year US treasury yields pulled back below 4.5%. Firm core machinery orders helped the yen. Prices in the major have been supported by the 21-day SMA which sits at 1505.50.  

AUD fell below the 100-day SMA at 0.6487. The headline employment number beat expectations but most of the jobs were part-time, while the jobless rate ticked up one-tenth as forecast to 3.7%. Weak China housing figures also weighed on the aussie.

Stocks: US equities edged higher again in a narrow range trading day. The benchmark S&P 500 added 0.12% to settle at 4508. The tech-laden Nasdaq finished 0.10% higher at 15,833. The Dow settled 0.13% lower at 34,945. Sentiment was pressured by disappointing guidance and commentary on the US consumer from retail giant Walmart. The stock finished down by over 8%. The blue-chip S&P 500 has bounced very close to 10% since late October.

Asian futures are in the red. APAC stocks fell on Thursday with markets digesting the rhetoric from the Biden-Xi meeting. Alibaba Group fell 8% after the company said it won’t proceed with a full spinoff of its cloud unit.

Gold surged higher, adding 1.11%. Treasury yields fell again on the softer US initial jobless claims data. A weekly close below 4.50% in the 10-year yield could be significant. The higher-than-expected job figures might point to higher rates finally having an effect on the previously resilient labour market.

Day Ahead – More Fedspeak

We get more Fed speakers to finish the week off. This comes after a flurry of messages from officials, which have probably been mildly more hawkish. A few are still holding out for a further hike. They want more evidence that inflation has been defeated.

But markets are not convinced and seem confident that the Fed tightening cycle is done. Rate cuts are priced in the second quarter of 2024, with over 90bps of easing by year end. That contrasts with the FOMC’s recent median projection of 50bps. This should all be dollar negative but the bar to invest in other currencies is high when US overnight rates sit just below 5.5%.

Chart of the Day – Gold bugs aiming for $2000

Softer bond yields and dollar should be acting as a tailwind for more gold gains. Any inflation data that supports a Fed pivot will help, while resilient activity data would not. Geopolitical concerns around escalation in the Israel-Hamas conflict have eased, though this situation remains tense. Gold has bounced over 9% since bottoming out in early October around $1820. Prices backed off $2000 but have been supported by the 200-day SMA at $1937. A major Fib level of this rally (38.2) is nearby at $1933.