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Gold trading reminder: Israel launched a large-scale air strike on Lebanon, and the gold price hit a new high! The Russian-Ukrainian war is "close to the end" and beware of the risk of a call
2024-09-24
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In early Asian trading on Tuesday (September 24), spot gold fluctuated narrowly at high levels and is currently trading around $2,626.58 per ounce. Gold hit a record high of $2,634.74 per ounce during trading on Monday and closed at $2,628.33 per ounce, up about 0.24%. The bullish market sentiment after the Fed's rate cut last week and geopolitical tensions pushed gold prices up, but the US dollar index stabilized and rebounded. Ukrainian President Zelensky said the Russian-Ukrainian war was "close to over", and investors need to beware of the risk of a short-term correction in gold prices.
Bart Melek, head of commodity strategy at TD Securities, said, "The market is still reacting to the Fed's 50 basis point rate cut last Wednesday... The Fed has hinted that it is not particularly worried about inflation and will do its best to ensure that unemployment will not be a problem in the United States."
Several Fed policymakers said on Monday that the sharp 50 basis point rate cut last week was to maintain what they believe is a healthy balance emerging in the economy, with inflation moving toward the target level and unemployment close to a level consistent with stable prices.
Three regional Fed presidents said they supported last week's rate cut, arguing that current policy has put too much pressure on the economy amid weakening price pressures and rising job market risks - in which case a more "neutral" rate is appropriate.
If employment falls sharply, it will make the market think that the Fed may be more aggressive in cutting rates, which is very bullish for gold, Melek said, adding that instability in the Middle East could also further boost gold's gains.
However, Atlanta Fed President Bostic said the Fed is not "crazy" in pursuit of a neutral rate, and policymakers are in a "fierce" debate over how much and how fast rates may need to fall.
The Israeli military said on Monday that it was carrying out a large-scale strike against Iranian-backed Hezbollah targets in Lebanon, and the two sides are currently engaged in the most intense exchange of fire in nearly a year of conflict.
As a traditional hedge against geopolitical and economic uncertainty, gold is set to have its best year in 14 years.
There are relatively few economic data on this trading day. Investors will pay attention to the Reserve Bank of Australia's interest rate decision, the U.S. Conference Board Consumer Confidence Index in September, speeches by Fed officials, and news related to the geopolitical situation.
Israel launched a massive airstrike on Lebanon, killing at least 492 people and injuring more than a thousand people
Israel launched airstrikes on Hezbollah targets on Monday, killing 492 people and forcing tens of thousands to flee to safety, according to Lebanese authorities.
Israel warned the Lebanese people to evacuate areas where it said Hezbollah was storing weapons. "Israel's war is not against you, but against Hezbollah. Hezbollah has used you as a human shield for too long," Israeli Prime Minister Benjamin Netanyahu said in a brief video statement to the Lebanese people.
The Lebanese Ministry of Health said at least 492 people were killed, including 35 children, and another 1,645 were injured. A Lebanese official said it was the highest number of deaths from violence in a single day since Lebanon's 1975-1990 civil war.
Civilian families in southern Lebanon fled in cars, vans and trucks. Bombs rained down, with children huddled on their parents' legs and suitcases tied to the roofs of cars. Others fled on foot. On a beach near the Lebanese town of Tyre, people fled north on foot carrying small bundles of belongings.
Nasser Yassin, the Lebanese minister coordinating the crisis response, told Reuters that Lebanon had activated 89 temporary shelters, including schools and other facilities, with a capacity of more than 26,000 people as civilians fled "Israeli brutality."
The Israeli military said it struck about 1,300 Hezbollah targets in southern, eastern and northern Lebanon.
Israeli Defense Minister Yoav Gallant said Monday marked an "important peak" in the nearly year-long conflict, "a day when we destroyed tens of thousands of rockets and precision-guided munitions... What Hezbollah has built up over 20 years since the Second Lebanon War is literally being destroyed by the IDF."
Hezbollah said it responded to the attack by firing dozens of missiles at a northern Israeli military base.
More attacks on Lebanon are expected.
Zelensky says Ukraine's war with Russia 'close to end'
Ukrainian President Volodymyr Zelensky said Ukraine's war with Russia is "close to end," according to excerpts of an interview published by ABC News on Monday.
"I think we are closer to peace than we thought," Zelensky said. "We are closer to the end of the war."
In the interview, he urged the United States and other partners to continue to support Ukraine.
Fed policymakers say employment risks justify rate cut, discussion turns to pace of easing
Several Fed policymakers said on Monday that the sharp 50 basis point rate cut last week was intended to maintain what they believe is a healthy balance emerging in the economy, with inflation moving toward target and unemployment close to levels consistent with stable prices.
Three regional Fed presidents said on Monday they supported last week's rate cut, arguing that current policy has put too much pressure on the economy amid muted price pressures and rising risks in the job market - in which a more "neutral" rate is appropriate.
Chicago Fed President Goolsbee said inflation and unemployment levels are close to the Fed's targets, but "interest rates are the highest they have been in decades. It makes sense to maintain interest rates at this level when you want to cool the economy, but it's not appropriate when you want the economy to stay the same."
"I am pleased with this first action - the 50 basis point cut in the federal funds rate announced last Wednesday - as a sign that we are back to thinking more about the dual mandate," Goolsbee added. "If we want to achieve a soft landing, we can't get behind the curve."
The U.S. personal consumption expenditures (PCE) price index rose 2.5% year-on-year in July, but is expected to continue to slow, which is key in the discussion over whether the Fed may cut interest rates by another 50 basis points or 25 basis points at its November meeting.
The U.S. unemployment rate was 4.2% in August, the median level that Fed policymakers consider consistent with stable inflation.
Atlanta Fed President Bostic said he believes the economy is approaching "normal" levels of these two key statistics faster than expected, and monetary policy should also be adjusted to relax the current tight credit stance.
He said last week's 50 basis point rate cut was an appropriate way to start the process, but the Fed did not need to "go crazy" in cutting rates while policymakers are in a "heated" discussion about how much borrowing costs should fall and how quickly.
"Inflation progress and the cooling of the labor market have been much faster than I thought at the beginning of the summer," Bostic said in remarks prepared for the European Center for Economics and Finance. "At this point, I expect the pace of monetary policy normalization to be faster than I thought a few months ago." He has a vote on interest rate policy this year.
Minneapolis Fed President Neel Kashkari said he agreed a 50 basis point rate cut was appropriate, but he also probably would have supported a 25 basis point cut at the time.
Regardless, he said he thought two more 25 basis point rate cuts would likely be needed by the end of the year because "the balance of risks has shifted from the risk of higher inflation to the risk of further weakening in the labor market."
Despite the 50 basis point cut, the current target range for the benchmark rate of 4.75% to 5% "remains tight."
Fed officials split on policy outlook
Financial markets reacted mutedly to comments from Fed policymakers. Markets see almost equal odds that the Fed will cut rates by 25 basis points or 50 basis points at its Nov. 6-7 meeting.
Bostic said recent data showed inflation below 2% by some measures, concentrated in the housing sector.
"Inflation has come down faster than I expected," he said, and business contacts said pricing power was "almost gone."
While all three policymakers said they supported the Fed's actions last week and agreed that policy was too tight for economic conditions, their comments also showed differences in their views on how quickly the Fed should return policy to a neutral level - a level that neither stimulates nor restricts the economy - and what that neutral rate might be.
The median forecast among Fed policymakers is that the "long-term" federal funds rate will be 2.9%, but the short-term neutral rate could be above or below that in any given situation.
Bostic said he thinks the neutral rate is probably between 3% and 3.25%, but he also said the debate on the subject is "very lively" and policymakers are divided.
Policymakers are "quite divided," Bostic said. "It's important that no one thinks we're frantically chasing some neutral level given the uncertainty in the economy. It's going to be more important to be more patient... There's a lot of debate about the path forward and the specific level of the neutral rate, and it's going to be quite interesting."
U.S. business activity remains stable in September, price pressures pick up
U.S. business activity remained stable in September, but the average price of goods and services rose at the fastest pace in six months, which could suggest inflation will pick up in the coming months.
S&P Global said on Monday that the U.S. composite purchasing managers' index (PMI) tracking manufacturing and services was 54.4 at the start of the month, little changed from the final reading of 54.6 in August. A reading above 50 indicates expansion in the private sector.
The September reading is in line with economic reports such as retail sales this month that showed the economy maintained solid growth momentum in the third quarter.
However, uncertainty over the Nov. 5 presidential election has taken a toll on business confidence. While manufacturing fell to a 15-month low, the services sector continued to expand steadily.
Average prices for goods and services rose at the fastest pace since March, marking the first acceleration in sales price inflation in four months.
The survey showed that the business input price index rose to 59.1 from 57.8 last month, the highest in a year. The output price index rose to 54.7 from 52.9 in August.
The Federal Reserve cut interest rates by 50 basis points to a range of 4.75%-5.00% last week, the first reduction in borrowing costs since 2020, and Fed Chairman Powell said the move was intended to show policymakers' commitment to maintaining low unemployment.
The survey's initial manufacturing PMI fell to a 15-month low of 47.0 from 47.9 in August. Economists polled by Reuters had expected the manufacturing index, which accounts for 10.3% of the economy, to rise to 48.5. The initial service PMI fell to 55.4 from 55.7 in August, roughly in line with economists' expectations of 55.2. (END)
Dollar rises after US PMI data
The dollar index rose 0.2% on Monday, hitting an intraday high of 101.23, which is exactly the resistance of the 21-day moving average, and closed at 100.93, closing up for two consecutive trading days, and closing above the key position of 100.51, which has provided support for the dollar many times in the past 15 months. The stabilization and rebound of the dollar index has made gold bulls cautious.
Michael Green, portfolio manager and chief strategist at Simplify Asset Management, said: "We are mainly concerned about interest rate expectations. Most people expect the Fed to lead and be relatively more aggressive in cutting interest rates. From a historical perspective, this is a reasonable interpretation. Any factors that will push the market to adjust expectations in the direction closer to the Fed's position are likely to at least give the dollar some boost."
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
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