Although CEWC readout detailed stimulus plans which include fiscal spending, rate cuts and other measures to prop up the Chinese economy, specific details like quantum and timing are missing, which stokes concerns about the implementation of these plans.
Lack of details coupled with hotter-than-expected US PPI data led to a sell-off in commodities including gold. Gold fell sharply in the last two days of the week.
The metal closed with a loss of 1.21% at $2648 on Friday. The weekly low was $2627 (December 7). It was up around 0.60% on the week.
Data roundup
The week ended on December 13 was mainly about the US inflation data. The data reflected that the US inflation was sticky, and inflation remains a concern.
The US PPI data (November), released on December 12, were mostly hotter-than-expected. The PPI final demand m-o-m at 0.4% recorded the fastest rise in the last five months as PPI final demand y-o-y at 3% topped the estimate of 2.6%. Core PPI m-o-m and y-o-y came in at 0.2% (forecast 0.2%) and 3.4% (forecast 3.2%) respectively as PPI final demand m-o-m, y-o-y and core PPI final demand y-o-y of October were revised higher. Weekly US jobless claims surged to 242K surged to two-month high; continuing claims remain at a 3-year high level.
US CPI data, although in line with the forecast, were higher than the October figures. CPI m-o-m and y-o-y were noted at 0.30% (prior 0.20%) and 2.7% (2.60%). Core CPI data at 0.3% m-o-m and 3.3% y-o-y show sticky inflation. The Index for shelter rose 0.3% m-o-m.
Central bank watch
The European Central Bank (ECB) delivered a dovish rate cut of 25 bps and it remains open to further cut rates. The Swiss National Bank (SNB) cut the benchmark rate by 50 bps, larger than a 25-bps cut expected, to stem the gains of the Franc against the US Dollar.
US Dollar Index and yields
The US yields and the Dollar Index firmed up on dovish ECB, an outsized rate cut by the SNB and sticky US inflation. The ten-year yields rose for the fifth straight day to close around 1.60% higher at 4.41% on Friday as the yields surged roughly 6% on the week. The two-year yields settled at 4.25%, about 3% higher on the week. The US Dollar Index closed nearly 0.90% higher on the week at 106.94.
Upcoming data and events
Next week is the FOMC week as the US Fed will decide on its monetary policy on December 18. The Central Bank is expected to cut the Fed fund rate by 25 bps; however, it might be a hawkish rate cut due to high inflation readings and healthy GDP and nonfarm payroll reports.
Next week is going to be a data-packed week. The major US data which traders will closely monitor next week include S&P global US PMIs, retail sales advance (November), industrial production (November), 3Q GDP (final), PCE price Index (November) — the Fed’s preferred inflation gauge, personal income and spending (November) and University of Michigan sentiment and inflation expectations.
Key UK data in focus include manufacturing, services and composite PMIs; CPI; retail sales; and monthly job report. The crucial European data slated to be released next week include PMIs, CPI and ZEW survey expectations. China’s new home prices, industrial production, retail sales and property data will also be crucial to assess whether China’s stimulus blitz is helping the economy and consumers. Japan’s inflation and PMIs will also be of interest.
Apart from the Fed, the Bank of Japan and China’s central bank will also decide their respective monetary policies next week.
China’s gold premium
Shanghai gold premium flipped into a discount of nearly $5 on December 13 from a premium of around $8 on December 12.
ETF
Total known global gold ETF holdings stood at 83.089Moz as on December 12, higher than the last week’s level of 82.966MOz, as holdings rose for the third straight day.
Outlook
Presently, traders are showing more interest in Bitcoin and risk assets as risk appetite is healthy. Apart from this bearish factor, lack of China’s stimulus details and US yields surging on US inflation data and strong labour market are also exerting downside pressure on the yellow metal. The FOMC decision is likely to be a hawkish cut as the Fed is expected to take a pause after the next week’s expected rate hike. Thus, gold is likely to extend its decline further unless geopolitical tensions flare up yet again.
As the next week has got many crucial data on the deck, the metal may be highly volatile, too.
Overall, gold is expected to test $2630-$2630 support zone and may decline to $2600 before the FOMC monetary policy decision in December. Resistance is at $2670/$2690/$2700
(The author is Associate Vice President, Fundamental Currencies and Commodities at Mirae Asset Sharekhan)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
