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Geopolitical tensions drive Gold prices near $1300

Gold prices rose last week around 300 pips amid rising tensions between the United States and North Korea after the North responded to warnings from US President Donald Trump with a threat to strike the US territory of Guam. With tensions mounting between the United States and North Korea, investors have been moving into the precious metal and other safe haven trades. Gold testing 2-month peaks in levels just shy of the critical barrier at $1,300. Spot gold rose 3 per cent to $1,286 per ounce.
Volatility spread across asset classes on Thursday, as the CBOE volatility index spiked to its highest level since May, gold prices rose to two-month highs and all major U.S. equity indices closed lower, with the S&P 500 falling by 1.45 percent. The US administration is looking to seek a diplomatic resolution with North Korea and there is a notable reaction today on markets, with gold and the yen lower, equities higher, whilst US Treasury yields have also picked up.

August 7 page 001

A fantastic week for U.S. equities

U.S. equities rose last week on better-than-expected employment data. The Dow Jones industrial average reached a record high last week and closed 66.71 points at 22,092.81. The index also posted its eighth straight record close. The S&P 500 gained 0.19 percent to close at 2,476.83. The Nasdaq composite closed at 6,351.56. Banks, including Goldman Sachs, outperformed the market, with the SPDR S&P Bank exchange-traded fund (KBE) advancing 0.81 percent. The space also received a boost from a jump in interest rates.

July 31 page 001

209,000 new jobs in JulyThe U.S. economy continued a strong summer, adding 209,000 jobs in July, above the expected gain of 183,000. The unemployment rate fell to 4.3 percent. According to a government report Friday, this is the lowest since March 2001. "This is the second month in a row where we came in above 200,000 and above expectations," said for CNBC, JJ Kinahan, chief market strategist at TD Ameritrade."I think the reason the market isn't going gangbusters here is because (the Dow) has gone up for eight days in a row. It's hard to justify buying heading into the weekend when you've had this rally."

Oil price hits two-month high

oil balance

Oil prices climbed to their highest level in almost two months at 49.50. The data from the U.S. Energy Information Administration showed that domestic crude supplies fell by 7.2 million barrels for the week ended July 21. The American Petroleum Institute had reported late Tuesday a fall of 10.2 million barrels.
Saudi Arabian inventories reach low levels
According to the Energy Information Administration (EIA), gasoline stockpiles also fell by 1 million barrels. The distillate stockpiles lost 1.9 million barrels last week. While many pay close attention to the EIA data, the reduction in Saudi Arabian crude oil stocks have received less attention, and this metric is perhaps more meaningful. According to the data, the days of storage of Saudi Arabian crude oil (on a demand basis) have fallen to levels not seen since 2011-2012.
"We remain supportive of our brothers and partners in both those nations" as they recover, said Saudi Minister of Energy and Industry Khalid Al-Falih. "The committee however should monitor the impact of such growth in supply on global supply-demand balances." Nigeria is ready to reduce supply if it can maintain output of 1.8 million barrels a day, some sources said. Its production hasn’t risen that high since February 2016 and despite the nation’s success ending militant attacks, oil theft is still hurting output.
Libya’s target: 1.25 million barrels a day by December
Libya isn’t planning to join any agreement to curb output until it reaches its target of 1.25 million barrels a day by December, the sources said. That’s almost 50 percent above its average June production of 840,000 barrels a day. The African nations, granted an exemption last year from cutting because their output had already been reduced by internal strife, added 440,000 barrels a day of production in the last two months according to Bloomberg. "Some countries continue to lag" in their compliance "which is a concern we must address head on,” Al-Falih said. "Exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data in our monitoring."

July 24 page 001


The market may have misjudged Draghi’s speech

Economic growth and the drop in unemployment could exceed projections. The euro zone inflation may be lower than earlier thought in the coming years, the European Central Bank's Survey of Professional Forecasters showed last week. The survey, based on responses from 56 forecasters, sees inflation at 1.5 percent in 2017, 1.4 percent in 2018 and 1.6 percent in 2019, all 0.1 percentage point below previous projections made three months ago. The longer-term expectation for five years out was unchanged at 1.8 percent, at or just below the ECB's target of inflation 'close to but below' 2 percent.
Inflation need to catch up with the economic recovery
Mario Draghi said policy makers are still waiting for inflation to catch up with the economic recovery as they put off discussions on winding back stimulus until after the summer.“We are finally experiencing a robust recovery where we only have to wait for wages and prices to follow course,” the European Central Bank president told reporters recently at a news conference in Frankfurt.“We need to be persistent and patient and prudent, because we’re not there yet.” “While the ongoing economic expansion provides confidence that inflation will gradually glide toward levels in line with the inflation aim, it has yet to translate into stronger inflation dynamics,” Draghi said. “A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up.”
The first official decision might be in September
Economists predict the first official decision on the future of the policy path will be announced in September, when the Governing Council next meets and publishes new projections. ECB staff are studying various options for how bond-buying might eventually be wound down, according to euro-area officials familiar with the matter. Officials will reassess their stimulus in the fall, when they have “more information than we have today,” Draghi said. The current program of purchases is set to expire at the end of the year.

July 17 page 001

AUD/USD keeps rising as aussie inflation expectations

The AUD/USD currency pair increased around 200 pips last week. The U.S. Consumer Price Index was forecast to rise 0.2 percent in June, after edging up 0.1 percent a month earlier. U.S. consumer prices were unchanged in June as the cost of gasoline and mobile phone services declined further, pointing to benign inflation that could cast doubts on the Federal Reserve's ability to increase interest rates for a third time this year.
Inflation increased in Australia
Inflation expectations in Australia increased in July, according to the survey data from the Melbourne Institute. This is another reason for AUD increase.The expected inflation rate over the next twelve months rose by 0.8 percentage points to 4.4 percent in July from 3.6 percent in June. In June, the weighted proportion of respondents expecting the inflation rate to fall within the 0-5 percent range decreased by 3.6 percentage points to 66.4 percent.
Fed might begin its $4.5 trillion bond portfolio
In prepared remarks to Congress, Fed Chair Janet Yellen said the central bank likely will begin its $4.5 trillion bond portfolio this year. The portfolio, known as the Fed balance sheet, grew as the central bank sought to rescue the economy from the Great Recession. Yellen gave no clear indication about the future course of interest rate hikes. She said that the bond portfolio, or balance sheet, eventually will be "appreciably below" its current level. Last month, central bank officials unveiled their plan for slowly reducing reserves by phasing out reinvestments.

July 10 page 001

Will Silver be more volatile?


Silver is oversold, according to the daily chart. However on the weekly chart a lower level is more likely. The Federal Reserve wants to raise rates this year and the demand for USD will increase. As a consequence, the volatility of the precious metals will be higher, because the demand for precious metals, including Silver, decreases.

According the Silver Institute, the silver market is in deficit, but less than in 2015, and due to a reduction in supply rather than an increase in demand.

Consumption of silver for bars and coins dropped from 290.7 million ounces in 2015 to 206.8 million ounces in 2016, a considerable 29% drop. Industrial fabrication dropped 569.6 to 561.9 million ounces.

Physical demand dropped from 1151.5 million ounces to to 1027.8 down 11%.

July 3 page 001

UK: The end of QE is approaching

The GBP/USD pair rose 300 pips last week. Bank of England chief economist Andy Haldane said that the central bank needed to "look seriously" at raising interest rates to keep a lid on inflation which has pushed past the BoE's target and is set to rise further."We need to look seriously at the possibility of raising interest rates to keep the lid on those cost of living increases," Haldane told the BBC.
British inflation is at its highest level in nearly four years at 2.9 percent, tightening the squeeze on consumers who now face the added worry of political uncertainty. Mark Carney said at the European Central Bank Forum that the Bank of England’s Monetary Policy Committee may need to begin raising interest rates and will debate a move in the next months.
In the USA, initial signs that economic growth reaccelerated sharply in the second quarter have also faltered with recent disappointing data on retail sales, manufacturing production and inflation. Housing data has also been mixed. Gross domestic product increased at a 1.4 percent annual rate instead of the 1.2 percent pace reported last month, said the Commerce Department. However, it was still the slowest growth rate since the second quarter of last year. The Trump administration's stated target of swiftly boosting U.S. growth to 3 percent remains a challenge.June 26 page 001

US indices: Time for retracement?

US DJIA index fell around 150 pips last week. The Bank of America Merrill Lynch downgraded its outlook on GDP and FED was worried that a recent lack of inflation was a sign the U.S. central bank would struggle to get price pressures back to its 2 percent objective.
Despite strong earnings and record levels of cash on balance sheets, big U.S. companies are spending less money on share repurchases. There were hopes that the slowdown in buybacks that began last year would pick up with the prospect of a tax overhaul in 2017. For the 12-month period ending March 2017, S&P 500 companies spent $508.1 billion on buybacks, down 13.8% from $589.4 billion for the prior 12-month period, which was all-time high.

MW FO910 diviNS 20170621122301 NS
Bank of America lowers US GDP outlook

Bank of America Merrill Lynch downgraded its outlook on U.S. gross domestic product in 2018 to 2.1 percent from an earlier forecast of 2.5 percent, according to the fading prospects on tax reform, policy uncertainty in Washington and weaker auto production. "Hopes for a big fiscal stimulus have faded, prompting us to remove most of the fiscal impulse from our forecast for growth next year," said Michelle Meyer, the firm's head of U.S. economics.
Growth remains stuck at 2 percent. It remains unlikely that the economic proposals of the Trump administration will raise that anytime soon, said St. Louis Fed President James Bullard. According to him, the policy proposals that survive Congress and have the potential to raise growth won't have an impact perhaps until 2019.
Chicago Federal Reserve Bank President Charles Evans on Tuesday became the latest to express worries on that front, saying he is concerned that a recent softness in inflation is a sign the U.S. central bank will struggle to get price pressures back to its 2 percent objective.

DJIA page 0011

Gold prices fell on Fed’s dovish expectations

The precious metal fell more than 300 pips last week. The market is anxious to see if the Fed becomes more dovish in its outlook. According to Fed fund futures data compiled by Bloomberg, most of traders are pricing in a 96 percent chance that the Federal Reserve may raise interest rates this week.
Gold futures August delivery declined 0.8 percent to settle at $1,268.40 an ounce on the Comex in New York, after slipping as much as 1 percent earlier. Higher interest rates tend to boost the dollar and bond yields, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

June 5 page 001



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