1. US House of Representatives Speaker McCarthy said Monday morning (local time) discussions with White House negotiators on the debt ceiling were fruitful and no agreement had been reached, but said a deal could be reached on Monday or Tuesday. The media broke the news that the two sides have made progress on the excess epidemic funds and the reform of the energy licensing system. U.S. Treasury Secretary Janet Yellen again urged that it is “highly likely” that the Treasury will run out of cash by early June.
2. On Monday, many officials of the Federal Reserve delivered speeches, and the overall situation was mixed with hawks and doves.
The president of the St. Louis Fed, known as the “Eagle King,” said that the Fed will have to raise policy rates by 50 basis points this year, and is expected to raise rates twice more.
The “New Eagle King” and Minneapolis Fed Chairman Kashkari said that it is very difficult to decide whether to raise or suspend interest rates at the June meeting, but interest rates may need to be raised further from now on. He also warned that it was too early to declare that the banking problems were all resolved.
San Francisco Fed President Daly refused to say what action the Fed should take at its June meeting, stressing the need to observe more data, hoping to see the core inflation indicators fall further, and the effect of tightening credit is equivalent to a few extra interest rate hikes. Second-rate.
-Atlanta Fed President Bostic said there is a lag in the Fed’s policy actions and he is willing to “wait for a while” to observe the performance of the economy. Richmond Fed President Barkin also said he would not predict the June policy decision.
According to CME’s “Fed Watch”, the probability of the Fed not moving in June fell slightly to 71.5%.
3. On Monday night, Russia Today reported that an explosion occurred near the Pentagon in the United States. The news triggered a significant rise in risk aversion, and U.S. stocks turned lower. Then the U.S. Department of Defense urgently refuted the rumor.
4. The CDS committee ruled that the sale of Credit Suisse to UBS would not trigger a default swap payment. It was the second time in recent days that the committee has dismissed the possibility of a default payment in response to questions from market participants.
Jameel Ahmad, Principal Analyst, CompareBroker
This week’s trading is expected to be dominated by progress on the U.S. debt ceiling, while financial market sentiment will remain tense, especially as we approach a June 1 deadline when the U.S. may run out of funds. U.S. Treasury Secretary Yellen has called the prospect of a U.S. default catastrophic. As it stands, traders have not yet fully priced in the possibility that the U.S. government will delay debt-ceiling negotiations until the last minute. This means that if the debt ceiling cannot be resolved this week, the market’s risk aversion will intensify. In this case, risk assets and global markets such as crude oil and emerging markets are expected to weaken, while the dollar and yen are investors’ preferred safe-haven products.
However, I believe that the US debt ceiling crisis will largely turn into a pantomime and that an eventual solution will still be found. Neither the Republicans nor the Democrats can be held accountable for the global turmoil caused by the US running out of funds, especially as the 2024 presidential election is about to begin. As a result, the overall view in global financial markets is that the U.S. will avoid default.
For gold, while the prospect of a U.S. default is bullish for gold, jittery market sentiment ahead of June 1 would not necessarily lead to higher prices if the U.S. dollar also surges. We have to remember that while the dollar and gold are largely safe-haven assets, just like the sudden rebound in the dollar in the early stages of the new crown epidemic, this is actually bad news for gold. So if the dollar moves higher on news of the debt ceiling, gold could face a similar situation this week.
We are just weeks away from the U.S. facing a debt default and there is still no bipartisan agreement to raise the debt ceiling. If they end up unable to reach an agreement, how will this affect the market?
We estimate that in this scenario, the S&P 500 could quickly fall by more than 10% as the market reassesses growth prospects and heightened systemic risks, but it could recover if market turmoil forces a deal from Congress Most of the losses.
Second, we believe that longer-dated Treasuries may initially sell off in response to defaults, but we also expect these Treasuries to rebound as markets price in a rise in the probability of a recession.
Finally, a default and subsequent Fed intervention could weaken the value of the dollar, and we expect gold to gain market favor, as it did with the previous debt ceiling standoff.
Investors are closely watching the U.S. debt-ceiling talks, which, coupled with less hawkish comments from Federal Reserve Chairman Jerome Powell on Friday, are adding to gold’s appeal. Concerns surrounding the debt ceiling have provided support for gold, and I think the outcome of the debt ceiling negotiations will have a greater impact on gold than the upcoming Fed meeting, where the US may default before the Fed meeting and affect the Fed’s decision-making.
In addition, investors are also looking for the future direction of the Fed’s interest rate path after Powell signaled a possible pause in rate hikes in June. It is important to note that gold tends to lose its appeal in a high interest rate environment. Powell’s recent uncertainty about the need for further rate hikes, as well as related comments about inflation and tightening credit, sent gold prices up 1% on Friday. The minutes of the May FOMC meeting will be released this Thursday, but the debt ceiling talks may overshadow other economic events/data.
From a technical point of view, the price of gold is bearish below the pivot point of $2002.54 and is currently trading above the key support level of $1956.3. Failure to hold this level will intensify selling pressure and gold may test down $1923.6 and $1876.81 support for the dollar. However, if the price of gold stabilizes at $1956.3, bulls are expected to take the opportunity to enter the market, and enough upward momentum is expected to push gold to a retest of $2002.54.
IG Group analyst Manish Jaradi
Gold rallied on Friday following comments from Federal Reserve Chairman Jerome Powell. However, a drop to a six-week low could be a sign that gold’s uptrend has been undermined, and while that doesn’t mean that the downside is the only way out for gold, it could mean that the top for gold is now more or less closed. Less sure.
Gold fell below key support at the mid-April low of $1,970, breaking below an important price pivot for the first time since the rally began in early November last year, which is not conducive to the bullish trend of gold. That said, on a daily chart, the trend could change from up to sideways or down. Considering the speed and magnitude of the rise since the end of 2022, as well as the still supportive upward momentum on the longer-term graph, gold’s trend is likely to be a concussive decline rather than a unilateral decline, and Friday’s rebound also confirms this one point of view.
Looking at the 4-hour chart, gold’s bullish trend has turned into a bearish trend, and Friday’s rebound may encounter strong resistance in the $2005-2020 area.
Looking at the daily chart, gold, while still in a bullish structure, has entered a consolidation phase. Judging from past trends, consolidation can last from a few days to a few weeks. Currently, gold is holding above the key buffer zone of 1925-1950, and a break below this level is likely to trigger a re-evaluation of the market’s bullish structure for up to 6 months.