Just when the markets were beginning to factor into
their expectations that the possibility of a US interest rate hike
taking place at all in 2015 was declining consistently, the star
performer of the US economy with this being job creation
came to the rescue on Friday
afternoon. The NFP results inspired a reversal of fresh hope that the
Federal Reserve will carry out their repeated pledge to begin raising US
interest rates in 2015 after all.
Expectations that the Federal Reserve will raise US
interest rates in December have surged following the unexpectedly
superb employment report on Friday
afternoon, which confirmed that the US economy created 271,000 jobs in
October. Not
only did the jobs’ report smash expectations by adding nearly 100,000
more jobs than what was forecast, but it also calmed down recent anxiety
that economic momentum in the United States was beginning to slow
down.
Resurgent USD punishes Gold
The sudden shift in optimism over the increased
possibility of a US interest rate rise in 2015 has spelt danger for
Gold, and led to the precious metal tumbling down to a near three-month
low at $1085. Gold has suffered from a complete
contrast in fortunes as trading in the final quarter of the year has
commenced. After jumping by nearly $90 on repeatedly pushed back US
interest rate expectations in October, Gold has suffered a reversal and
encountered aggressive selling in November. Upbeat
comments from Federal Reserve Chair Janet Yellen that a US interest
rate rise in December was a “live possibility” have now been
complimented by an exceedingly robust US employment report in November.
The direction of Gold continues to be dictated by
US interest rate expectations, and there are no signs of this ending
anytime soon. Where Gold concludes the year is going to be completely
directed by the US Federal Reserve and there is
still some potential for Gold to fall below $1000 before 2016, however
the US economic data will need to remain consistent and the Federal
Reserve will have to raise US interest rates.
Further signs of weakness in China economy
Concerns over a continuously slowing down China
economy were underlined further over the weekend, after China released
weak trade figures that have once again highlighted that economic
momentum in the major economy is continuing to decline.
While exports dropped by just over 6% in September, the major concern
is the import figures where imports dropped by over 18%. As repeatedly
stated, a slowing down China economy is more of an issue for those
economies that are reliant on trade from China,
because they are basically going to begin noticing less demand for
products from China if they haven’t already done so.
With economic momentum in China supposed to fall
even further next year, I highly doubt that we have witnessed the
conclusion of monetary easing from the People’s Bank of China (PBoC) as
it aims to improve the country’s economic performance.
GBPUSD drops all the way to 1.50
The GBPUSD is looking incredibly weak and after
suffering another technical rejection at 1.55 early last week, the pair
now finds itself dangling around its lowest valuation in over six months
at 1.5026. Although there was previously optimism
that the 1.51 level could be a possible “lower range” for the GBPUSD,
sellers have been encouraged to price in further losses after the floor
was penetrated late last week.
Technically speaking, the move below 1.51 is key
technical move and has heightened the potential for the GBPUSD to trade
below 1.50 once again before the end of the year. While at best, it now
appears that rallies in the GBPUSD could be
capped below 1.53. GBPUSD traders would be wise to continue monitoring
the EURGBP because the Bank of England (BoE) once again chose to talk
down the Pound once the EURGBP looked vulnerable to falling below the
key 0.70 level.
Investor sentiment towards the Pound might also be
negatively impacted by the resumption in headlines over a possible EU
referendum. It is currently expected that UK Prime Minister, David
Cameron will make a list of demands for reforms
to the President of the European Council, Donald Tusk on Tuesday, and such talks over a possible referendum do represent a risk to investors.
Emerging Markets
The timely combination of a potential change in US
interest rate policy, continuously depressed commodity prices and
consistent concerns over economic momentum slowing down in China is
leading to an overall weak investor sentiment towards
the emerging markets.
The Jakarta Stock Exchange Composite Index has
drifted over 1.5% lower with this being correlated to an overall weak
sentiment towards the emerging markets, and possibly the latest GDP
report narrowly missing expectations. While the GDP
report only narrowly missed forecasts, it might add to the recent
uncertainty that the Bank of Indonesia may unexpectedly cut interest
rates before the end of the year to improve domestic activity.
It was reported late last month that Bank Indonesia
have cut inflation forecasts and expects to see a sharp slowdown in
inflation, meaning there is the potential for lower interest rates if
necessary.
Despite some really strong trade figures from the Malaysian economy on Friday,
the Bursa Malaysia has opened trading for the week a little lower. Both
the import and export figures from Malaysia were impressive and
outlined strong fundamentals
and potential for GDP growth. Export competiveness has been greatly
improved by the Ringgit weakness and this is leading some aspects of
growth. There was also a surprise that the economy imported more than
expected in September, which might reduce concerns
that consumers are struggling to adapt to less purchasing power.
However, it could also just be that consumers are once again importing
after the implementation of the GST tax in April.
The potential for the UAE Dirham is looking strong after the US jobs report on Friday
afternoon increased optimism that the Federal Reserve will begin to
raise US interest rates. While still an emerging market, one of the
benefits the UAE
has in its possession and other economies with currencies pegged to the
USD is less currency exposure. Both the Malaysian Ringgit and
Indonesian Rupiah have at times this year been hammered by a stronger
USD, but the UAE Dirham has this to its advantage.
