1. Market review: Spot gold fluctuated upwards on Tuesday, rising to close to the $1,870 mark in the U.S. session, and finally closed up 0.7% at $1,866.11 per ounce; spot silver touched the highest intraday price of $22.20 per ounce, and finally closed up 1.56%. At $22.11 an ounce.
2. U.S. economic data is weak, and expectations for a 50 basis point rate hike in September have fallen
The U.S. Richmond Fed manufacturing index recorded -9 in May, the lowest level since May 2020. The total number of new U.S. home sales in April fell to the lowest level since the early days of the pandemic. The U.S. Markit manufacturing and service sector PMIs, which were released earlier, also fell. The swaps indicated a reduced chance of a 50 basis point rate hike in September.
3. The New York Fed predicts that according to the roadmap for shrinking the balance sheet outlined in the May FOMC resolution statement, the size of the Fed’s balance sheet is expected to fall back to $5.9 trillion by mid-2025. By then, the Fed is expected to hold 68% of Treasuries and 32% of its mortgage-backed securities (MBS).
4. The UK PMI is lower than expected, and the market is worried about a recession. The UK manufacturing PMI in May recorded 54.6, the lowest since January 2021, and is expected to be 55. British government bonds extended gains as traders trimmed bets on a rate hike by the Bank of England.
5. US polls: US President Biden is dealing with almost all issues. The approval rating is declining
Polls show that Biden’s overall approval rating is currently 41%. Only 35 percent of Americans approve of Biden’s handling of the economy, 44 percent approve of Biden’s work on job growth, and only 33 percent approve of Biden’s handling of inflation.
6. The U.S. Treasury Department said in a statement on Tuesday that the license to allow U.S. investors to accept Russian bonds for redemption will expire, starting at 00:01 a.m. New York time on Wednesday, and banks and individuals in the United States and the United States will be prohibited from accepting the Russian government. Russia is one step closer to defaulting on its debt.
7. ECB Governing Council: Rate hikes by 50 basis points to show determination to curb inflation
European Central Bank Governing Council member Holzmann said a 50-basis-point rate hike should be considered at the start of the rate-hike cycle to provide reassurance that the ECB is serious about curbing inflation. Governing committee Kazaks also said that a 50 basis point rate hike should not be ruled out. He expects the ECB to raise interest rates in July, September and possibly one more in the fourth quarter. But President Christine Lagarde “splashed cold water” on calls for a 50 basis point hike on Tuesday.
U.S. Treasury yields tumbled as gold prices surged, expected to usher in a major breakout if they could break through key positions. Disappointing U.S. corporate earnings and deteriorating economic data sparked a wave of risk aversion. The non-yielding asset is once again a safe haven and could be close to a major breakout if prices can revisit the $1,885 level. US Treasury yields have peaked and now the dollar looks poised for a pullback as the European Central Bank prepares to raise interest rates, which is good news for the euro. Inflationary pressure has further increased, the situation of the epidemic in China is still a huge unknown, and the outlook for US companies continues to deteriorate, and gold should continue to be supported.
Gold and silver expected to continue to rise. As the dollar weakens, gold has found support at $1,850 an ounce, and is expected to reach $1,885 an ounce or even $1,900 an ounce in the future. Spot silver broke and held above $22.10 an ounce, with further gains appearing increasingly likely. The dollar index DXY may continue to fall back to the lower edge of the ascending channel (about 100.63). It is worth noting that the macro backdrop can still cause sudden volatility across all asset classes.
The Fed’s rate hike risks the economy falling into recession or stagflation, so it is recommended to sell 10-year inflation-protected bonds (TIPS) and hold longer-term TIPS. There are growing concerns about a period of weak growth and high inflation in the U.S. economy, which is expected to lead to higher breakeven inflation and lower real interest rates, especially long-term rates. As the growth rate slows and the unemployment rate rises, the Fed can stop tightening policy. It is expected that the Fed will stop tightening policy in May 2023. The core personal consumption expenditure price index is expected to record 3.4% in the second quarter, and by 2023. Growth will slow to 0.4% by the end of next year.
The U.S. PMI data for May indicated that the U.S. economic growth momentum has weakened further recently. U.S. economic growth has slowed since peaking in March, especially in the services sector, as pent-up demand shows signs of waning in the wake of the Omikon outbreak. Businesses reported that demand was under pressure due to rising costs of living, higher interest rates from the Federal Reserve and concerns about an overall economic slowdown. Manufacturers also noted that capacity continues to be constrained by supply shortages, although these bottlenecks show encouraging signs of easing, and manufacturing cost pressures have risen to new highs, casting doubt on the need for further sharp interest rate hikes in the near term.
