Investors are keeping a close eye on the upcoming IMF’s decision in relation to the global growth outlook. We are expecting a cut in global growth forecast and it could easily sour the risk appetite. It is clear that the global growth momentum isn’t at a level where it was two years ago and the ongoing trade war saga between the US and China has made an adverse impact on the growth equation. Smart money is betting that a resolution on trade war and another stimulus from the People Bank of China would put the global growth back on track.
Aussie Retail Sales Number Isn’t Going To Support The Currency For Long
Looking at the Aussie retail sales number, it becomes clear that the saggy growth in the country is getting some support from consumers. Retail sales number are volatile in nature and today’s number was certainly a surprise for the markets. This supported the currency and equity markets, but I am not sure if the recovery would continue. This is because the outlook for the services PMI number has collapsed. In fact, to put things in perspective, the AIG survey shows services suffered their worst quarter going all the way back to 2013.
Oil Rally May Not Last That Long
As for the oil market, WTI is still building on its stellar Q1 performance, up nearly 32 percent, a jaw-dropping performance. Of course, the main driver behind this is the production cut by the suppliers because, in terms of demand, it isn’t that strong. Remember, the rally in the equity has a lot to do with because of the performance of the energy stocks. If we start to see the anemic oil demand because of the ongoing trade war, it would have a negative impact on the energy stocks. This would push the energy stocks lower.
For now, OPEC and Russian crude production are under control and the oil supply curve has plunged as a result of this. The sharp drop in oil production has also some elements of involuntary actions such as sanction by the US on Iraq and Venezuela, this took some meaningful supply out of the market. The level where the WTI and Brent prices are trading encourages the US shale oil production, and as long as the price stays above the $60 mark, it is difficult for me to see the global oil supply going lower.
Critical Level For GOLD
The precious metal has been out of luck as investors are interested to buy the riskier assets than parking their money in safe-haven assets. The reality is that everyone is looking at the quarterly performance of the equity markets and they are felling FOMO. This is the reason that we are not seeing much support for the gold price. Otherwise, the dovish stance by the Fed should have provided a lot of support for the gold price because if the Fed is dovish, then interest rates aren’t going to go higher. This means a lower dollar. The dollar index is down nearly 0.40 percent from its peak of 97.70 but year-to-date, it is up 1.06 percent.
For me, the critical level for the gold price is 1300, and the price needs to stay above this mark in order to convince the bulls that the path of the least resistance is skewed to the upside. One of the reasons which can support the gold price is the geopolitical uncertainty and the fact is that the trade war between the US and China has almost ended, they are writing the final chapter to resolve this issue. Another factor which can support the gold price is if the Chinese growth fails to revive, the recent data isn’t supporting this argument, but then again, it may be too early to say that. Finally, I am also going to look at the upcoming earning season performance, so far not too optimistic and if the actual picture fails to impress, I think it could be a factor which could drive the gold price higher.
If the Fed remains dovish, I am expecting the gold price to continue to consolidate between the levels of 1260 to 1360. I do not see any substantial reason why the Fed would change its stance because Donald Trump is still not happy with the Chairman of the Fed and he still blames the Fed for hiking the interest rate. The current economic conditions of the US do not warrant the Fed to keep the interest rates at an ultra-low level or even cut the interest rate. So, either Donald Trump would have to change his mind or he would have to replace the Fed chairman.
