FiboGroup Market Analysis 2018

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the uncertainty on how the upcoming sanctions against Iran will affect global supply.

U.S. crude oil stocks dropped by 8.6 million barrels to 395.9 million last week according to the American Petroleum Institute which may be exacerbated in the coming months on the back of a tropical storm that has forced a warning for over a million people to flee their homes from Florida and is likely to interrupt gasoline supplies and cause further drawdowns of US oil.

“Oil prices jumped overnight as American Petroleum Institute inventory data showed a large drawdown in inventories,” said William O’Loughlin of Australia’s Rivkin Securities.

The upcoming oil sanctions against Iran have already began to affect the market with a number of countries already beginning to cut back on their supplies from Iran in order not to fall foul of the united states who promise to deal with any countries that don’t support the sanctions.

Some countries such as China and Russia have vowed to continue buying Iranian oil but many predict this will not be enough to offset the large group of other countries refusal to buy the oil

“The looming supply risks in the Middle East, particularly U.S. sanctions on Iran, should outweigh the concerns of oil demand growth slowdown from the emerging market crisis and China-U.S. trade tensions,” noted analysts ANZ bank said on Wednesday.

Gold may come to the rescue for investors again as a hedge against uncertainty as the oil sanctions on Iran get ready to take effect

 

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The Australian dollar has made significant recovery over the last 2 trading sessions on the back of positive local data and a potential compromise between the US and China over the ongoing trade wars.

What started as a tit for tat trade spat between the world’s 2 biggest economies has now somewhat got out of hand with the US threatening to up the ante by imposing a further $200 billion dollars on Chinese goods which would be expected to hit the Chinese economy hard.

This would be devastating news for the Australian economy and the Aussie dollar as China is the country’s biggest trading partner so any negotiations to calm the situation down would be a welcome relief.

White House economic adviser Larry Kudlow noted that negotiations with China on trade matters had picked up in recent days such moves were a "a positive thing."

"The Treasury Department is in communication with China. I can't go beyond that," Mr Kudlow said.

"I think most of us think it's better to talk than not to talk, and I think the Chinese government is willing to talk. If they come to the table in a serious way to generate some positive results, yes of course. That's what we've been asking for months and months." He added.

The Aussie dollar also received a boost today on the back of solid employment data which has raised speculation that a rate hike from the RBA could be a distinct possibility in the nearest future.

The Australian economy created 44,000 new jobs in August which was well above analysts’ expectations for a numberof 18,000 and the best part was most of the new positions created were actually full time.

The unemployment rate remained steady at 5.3 percent and the RBS would like to see this slightly lower before firmly committing to any rate hike.

 

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The Gold price has continued to rally today after yesterday’s release of consumer price index figures from the US threw into doubt the ability for the US Federal Reserve to lift interest rates much higher from current levels.

Data out from the bureau U.S. consumer prices increased by a seasonally adjusted 0.2% during August which was below expectations and comes on the back of Wednesday’s producer price Index figures which also hit the market below expectations.

The news is not expected to derail plans for the Fed to go ahead and raise interest rates this month but the chances of a follow up rate hike in `December have now fallen.

"With the data falling short of expectations, investors are thinking that the Fed might not go for a rate hike in December, even though a hike in September is definite," said Ji Ming, chief analyst at Shandong Gold Group.

The key to gold’s near tem fortunes is the ability to stay above the physiological $1,200 level and if this is maintained we may see the precious metal push higher and especially if any more negative data comes out of the US which will further damper expectations for more rate hikes.

"If prices stay around $1,200 levels, it means the markets are still positive. People who shorted below could come and cover, driving prices to $1,250," said Hidetaka Namiki, chief executive at Asset Management firm Bullionist Capital.

"By looking at the weakness in emerging market currencies and equities being overbought, people are just waiting for the turnaround in gold" he added.

 

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After a horror 6 months the gold price has found much needed support over the last 4 weeks and is now sitting above the $1,200 mark and depending on the outcome of the trade wars between the US and China as well as upcoming congressional elections in November.

Trump announced on Monday a further $200 billion of tariffs against China who immediately retaliated with $60 billion of their own and the danger is now that the US will introduce even more tariffs that will cover nearly all of China’s exports.

This will hit the major companies such as apple who have major production facilities in China which lead some to believe that the tariffs will do more harm than good to America as consumer prices rise.

This may be the opportunity that gold has been looking for to break out of it’s recent range a investors once seek out the precious metal as a safe haven at the expense of the US dollar.

Over the last week there have already been signs of a reduced demand for the greenback and movements into gold as participants in the market position themselves for what they see is the inevitable consequences of the trade wars.

“It is worth noting that investors are of the belief that robust economic growth will shield the United States from the impacts a global trade war may present,” said Lukman Otunuga, research analyst at FXTM

“A scenario where a trade war disrupts global growth and weakens the U.S. economy could trigger some safe-haven flows into gold. This assumption is based on the dollar depreciating and losing its safe-haven status.” He added.

Another factor that may provide support for the gold price and give it a real boost depending on the outcome is the congressional elections due in November where Donald Trump’s republican party are in real danger of losing their Majority in the house of representatives.

Some speculate in a worst case scenario this may be the beginning of proceedings to try and remove the president from office.

“It is no secret that Donald Trump’s presidency hinges on the mid-term elections if the Democrats gain control of the House of Representatives in November, impeachment proceedings could begin in fairly short order” said Jonathan Butler, precious-metals strategist at Mitsubishi Corp

“The political uncertainty engendered by an impeachment could see the dollar lose ground and give some support to gold.” He added.

 

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The British pound is powering ahead today against its US counterpart as more positive data raises speculation that a rate hike from the Bank of England again this year is a real possibility.

Retails sales figures from the UK released earlier today hit the market at 0.3 percent which was well above expectations for a figure of -2.2 and shows that even though the pound has lost a significant amount of purchasing power due to the uncertainty of Brexit, consumers are not afraid to spend.

The news follows on from yesterday’s inflation release, which also beat consensus coming in at 2.7 percent and is well above the BOE’s comfort zone of 2 percent.

A rate hike from the BOE is now firmly back on the table, which was unthinkable as early as last week

“Just a week ago, the prospect of another interest-rate rise in the U.K. sounded distant. Now with CPI at 2.7%, well over the Bank of England’s 2% target, talk of another rise suddenly sounds less outlandish,” said Jacob Deppe, head of trading at online trading platform Infinox

The Bank of England has many things to consider with regards to lifting interest rates such as the property market which has fallen off the rails this year and some believe any further rate hikes may lead to further falls in the real estate sector and this threat will be enough for the BOE to keep rates on hold for the time being.

"Slowing growth in house prices will strengthen the case for the monetary policy committee to hold back from raising the bank rate again within the next six months," said Samuel Tombs from Pantehon Macroeconomics.

 

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The gold price is sitting comfortably above the $1200 mark in today’s trading session on the back of US dollar weakness and some see next week’s interest rate decision and monetary policy statement as the main driver of the precious metal as the ear closes out.

The market has priced in an almost 100 percent chance the Fed will hike interest rates next week so the main focus will be the following statement for signs of any further rate hikes this year or as we enter 2019.

I there is any hint that the US central bank is hesitant on moving rates any higher for the rest of the year gold is likely to benefit.

“Any change in Fed policy hinting to a pause in the hiking cycle, whether due to low inflation or weak domestic housing indicators, would likely see a relief rally for gold prices,” said analysts from BMO Capital Markets.

“We see market positioning as too complacent in projecting a gold trend lower at the present time, particularly given potential emerging-market retail allocation back towards gold.” They added.

Donald Trump’s trade war against China has been a burden on the gold price in recent weeks as investors took positions in the US dollar but the dispute between the US and the world’s second largest economy may eventually have negative consequences for the US economy as was noted by the Fed in their latest minutes meeting.

“Participants observed that if a large scale and prolonged dispute over trade policies developed, there would likely be adverse effects on business sentiment, investment spending, and employment,” the minutes noted.

If this situation eventuates gold is also likely to receive a further boost.

 

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The US president has once again made move to drive down the oil price which some say relates to the upcoming congressional elections in America in November but some say the latest effort will be in vain.

In a tweet yesterday Donald Trump lashed out at the Oil cartel Opec and warned them to reduce prices while at the same time threatening that the US was the savior of the middle east and could not guarantee the safety of the region if there were no attempts to reduce prices.

“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices!” Mr. Trump said via his favourite social media site Twitter.

“We will remember. The OPEC monopoly must get prices down now!” he added.

The reason behind Trumps tweet may be the current prices of gasoline in the US which are currently on the high side and are a sensitive political issue and may be a factor in November’s elections and go a long way to deciding the outcome.

The question is now will Trump follow up with more threats and are they going to be effective in helping drive the prices lower.

According to some analysts, Trump may be able to drive prices lower with his rhetoric in the short term but the fundamentals in place will ensure a quick rebound.

It seems Ironic that the US is calling for lower oil prices when they are in fact the one’s who drove prices higher with the introduction of sanctions against Iran

“The question is, will this reverse market sentiment?” said Peter Cardillo, chief market economist at Spartan Capital Securities.

“We don’t think so. It may lean on prices for a brief period of time, but the fundamentals and the Iranian situation are behind a solid run up.” He added.

 

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The US Federal Reserve continued on their rate hiking cycle yesterday by lifting short-term interest rates to 2.25%, which was widely expected by the Market and marks the 3rd time this year that rates have moved higher.

In the following monetary statement, Fed President Jeremy Powell also sounded upbeat about the state of the economy noting that the economic numbers were looking positive, which included inflation, which is currently within the Feds target rate.

“His statements on the economy at the press conference was pretty bullish,” said Dec Mullarkey, managing director of investment strategies at Sun Life Investment Management in Wellesley, Massachusetts.

“On the inflation front, he saw things as pretty contained.” He added.

Many analysts now expect the Fed to continue their rate hiking cycle well into next year until they reach the Nuetral rate of around 3 percent and with such predictions, the US dollar is likely to go from strength to strength as investors snap up the greenback as a high yielding currency.

“The key takeaway from today’s meeting is that the committee is very much on the same page for the next few quarters. said Eric Winograd, senior economist at AllianceBernstein.

The Fed is highly likely to raise interest rates 25 basis points per quarter until next summer, when the target rate will reach the committee’s estimate of neutral,” he added.

 

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The outlook for gold was dealt another blow in yesterday’s trading session after another round of solid economic data from the US kept open the prospect of another rate hike this year from the US Federal Reserve.

Gold was already reeling from Wednesday’s rate decision from the Fed where they increased rates by 25 basis point, which only added to the attractiveness of the US dollar as an interest bearing asset, something that gold is not.

Followers of gold had been hoping that this may have been the last rate hike for the year which may have given the precious metal some sort of reprieve but after today’s yesterday’s data those hopes have faded.

Retail sales hit the market at 4.5 percent against analysts’ expectations for a figure of 2 percent while the GDP numbers came in at their highest level in 4 years, which show that despite all of the controversy surrounding Donald Trump, he must be doing something right

"Robust U.S. economic fundamentals despite an escalation in trade tariffs have done little to lift demand for the non-interest bearing asset,(Gold)" said Benjamin Lu, commodities analyst at Phillip Futures.

"The outlook for gold prices in the current term remains dim as such in lieu of rising rates and yields amidst buoyant U.S. economic conditions." He added.

President Donald Trump’s accusations against China that they are interfering in the upcoming of Chinese meddling in the upcoming U.S. elections marks a new phase in an escalating pressure campaign against Beijing that Washington is pursuing on multiple fronts, senior U.S. officials said on Thursday.

"The trade war continues to favour the U.S. dollar and this will generally dampen gold's upside," said Nicholas Frappell, global general manager, ABC Bullion, Australia.

"Large speculative shorts may help cushion weakness as punters keep an eye on levels to close out and take money off the table," he added.

 

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