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Gold Steadies as Bullish Move Losses Steam

Gold Steadies as Bullish Move Losses Steam

Kiwi Dollar spikes, markets worries, and Fed renews calls for a fiscal stimulus package.

Unchanged Rates

NZD/USD broke above the 0.6900 thresholds for the first time in seven and half months on Wednesday as the RBNZ decided to keep current interest rates unchanged at 0.25%. However, the New Zealand central bank set up a new program (FFL) to help businesses with cheap loans starting from December.

The RBNZ noted that the economy has been stronger than anticipated however, expected a possible retreat in the coming quarter/s. That said, today’s rate’s pause does not look consistent with bringing the rates to negative territory therefore, the New Zealand Dollar soared to a new high as mentioned above.

Fiscal Stimulus is Needed

Fed member Mr. Kaplan pointed out that household spending will drop off at some point unless more fiscal stimulus aid is passed however, he said that once the vaccine is available the economy is likely to rebound strongly.

The Fed stressed on multiple occasions the importance of a fiscal stimulus package for the US economic recovery, however, did not recommend any specific number and stated that it was up to the congress to decide. While Republican and Democrat could not agree on the package before elections it looks like the status quo may continue until the start of next year.

Equities Pullback

At the start of this week, investors cheered the victory of Biden and Pfizer update of 90% “effectiveness” of its coronavirus vaccine. The S&P500 and the Dow Jones rallied to an all-time high.

However, the market pulled back on concerns of the delayed fiscal stimulus package, the resistance of power transition from Trump administration to the New Biden’s administration and above all the time and logistics required to roll out the new coronavirus vaccine if its 90% effectiveness was proven.

Stock Market

Change %

S&P 500

-0.3%

Dow Jones

+0.7%

NASDQ

-2.1%

Japan 225

-0.2%

DAX 30

+1.0%

FTSE 100

+1.7%

CAC 40

+2.3%

EUR/USD and Main FX Markets

Market’s optimism of a better US growth in 2021 helped the greenback to comeback and the 10 years treasury yield to near 1.0%. The US Dollar index steadied above 92.50 and kept its neutral outlook, a close below 91.72 will change the market’s outlook to negative.

The Euro traders wait for the ECB meeting on December as the central bank is expected to add 500 billion Euros to the current 750 billion (PEPP). The technical outlook EUR/USD remains neutral ranging between 1.1620 – 1.1909 as long the ECB keeps extending its (PEPP) and once the central bank hints that no more need to raise the program further the EUR/USD could rally towards 1.24-1.25.

The GBP/USD benefited from optimism of a possible EU-UK trade deal could be on the way. The pair rose to an over two-month high at 1.3288. A close above 1.3300 could send the price even higher towards 1.3459.

Gold and Oil

The crude price rallied this week on market optimism of a better demand on 2021 amid positive news of the coronavirus vaccine and on hints of OPEC+ of a possible extension of productions cut in 2021. The Brent Crude closed on Tuesday above 43.58 eying a test of 46.49.

The Gold lost value on a stronger US dollar and tested six-week low at $1,850. However, precious metal outlook remains neutral and this could send the price towards $1,921.

Looking Ahead

Not much today on the economic calendar, markets expect the ECB President Lagarde’s speech at 2:00 PM (GMT) and her deputy Mr. Guindo’s speeches at 2:30 PM and 3:45 PM respectively.

This information/research prepared by Mahmoud Alkudsi does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk. The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest. The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.