Head of Commodity Strategy
Summary: Gold has rallied strongly in response to the US Fed pausing and even giving hints of reduced QT. Given the elevated expectations in the market, there is a short-term downside risk if the language on QT stop is not delivered.
Following a very strong December, and after pausing below $1,300/oz for a few weeks this month, the yellow metal broke higher last Friday when the market reacted enthusiastically to a Wall Street Journal article discussing the potential for a Fed turnaround on quantitative tightening.
On that basis the market may be most sensitive to any discussion of the Fed’s QT programme in Fed chair Jerome Powell’s press conference this evening. So be prepared for two peaks in the event risk reaction tonight – the issuance of the statement itself and any alterations it contains, and then how Powell responds to questions on the policy outlook in the press conference.
The market appears quite confident that it has tamed Powell’s prior hawkish tendencies after the market so viciously rebelled on the message delivered at the December Federal Open Market Committee meeting. So it looks like the market, especially gold, is positioned for a Fed thaw on QT even if it expects a two way message on rate guidance. In other words if looks as if the higher volatility scenario would be a more hawkish Fed than expected on the QT discussion.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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