Mohicans markets：Pay attention to the RBA resolution Focus on the U.S. PMI data in August

At 12:30, the Reserve Bank of Australia announced its interest rate resolution. The market expects the Australian Fed to raise interest rates by a further 50 basis points, which brings the cumulative rate hike since May to 225 basis points. 

At 21:45, the U.S. Markit Services PMI final in August is released, with forecast at 44.2, and previous value at 44.1.

At 22:00, the U.S. ISM non-manufacturing PMI in August is released, with forecast at 55.5, and previous at 56.7.

Global Views - List of Major Markets

On Monday, September 5, spot gold was caught in a range-bound oscillation, fluctuating by $8, eventually closing up 0.15% at $1,710.62 per ounce; spot silver erased some of its gains, eventually closing up 1.16% at $18.16 per ounce. The U.S. dollar index rose and fell, gaining and losing the 110 mark, giving back most of the day's gains, eventually closing up 0.182% at 109.83. In terms of crude oil, WTI crude oil once jumped 4% during the day to stand at the $90 mark, but failed to stand firm, eventually closing up 1.77% at $88.83 per barrel; Brent crude oil eventually closed up 1.98% at $95.16 per barrel. In terms of natural gas, on Monday, natural gas prices on the European gas futures trading market once rose sharply by more than 35% over the previous trading day, touching 290 euros per megawatt-hour; the closing gain narrowed to 14.6%. Affected by the U.S. Labor Day holiday, the U.S. stock and bond markets were closed for the day on Monday. Most European stocks closed lower, Germany‘s DAX index closing down 2.22%, France’s CAC 40 index closing down 1.2%, Spain‘s IBEX 35 index closing down 0.89%, Italy’s FTSE index closing down 2.01%, the U.K. FTSE 100 index closing up 0.09%, and the European Stoxx 50 index closing down 1.53%.

Precious Metals 

Spot gold is currently around $1723.85 per ounce in the early trading session on Monday, September 5, Beijing time. It is now looking to maintain the momentum from Friday‘s rally, with prices currently making a rebound around support above 1710. At the same time, we note that the 10-year TIPS bond yield, a measure of US real interest rates, has also started to fall back since last Friday, which is one of the factors behind the recent gold rally. But it’s worth noting that the 10-year U.S. bond yields and real interest rates are still at high levels, so the resistance to gold from high interest rates has not disappeared.

The non-farm payrolls report in August suggests that the Fed will believe the job market can withstand more aggressive tightening. Although the U.S. employment will slow as rate hikes depress economic activity, the U.S. employment participation rate may begin to rise as households seek to escape the loss of real spending power. And words appear to remain strong, so the Fed is unlikely to allow financial conditions to ease significantly.

Rising unemployment can‘t shake Fed’s aggressive hawkishness

The Feds hawkish posture is unlikely to waver significantly

Labor supply reduction prolonged

A long way to go to normalize inflation

The Fed‘s aggressive rate hikes are aimed at controlling severe hyperinflation not seen in decades, but this has also fueled economic slowdown concerns. Although gold is seen as an inflation hedge and a safe-haven, higher interest rates will increase the cost of holding gold. The Fed’s hawks expect to continue to favor dollar bulls, so there is still a risk of further declines in the precious metal.

We note that the better-than-expected non-farm payrolls data released last Friday but a pickup in the unemployment rate has the market worried about whether the Fed will continue to raise rates by 75 basis points in September, so the probability of a significant rate hike is lower; however, after the weekend, the probability of a 75 basis point rate hike is again greater than 60%.

So we have to focus on the inflation data in August, whether it is lower than expected, again to cool down the rate hike expectations. Otherwise, the market will continue to speculate about the Feds expectations of a sustained 75 basis point rate hike in September, which will continue to depress gold prices.

Crude Oil

In early trading on Tuesday September 6, Beijing time, U.S. oil traded around $88.80 a barrel; Oil prices rose more than 2% on Monday, the European energy crisis intensified, Russia may take retaliatory measures against the proposal to set a ceiling on EU oil prices, and OPEC+ agreed to reduce production slightly, providing momentum for bulls, trading was thin on Monday due to the U.S. Labor Day holiday.

Bullish factors affecting oil prices

[OPEC+ agrees to cut production slightly to support oil price drop on worries of economic slowdown]

[Russia will take retaliatory measures against the proposal to set a ceiling on EU oil prices]

[Russia announces sanctions on 25 U.S. citizens]

[U.S. illegally stationed troops in Syria to steal Syrian oil for two consecutive days]

Bearish factors affecting oil prices

[France prepares to send natural gas to Germany]

[Iran's foreign ministry says lifting sanctions on Iran will help meet Europe's energy needs]

[The EU's share of natural gas imports from Russia fell to 9%]

[One new death from Legionella pneumonia in northern Argentina]

On the whole, the energy crisis in Europe has intensified, and Russia may take retaliatory measures against the EU, which will further aggravate geopolitical tensions, while OPEC+ agreed to cut production by 100,000 barrels per day in October, adding further impetus to the rise in oil prices. Oil prices maintain a bullish tone in the short term. However, it is necessary to be alert to whether the agreement on the Iranian nuclear issue will help Europe ease the energy crisis, and whether Western countries will make some compromises in the negotiations on the Iranian nuclear issue.

Foreign Exchange

Beijing time on Tuesday September 6, the US dollar index fell slightly and is currently trading around 109.61. Boosted by expectations of a rate hike by the Federal Reserve, the U.S. dollar index broke through the 110 mark at noon on September 5, hitting a 20-year high, before falling back. Truss, the British foreign minister, has won the Conservative leadership race to become the next prime minister of the United Kingdom. Deutsche Bank warned that the risk of a balance of payments crisis in Britain “should not be underestimated” under the Truss government, as massive fiscal expansion and a change in the Bank of England mandate could damage investor confidence.

Given the market's perception of the Fed's determination, on September 5, the US dollar index broke through the 110 mark in one fell swoop, which is also expected. As early as August 26, Federal Reserve Chairman Powell emphasized at the annual meeting of global central banks that the tightening policy will be maintained until inflation is completely resolved. At that time, the hawkish statement detonated the dollar bulls. From a technical point of view, the upper-level resistance of the US dollar index has been 110.59, 111.31 since September 2001, and 112, the upper trend line of the recent channel. However, if the US dollar index falls, the next support will fall near 107.59, 106.93 and 104.65, the low since August 11. On September 5, the euro against the dollar once fell below 0.99, hitting a new low since December 2002. On September 8, this Thursday, the European Central Bank will hold an interest rate meeting. The market generally expects that the European Central Bank will raise interest rates by at least 50 basis points, and may even raise interest rates by 75 basis points. However, the probability of a recession in the euro zone has soared, which has always kept the euro under pressure.

Sterling hovered near two-and-a-half-year lows against the dollar on Monday as Britain's foreign minister Truss won the Conservative leadership race to become Britain's next prime minister on the back of a deteriorating economy. Sterling fell to as low as $1.1443 before turning higher before closing up 0.05% at $1.1517 on news that Russia would continue to shut down a major natural gas supply to Europe, fueling fears of a U.K. recession. The Australian dollar closed up 0.21% at 0.6792 on Monday. The Australian dollar rose on expectations of a rate hike from the Reserve Bank of Australia. On September 6, the Reserve Bank of Australia will announce its interest rate decision, and many institutions currently predict that it will raise interest rates by 50 basis points.

Institutional Currency Viewpoint

1. ING: Sterling will remain weak even if Truss becomes UK PM  

2. Den Danske Bank: Strong U.S. jobs data expected to be negative for EUR/USD  

3. Goldman Sachs: The Malaysian ringgit may depreciate further in the future

4. Wells Fargo: Bank of Canada will raise interest rates by 75 basis points to 3.25% on Wednesday

5. Pacific Asset Management: ECB to raise rates by 50bps at every meeting remaining in 2022 

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