Market Highlights for the week: Inflation, gold, Fed
Inflation
The Federal Reserve’s favorite inflation gauge, due on Friday, will indicate whether price pressures have continued to ease as the central bank finally begins to withdraw its tightening monetary policy to cool the economy.
The Federal Reserve’s favorite inflation gauge, due on Friday, will indicate whether price pressures have continued to ease as the central bank finally begins to withdraw its tightening monetary policy to cool the economy.
Economists estimate that the August personal consumption expenditures (PCE) price index will have risen 2.5% from the same period last year. The Federal Reserve’s most current economic projections put the annual rate of the price index at 2.3% by the end of the year and 2.1% by the end of 2025.
The week’s economic calendar also includes the final reading of second-quarter GDP, more reports on consumer confidence, durable goods orders, new and pending home sales, and weekly data on initial jobless claims.
Fed Speeches
Speeches by Fed officials in the coming days will likely shed light on the previous week’s rate cut, so pay close attention to them. Atlanta Fed President Raphael Bostic will speak first on Monday, followed by Chicago Fed President Austan Goolsbee. Fed Governor Michelle Bowman will deliver a speech on Tuesday and another on Thursday, and given that she has become the first governor to disagree with a Fed decision since 2005, she is likely to make her case in her remarks, as she warned against cutting rates too quickly. Fed Chairman Jerome Powell will speak Thursday at the 10th annual U.S. Treasury Market Conference.
Speeches by Fed officials in the coming days will likely shed light on the previous week’s rate cut, so pay close attention to them. Atlanta Fed President Raphael Bostic will speak first on Monday, followed by Chicago Fed President Austan Goolsbee. Fed Governor Michelle Bowman will deliver a speech on Tuesday and another on Thursday, and given that she has become the first governor to disagree with a Fed decision since 2005, she is likely to make her case in her remarks, as she warned against cutting rates too quickly. Fed Chairman Jerome Powell will speak Thursday at the 10th annual U.S. Treasury Market Conference.
New York Fed President John Williams and Vice Chairman for Supervision Michael Barr will also speak at the same event. Investors will be watching for any clues on how the Fed is assessing progress in reducing its balance sheet.
Market volatility
The S&P 500 index posted its first two-month high in two months at the close the previous week following the Fed’s announcement of a sizable 50 basis point rate cut, marking the start of the first U.S. monetary easing cycle since 2020.
The S&P 500 index posted its first two-month high in two months at the close the previous week following the Fed’s announcement of a sizable 50 basis point rate cut, marking the start of the first U.S. monetary easing cycle since 2020.
The index has gained 0.8% so far in September, the historically weakest month for stocks, and is up 19% year-to-date. However, the market’s rally may be tested if economic data do not corroborate hopes that the economy is quickly heading for a “soft landing,” in which inflation moderates without hurting growth. In this case, stocks tend to perform much better after the onset of rate cuts, rather than when the Fed cuts during recessions. In addition, the market may be more sensitive to the close election between Republican Donald Trump and Democrat Kamala Harris.
The latest polls reflect a virtually tied race. “Barring a significant deterioration in the data, we believe the U.S. election will start to take on more prominence.” UBS equity derivatives strategists.
PMI data
PMI data due out starting Monday will provide the most up-to-date snapshot of the state of the global economy. The Eurozone’s composite PMI index has been expanding for six months and the UK’s for ten, which has reinforcedsterling’s resilience. Markets seem convinced, for the time being, that the Fed’s half-point cut will help to avoid a recession in the United States and, consequently, a global recession.
PMI data due out starting Monday will provide the most up-to-date snapshot of the state of the global economy. The Eurozone’s composite PMI index has been expanding for six months and the UK’s for ten, which has reinforcedsterling’s resilience. Markets seem convinced, for the time being, that the Fed’s half-point cut will help to avoid a recession in the United States and, consequently, a global recession.
However, some concerns remain. In Germany, the eurozone’s largest economy, the contraction in business activity deepened in August and confidence remains weak.Meanwhile, China’s economy continues to struggle, putting the world’s second largest economy at risk of missing its annual growth target of around 5%.
All-time highs in gold
Bulls in the gold market are underwriting bullion prices, which are rising to new records, with a USD 3,000 per ounce milestone on the horizon, driven by monetary easing by major central banks and a close U.S. presidential election.
Bulls in the gold market are underwriting bullion prices, which are rising to new records, with a USD 3,000 per ounce milestone on the horizon, driven by monetary easing by major central banks and a close U.S. presidential election.
Spot gold touched an all-time high of USD 2,572.81 an ounce on Friday and is on course for its best annual performance since 2020, up more than 24%, thanks to safe-haven demand due to geopolitical and economic uncertainty and strong central bank buying.
Low rates are usually advantageous for gold, which is not attracting interest. Analysts at Citi said in a note the previous week that gold prices could reach $3,000 an ounce by mid-2025 and $2,600 by the end of 2024, driven by U.S. interest rate cuts, robust demand for exchange-traded funds and the existence of physical demand outside the market.
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