Daily Report – 06 September 2022

Fundamental Report: Gold prices remained flat on Monday on account of US Labor Day Bank holiday .The, worries about rising interest have been pushing gold prices lower for a third consecutive week. In fact, as of Friday’s close, the chances of a 75-basis-point rate hike by the Fed on September 21 had fallen from 74% (pre-NFP report) to 56% (post-NFP report). Non-Farm Payrolls rose solidly in August amid an otherwise slowing economy, while the unemployment rate ticked higher as more workers rejoined the labor force, the Bureau of Labor Statistics reported Friday. The economy added 315,000 jobs for the month, just below the Dow Jones estimate for 318,000 and well off the 526,000 in July and the lowest monthly gain since April 2021. The unemployment rate rose to 3.7%, two-tenths of a percentage point higher than expectations, largely due to a gain in the labor force participation rate to 62.4%, tied for the highest level of the year. Wages continued to rise, though slightly less than expectations. Average hourly earnings increased 0.3% for the month and 5.2% from a year ago, both 0.1 percentage point below estimates. The response by the overall market surprised most traders with some calling it a “goldilocks” report, meaning it didn’t suggest weakness, but it’s wasn’t too strong to prompt a supersized rate hike by the Fed. The yield on the 2-year Treasury note ticked lower on Friday after August’s jobs report came in near expectations and eased some fears that a hot labor market would force the Federal Reserve to continue hiking rates at an aggressive pace in order to tame surging prices. The dollar eased from a 20-year high on Friday after data showed the pace of U.S. hiring rose more than expected in August, but wage growth moderated and unemployment ticked higher, giving the Federal Reserve some wiggle room when it raises interest rates later this month. According to the CME’s FedWatch tool, there is a 68.5% probability that the Federal Reserve will raise rates by 75 basis points during the September FOMC meeting.

There is definitely no denying that Central banks across the world have fallen “way behind the curve” in tackling inflation and now find themselves in a high-stakes race – frantically trying to raise rates too fast, too late – inevitably risking an overshoot that pushes the global economy into a recession. Just over a month ago, the European Central Bank joined the global “Rate-Hike Club”, by raising interest rates for the first time in more than a decade. And they definitely did it in style with a larger-than-expected 50 basis point hike – in an attempt to play catch-up with the rest of their peers. A week later, the U.S Federal Reserve raised interest rates by another “super-sized” 75 basis points for the second month in a row – officially embarking on its most aggressive monetary tightening cycle since 1981. Literally within days, the Bank of England followed in the ECB’s and Federal Reserve’s aggressive footsteps by unleashing their first “super-sized” interest-rate hike since 1995. Fast forward to September and we’re once again on the verge of yet another blockbuster month for “jumbo-sized” central bank rate hikes. This week the European Central Bank is expected to hike interest rates sharply after inflation hit a record high in August, driven mainly by soaring energy prices. Eurozone inflation could enter double digits as early as next month, which could force the EBC to respond with a “market-moving” 75 basis point rate hike this week.