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Interviewed by Dubai TV on Monday, Mohammed Hashad, Head of Research and Development at Noor Capital and the member of the US Association of Technical Analysts, commented on the most important developments in the global financial markets on the first day of this trading week.
(I) China
Asked how the news on China’s reduction of economic growth target by 5% could be read and comprehended, since it is below analysts’ expectations, especially after the significant optimism during the few previous weeks in the post-Covid era, Hashad replied that the financial markets interpreted this news in terms of disappointing numbers as well as the negative performance of the Chinese stock market, but these figures – according to Hashad’s personal point of view – were logical and are in line with the current situation of the global economy and the slowdown it is going through. For the world’s second-largest economy, 5% is good.
None should forget the fact that the Chinese economy is still suffering from the negative repercussions of the Corona pandemic despite the full reopening of activity, but there are still some very important challenges for the Chinese economy to encounter, which are the difficulty of exporting and disruption of supply chains in addition to the trade movement which is not very good so far, and the the real estate market struggles for performing well.
Hashad also believes that these targets set by the Chinese economy are betting on further progress for the Chinese economy, and may help stimulate trade and lead to an increase in foreign investment in the country.
(II) How will China’s readings affect oil?
Oil has somewhat ignored the Chinese news and benefited greatly from the recent news from Saudi Arabia that it will raise selling prices to Europe and Asia for the second consecutive month starting in April.
Saudi Aramco is still betting on a recovery in global demand from China, and has also benefited significantly from positive inventory data.
(III) Will this have an impact on the upcoming OPEC+ meeting?
Hashad believes that it will not have an impact on OPEC, as OPEC always tries to maintain a balance between supply and demand levels in order to balance prices.
(IV) US Interest Rate Policy
The United States is expected to raise interest rates again within expectations and according to the publicly made statements by Fed members and policymakers, what is the reason for the pressure on the US dollar despite expectations of a rate hike. The US dollar has been hit by profit-taking after a wave of big rallies, and investors over the past week have turned their sights on riskier investment instruments.
According to Hashad, the key idea now is that the rate will not be raised by 25 basis points, or 50 basis points, but rather when the tightening cycle will actually end. But the latest inflation-linked figures and retail sales data may make Jerome Powell’s tone or the Fed’s tone tighter in 2023 and interest levels may exceed planned levels above 5%.
(V) Gold Prices
Asked whether gold’s upward trajectory could continue, especially with anticipation of the US Federal Reserve’s decision, Hashad pointed out that gold price action during the current week will be somewhat different, due to a slew of key economic data, most notably Jerome Powell’s testimony before Congress, which will have a clear and high impact on gold prices, and the second factor is the US jobs data, which is the last before the next Fed’s policy meeting in March.
Gold price action currently can be somewhat illogical despite the rise in gold prices up to $ 1856 per ounce, its highest level since February 15, but US Treasury yields remain stable above 4%, which gives us a clear perception that investors are still sticking to gold as one of the most important safe-havens despite interest rate hikes.
(VI) Fed’s Policy Meeting
Asked about the expectations regarding Jerome Powell’s statements, and how this could affect the US market, especially with Chinese pressures and the expected growth of the economy, Hashad noted that Jerome Powell tends to tighten during the coming period, as over the course of more than one meeting or talk he said that he does not want the markets to rush the Fed to slow down interest rate hiking, as Powell will not cut interest rates or stop raising interest rates until he sees inflation eventually at the 2% target level. That will happen only if there is a clear and real decline in demand.
Hashad indicated that China’s news will have no impact on Jerome Powell’s decisions, given Powell’s heavy focus on inflation and the labour market. If the labor market is as strong as observers saw last month 517,000 jobs, Jerome Powell may be forced to raise interest rates in 2023.
