11/12/2023: Weekly Market Outlook
Introduction:
The week commencing 11th of December is one that will stand out in global markets.
With a large number of economic data releases, all financial markets (equity, commodity, debt) will be affected, either moving to the upside or to the downside depending on the data.
The stand out economic data and information that is to be released is as follows: a) U.S. CPI, b) FED Interest Rate Decision, c) U.K. GDP, d) U.S. PPI, e) BOE Interest Rate Decision, f) ECB Interest Rate Decision.
U.S. CPI:
The first major economic release for the week is to be released on Tuesday. U.S. CPI, which is a measure of inflation that tracks consumer prices, is forecasted to remain at 0.0%. This is equal to the reading that this metric recorded in October. The year-on-year figure is set to decrease to 3.1%, beating October’s 3.2% figure. This shows that headline inflation is cooling.
However, the FED are more interested in Core CPI, which excludes volatile food and energy prices. For the month of November, core CPI is forecasted to increase by 0.3%, which would be an increase on October’s figure of 0.2%. This would indicate that month-on-month, core CPI is rising. This would go against the FED’s goal of taming inflation. Year-on-year, core CPI is expected to remain at 4%, similar to the previous month’s figures.
If the forecasted figures hold true, then it can be assumed that the FED will not be keen to cut rates anytime soon, contrary to the belief of investors.
U.K. GDP:
Next up on the news release is U.K. GDP, which is the nation’s gross domestic product.
The current forecast for month-on-month GDP is -0.1%, which would show the U.K.’s economy to be contracting for the month of November.
The year-on-year forecasted figure is 0.6%, which is lower than the previous month’s figure of 1.3%.
Generally, a contracting economy is good for gold, as it is a bearish signal for fiat currency. Gold and fiat currency have an inverse relationship with one another.
U.S. PPI:
Another U.S. inflation metric for the week is released on Wednesday.
U.S. PPI, the producer price index, measures the average change in prices received by domestic producers of goods and services.
The forecasted month-on-month figure for November is 0.1% which is an increase on the previous month’s figure of -0.5%. This would highlight an inflation risk as the figure means that prices are rising even during the FED’s tightening cycle.
Rising PPI could deter the FED from making any dovish comments at the December meeting.
FED Interest Rate Decision:
It is almost locked in that the FED are going to pause rates at the Central Bank’s December meeting. This means that the FED will keep rates at 5.50%, unchanged from the last meeting. It is expected that policymakers will have a hawkish stance on the future of interest rates. This comes after speculation of rate cuts sooner than expected. This caused markets, particularly gold and silver, to rally over the last 3 weeks.
BOE Interest Rate Decision:
Like the FED, the BOE are expected to keep rates unchanged at 5.25%.
ECB Interest Rate Decision:
Similar to both the FED and the BOE, the ECB is expected to keep rates at 4.50%.
All three Central Bank’s are expected to provide a hawkish stance on future policy decisions.
How The News Affects Gold and Silver Markets:
Gold and silver markets are affected by major economic news, just like the other financial markets.
Both gold and silver experienced dramatic moves to the upside over the last three weeks, with gold surpassing $2,100 an ounce, an all-time high in dollars. However, as investor expectations of a rate cut in December dimmed, so too did the upside potential on the precious metals. Both declined last week, 3.26% and 9.71%, respectively.
Gold and silver markets will certainly be on edge with the influx of economic news that is about the hit global markets. This will lead to a lot of consolidation for the week.
Inflation data will affect investor expectations leading into the interest rate decisions later on in the week.
Markets will also be paying close attention to the interest rate decisions from the three major Central Bank’s. The comments by Central Bank policymakers after the decisions will be important to investors, as a hawkish stance may limit the upside potential for gold and silver in the near-term, while dovish comments may move markets higher.
