Risk off trade a major theme
Gold eased off but not no major sell off
Dollar Index moving higher on Dudley’s comment
Oil price struggles due to lack of demand
The US futures show that markets would extend their gains and investors would also continue to reward the equity markets. The geopolitical fear has faded due to the violence in Charlottesville. The volatility index took a nosedive on the back of this and the relief rally prompted a slide in the index. It is safe to say that the safe haven demand is badly quelled.
Having said that, the latest comments by the US defence secretary has upped the ante somewhat by saying if North Korea fires a missile at the United States, it would mean a war. So the latest pull-back in the gold price doesn’t mean that the bulls are out of energy. The US economic data is abate if not derailing and the wind of protectionism is still strong. North Korea is not going to change its stance towards the US and another missile test would be just around the corner. The planned joint military exercises between the US and South Korea towards the end of this month could spark some counter-reaction from North Korea. Therefore, the pull-back in the gold price could be an opportunity. The gold price is likely to test the level of $1300 and this could happen if the US retail sales number disappoints. But, as the wage growth has picked up in the US, it is likely that we may see an uptick in the US retail sales number.
The dollar index secured another day in the green territory despite the fact that the core inflation in the US remains far off from the Fed inflation target. Another rate hike for this year looks really dull. At the same time, the three months annualised core CPI is not miles away from the Fed’s inflation target. Thus, ruling out an interest rate hike completely could be naive. Investors will be looking for a more encouraging reading for the US retail sales number. A small change in the consumer behaviour will be reflected in the retail sales number and that would provide support for the dollar bulls. However, shaving some profit off ahead of the US retail sales number would remain the famous trade.
The oil price continues to struggle and the Chinese industrial economic data further dampen the demand outlook for the commodity.
The Euro was burnt on the back of shrinking industrial Eurozone data. The currency is retracing from its highs against the dollar. For Sterling, it is the UK CPI number which is going to keep Mark Carney, the governor of the Bank of England, on his toes. The bank left the inflation target unchanged in its latest quarter inflation report despite the fact that the forecast for the wage growth was lowered. The manufacturing and services PMI have both moved lower in their latest reading, so the best outcome for the retail sales data may not be that rosy.
The Aussie is feeling the pain after the RBA released its minutes. Lowering the GDP forecast was the recent reaction by the bank and it also came out with some dovish comments by stating that higher currency would damage the GDP growth and unemployment. The bank shifted its focus on household debt as an excuse to justify their dovish tone.
