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Gold prices, Monday, sum up the whole market scene in terms of market sentiment and risk appetite. The yellow metal rose about 1% as a retreat in U.S. bond yields and persisting worries about inflation lifted the safe-haven asset ahead of major central bank meetings later on during the current week.
The U. S. dollar rebounded and closed up on the day, but that failed to impact the rally in the gold market.
Treasury yields moved lower in the wake of a weaker than expected Dallas Fed survey that showed manufacturing eased in Texas while inflation is expected to remain elevated for longer, so gold prices have found the opportunity to reap and reinforce gains above resistance which is now supported at 1,792.
Canada’s hot wave of inflation and the recovering labour market are accelerating pressure on the Bank of Canada to hike interest rates ahead of schedule.
Investors are eyeing a fiscal policy announcement this week for clues that the central bank is turning more hawkish. Led by Governor Tiff Macklem, the Bank of Canada is expected on Wednesday to raise its inflation forecast and to largely end pandemic-era stimulus related bond buying program, starting a countdown of sorts to the first interest rate hike in Canada since October 2018.
The central bank has pledged to keep rates at a record low 0.25% until economic limp is absorbed, which would happen in the second half of 2022 in its latest forecast, and has long maintained that the factors pushing up inflation are temporary.
Money markets are set to see a different track ahead, with first hike by April and nearly 100 basis points of tightening in total next year, up from 35 basis points in September. Investors see rates rising sooner in other large economies as well.
BoE could bow to inflation pressures and become the first major central bank to raise rates in November, while there is a growing view that the U.S. Fed officials and policymakers will find themselves compelled to tighten policy earlier and more aggressively than they would like.
Canadian inflation has stayed above the BoC’s 1%-to-3% target range for six straight months, climbing in September to an 18-year high of 4.4%, and the economy has regained all the jobs it lost during the pandemic.
If the BoC were to hike before the second half of next year, it would likely adjust its guidance in advance. The bank would not want investor expectations to stray too far from its outlook for fear of market turbulence.
The IFO Institute’s Business Climate index for Germany declined to 97.7 in September, which is significantly below expectations of a 98.2 result.
The unexpected drop in business sentiment was the fact that the August reading for the index released in September was revised slightly upward to 98.9 from 98.8.
This forex news represents the index’s 4th monthly decline from May high of 101.8 that was released in June and was the lowest release seen since March’s 96.8 reading came out in April. EUR/USD traded down to 1.1591 in response after trading at 1.1664 shortly before the disappointing release.
Economic Data
The U. S. session witnessed no release of significant economic data, despite the significant impact of the data published by the Federal Reserve Bank of Chicago, earlier Monday, on the decline of the U. S. National Activity Index (CFNAI) that fell to -0.13 in September from +0.29 (revised to +0.05) in August.
Investors are digesting the General Business Activity Index of the Dallas Fed’s monthly survey which has shown that activity in Texas’ manufacturing sector continued to expand at a robust pace in October; improving to 14.6 from 4.6 in September. This reading surpassed the market expectation of 6.8.
Other Developments
A major colder shift from normal weather over the weekend pushed natural gas futures in early trading Monday. The November delivery Nymex contract was up 35.7 cents to $5.637/MMBtu.
The Bank of England interest rate-setter Silvana Tenreyro said she needs more time to judge how the end of the government’s job-saving plan impacts the labour market, adding to signs that she sees no urgency to raise rates.
Uncertainty over the effects of the unpaid leave plan should be resolved over the coming months, which should help paint a clearer picture of the position of the labour market, according to Tenreyro who spoke to the Centre for Economic Policy Research.
Coinciding with Bitcoin’s surge to an all time high of $66,974, investors pumped a record $1.47 billion of new money into digital asset investment products, pushed by bloom of cryptocurrencies and the launch of the first bitcoin futures exchange-traded fund, according to report issued Monday by CoinShares.
Bitcoin-focused funds dominated last week’s inflows, with a 99% share of all inflows into cryptocurrency funds. During the prior week, inflows into bitcoin-focused funds were at $70 million.
This is a direct result of the U.S. Securities and Exchange Commission allowing a bitcoin ETF investing in futures and the consequent listing of two bitcoin investment products.
China’s Evergrande is starting to pay its overdue debt and restart some of its stalled real estate projects, but it is signaling that it wants to move away from housing and focus on building electric vehicles.
According to Chinese state media, Chairman Xu Jiayin announced that the firm wants to make electric vehicles its main business within 10 years.
The comments, during an internal meeting at Evergrande, come as the company has demonstrated some attempts to get back on solid feet.
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