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© Reuters.
By Barani Krishnan
Investing.com – The political backlash is back in Jay Powell’s court. The fate of the days, weeks and months ahead will be determined by how the chairman of the Federal Reserve turns the ball.
After the strong performance of the FOMC in July, which almost wiped out any speculation about a short-term withdrawal of stimulus measures, the US non-farm payroll report for July released on Friday produced yet another change in the management game. monetary policy in the era of the pandemic.
Plus, there won’t be another FOMC meeting this month for Powell.
Instead, there will be a steeper pullback from Federal Reserve, Jackson Hole, as Powell and other pessimistic central bankers on the committee will find it difficult not to discuss a gradual tightening or possible rise in prices. rates in the United States – especially after job creation in July. who just arrived. About 50,000 in a million, with an unemployment rate of 5.4%.
Almost 17 months after the start of the pandemic, the Fed is finally 1.5% below its target of 4% for full employment. And of course, that should signal a rethink that the central bank still faithfully buys $ 120 billion in mortgage-backed securities each month to prop up the economy, and insists on keeping rates close to zero as real inflation continues. thanks to its preferred measure of personal consumption expenditure. It jumped more than three decades in the year until June.
While it’s hard to turn a sweet Powell into a badass, one shouldn’t forget that just three years ago, it hiked prices three times in 12 months. And Craig Erlam, an analyst with New York-based brokerage firm OANDA, believes Powell’s FOMC will find no excuse not to directly accelerate progress toward an anti-inflationary goal.
He added that it would be difficult for the Fed chief to stick to the initial no-tightening window for at least a year now, Erlam said. “It will take horrific data over the next month to stop the Fed from announcing anything on the cut in September and with Jackson Hole just a few weeks away, when policymakers, including Jerome Powell, can lay the groundwork, time hurry.”
The Jackson Hole Symposium is scheduled for August 26-28. But in between, the relentless discussions of pessimistic and optimistic Fed officials in numerous meetings will not make it clear where the central bank is heading with ideas of immediate tightening.
And we can already see this week how James Bullard of the St. Louis Fed and Richard Clarida, vice president of the central bank, tried to set market expectations with their hawkish themes against those of the chairman of the Minneapolis Fed. , Neil Kashkari, a firm pigeon.
While Bullard said the Fed should stop buying bonds to support the US economy because inflation and growth were well above expectations and “much of the recovery continues.” Clarida noted that tapering could start later in the year and that the conditions for a rate hike should be ready by the end of 2022. Meanwhile, Kashkari said the delta variant of Covid could throw a “wrinkle” in the recovery and the timing of the labor market. The Fed’s short delay.
Despite the Fed’s noise, gold could experience a period of turmoil here, following Friday’s drop to $ 1,700. This is especially true if the 10-year Treasury yields – gold’s “evil twin” – continue to rise thanks to July’s nonfarm payroll.
Erin Sengeser, who blogs about gold on the FX Live forum, also noted that the yellow metal’s relative strength index, or RSI, fell below 40 on the daily chart for the first time in addition to one month, indicating downward pressure. He was increasing.
“The RSI also remains slightly above 30, indicating more downside margin before gold technically becomes oversold and sellers look to lock in profits,” Sengeser wrote.
In addition, some, like Erlam from Oanda, have not ruled out retesting the lowest price of gold at $ 1,600.
“The $ 1,750 break highlights $ 1,720 and $ 1,700, with $ 1,675 and less if it goes that far,” Erlam said.
He added: “If gold rebounds from $ 1,750, the main test on the upside will be around the previously approved support level of $ 1,790.” “But a look at the momentum indicators suggests that a corrective move may not be imminent.”
Oil markets were also exposed to the emergence of the dollar and yields on Friday. But compared to gold, prices have better fundamentals all the time to counter a sell-off.
Gold market and price report
Gold had its worst day and worst week in nearly two months on Friday, collapsing to $ 1,750 as the dollar rebounded from its recent selloff as a resilient state employment report United raised questions about the Fed’s continued stimulus to markets and the economy. .
“It’s the vengeful dollar,” said Philip Strebel, precious metals analyst at Blueline Futures in Chicago. “DX is coming back in a way that affects most commodities today,” he said.
The DX, the trade symbol for the dollar index, also rose 0.6% to 92.81 with Comex gold futures in New York. It hit a nearly two-week high of 92.85 earlier, after falling to a one-month low of 91.82 earlier in the week.
It also settled in the first month in the founder of Comex down $ 43.40, or 2.5%, to $ 1,763.10 an ounce. It is down 3% during the week.
A hedge against economic and political woes as well as inflation, gold only took a hiatus last week when Fed Chairman Powell said the central bank was not yet ready to raise rates of American interest because she was still focused on supporting a country recovering from the coronavirus pandemic.
Powell also declined to move closer to any discussion of when the Fed might consider slashing the $ 120 billion the Fed allocates each month to treasury bills and agency mortgage-backed securities.
While the objective was to achieve the Fed’s dual mandate of maximum employment for Americans and sustainable inflation.
However, interest rates lower longer than the Fed and currently unspecified stimulus measures could be discussed again after the US jobs report for July released on Friday indicated that 943,000 new jobs were added. were created, which brought the unemployment rate down to 5.4%. Economists tracked by Investing.com also predict 870,000 new jobs for the month of July alone and an unemployment rate of 5.7%.
While gold has been on a rough road since January, it started in August of last year – when it broke records above $ 2,000 and limped for a few months before stumbling into a decay. systemic from November, when the first breakthroughs in the effectiveness of a Covid-19 vaccine were announced. At one point, gold hit an almost 11-month low at just under $ 1,674.
Additionally, after appearing to be breaking this dark wave with the rebound to $ 1,905 in May, gold saw another round of short selling that saw it hover between $ 1,700 and $ 1,800.
A brief report on oil prices and the oil market
Oil posted its worst weekly loss in nine months as the dollar rally on Friday hampered any attempt to rebound crude prices amid tensions in the Middle East, after a week of negative news on Covid.
While West Texas Intermediate crude traded in New York, the main benchmark for US oil, stood at 81 cents, or 1.2%, at $ 68.28 per barrel on Friday. During the week, WTI lost 7.7%, its highest since falling 10% for the week through October 23, 2020.
The London trader, the world’s oil benchmark, also fell 59 cents, or 0.8%, to $ 70.70 a barrel. Brent lost about 7% for the week, its biggest weekly decline in nine months.
As oil and most other commodities fell as the dollar came back from the recent selloff amid July’s US jobs report.
“A strong dollar is likely to dampen crude oil prices in the near term,” said Ed Moya, who leads research for the Americas at OANDA brokers.
Crude oil prices also fell in the first three days of the week amid rising global coronavirus cases due to the delta variable that clouded the outlook for oil demand.
And in the United States, the world’s largest oil consumer, COVID-19 cases peaked in six months with more than 100,000 infections reported earlier this week, according to a Reuters tally.
Crude oil prices were also able to stagnate on Thursday due to tensions in the Middle East as Israeli jets bombed suspected missile launch sites in Lebanon in response to an earlier attack, Tehran said. And that was before the dollar’s rally on Friday caused oil to pick up again.
The agenda for the future energy market
Monday August 9
Cushing inventory data from a Gainescaping survey
Tuesday August 10
The Institute’s weekly report on oil stocks.
wednesday 11 august
The Energy Information Administration’s weekly report on
The Energy Information Administration’s weekly report on
Weekly EIA Distillate Inventory Report
Thursday August 12
Weekly environmental impact assessment report on storage
Friday August 13
Baker Hughes (NYSE 🙂 weekly survey of US oil rigs
Disclaimer: Barani Krishnan does not trade the stock markets and stock markets he writes about.
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