Mohicans markets：Rising Interest Rate Expectations Continue To Push the Dollar Higher Spotlight on the Jackson Hole Global Central Bank Annual Conference

Todays Financial Events

At 9:15 today, China will release the one-year Loan Prime Rate(LPR) ended August 22. The market currently expects it to record 3.6%, downing 10 basis points from the previous one. Experts said that the probability of a corresponding reduction in the Loan Prime Rate was higher in this announcement after the medium-term lending facility and open market reverse repo operation interest rates fell. It will further reduce the cost of financing for enterprises and residents, boosting effective credit demand, and the effective demand for credit is expected to recover.

Global Views - List of Major Markets

On Friday August 19, spot gold continued its sharp decline, falling below the $1,750 mark and closing in the negative for the fifth consecutive day. It eventually closed down 0.65% at $1,747.04 per ounce. Spot silver closed down 2.56% at $19.04 per ounce.

The U.S. dollar index, on the other hand, achieved three consecutive positive days and rose above the 108 mark. The 10-year U.S. bond yield once approached the 3% mark, closing at 2.976%.

In terms of crude oil, the two oils were on a roller coaster ride. WTI crude tested the $90 mark several times during the day and rose to a high of $92.06 at one point. It eventually closed down 0.55% at $89.87 per barrel. Brent crude closed down 0.77% at $95.76 per barrel.

The three major U.S. stock indexes closed lower collectively. The S&P 500 closed down 1.29%, the Nasdaq closed down 2.01% and the Dow closed down 0.86%.

European stocks closed mostly lower. Germany's DAX index closed down 1.12% at 13544.52 points, the FTSE 100 index closed up 0.09% at 7550.37 points, and the Euro Stoxx 50 index closed down 1.27% at 3730.32 points.

Precious Metals

Spot gold shock slightly down on Monday , August 22, Beijing time, once hit a new low since July 29 to $ 1744.82 per ounce. As the dollar continued to strengthen last week, further rising to more than a new high on Monday, the gold price pressure is obvious. Gold prices closed lower in the past five sessions, the longest sustained round of declines since November last year. Last week's weekly decline of nearly 3% was also the worst performance in the last six weeks.

Kitco Metals' senior analyst Jim Wyckoff said “the main factor weighing on the gold and silver markets is the rally in the U.S. dollar ... , gold and the dollar are competing safe-haven assets and rising U.S. interest rates suggest a stronger dollar, which would add further downside for gold.”

European and American the PMI data in August and U.S. PCE data in July will be released this week, the market impact is relatively large, so investment needs to focus on. In addition, this week will usher in the Jackson Hole central bank annual meeting, the Federal Reserve Chairman Powell will also deliver a speech. Some analysts expect Powell will strengthen expectations for further interest rate hikes, which may be detrimental to gold prices.

   Fundamentals are mostly bullish

【Survey: Fed rate hike expected to slow to 50 bps in September, recession fears add】

【Explosions in Russian-controlled areas of Ukraine and in Russia, U.S. officials remain silent without comment】

【Russian media: Russian Black Sea Fleet command was attacked by drones】

【Zelensky: Russia Fears‘ Ugly’ Attack as Ukraine Prepares to Celebrate Independence Day】

   Fundamentals are mostly bearish

【Fed's Balkin says “plenty of time” before needing to make next rate hike decision】

【Expectations of a Fed rate hike pushed the dollar to a five-week high, posting its biggest weekly gain since April 2020】

【Net long bets on the dollar rose to $13.37 billion in the latest week, the first increase in four weeks】

【Bundesbank President Governing Council member Nagel: ECB must continue to raise interest rates because inflation will remain too high】

On balance, the strength of the dollar and the expectation of a possible hawkish speech by Fed Chairman Powell. Gold prices are expected to be further depressed this week and the bearishness of technicals also increased. Before the recovery of the 21-day SMA 1766.14, the short term gold price bias oscillation down, and short term attention to the high of 1739.19 near resistance on July 22. Medium-term attention to the lower Bollinger Bands near support, currently at 1695 near.

crude oil

In the early trading hours of Monday, August 22, Beijing time, the U.S. oil is now trading at $89.33 per barrel. Oil prices fell last week, weighed down by a stronger dollar and concerns that a slowing economy will weaken demand for crude. The Iranian nuclear talks are pending whether the U.S. can comply with Iran's “red line”. This week will be the annual global central bankers meeting in Jackson Hole, so the Federal Reserve Chairman's speech also need to be paid attention to.

Tip: NYMEX New York crude oil futures in September are affected by the shift of the month. The last trading on the floor will be completed at 2:30 on August 23, and the last trading on the electronic market will be completed at 5:00 am. Please pay attention to the expiration and change of monthly announcement on the trading venue to control the risk. In addition, the expiration of U.S. oil contracts on some trading platforms is usually one day earlier than the official NYMEX, so please pay more attention to it.

   Positive factors affecting oil prices

【Energy companies raise production to pre-epidemic levels】

【the U.S. stocks generally close down led by large-cap stocks】

   Negative factors affecting oil prices

【Explosions in Russian-controlled Ukraine and inside Russia】

【Gazprom says Nord Stream 1 will be shut down for another three days at the end of August Europe to add further pressure on Europe's winter gas storage】

【Illegal US presence in Syria uses 137 tankers to steal Syrian oil again】

【Iran will not ignore its national interests in any talks and negotiations】

Overall, geopolitical tensions continue to support oil prices, but the Iranian nuclear talks are pending whether the U.S. can comply with Iran's “red line”. Oil prices may oscillate around the 90 mark. This week will be the annual global central bankers meeting in Jackson Hole, so the Federal Reserve Chairman's speech also need to be paid attention to.

Foreign Exchange

In early trading on Monday, August 22, Beijing time, the U.S. dollar index traded around 108.08;

The U.S. dollar index hit a five-week high on Friday and recorded its biggest weekly gain since April 2020, as investors adjusted their positions for the possibility that the Federal Reserve will continue to raise interest rates to fight inflation. Gold prices fell for a fifth straight session, the longest losing streak since November last year, and oil prices fell last week, weighed down by a stronger dollar and concerns that an economic slowdown would weaken crude demand. Focus this week on the Jackson Hole Global Central Bank Annual Meeting.

The U.S. dollar index hit 108.22 on Friday, its highest since July 15, before closing up 0.54 percent at 108.10. The Fed is seen as having more room to raise interest rates than central banks in other large economies, which are more vulnerable. Fed funds futures traders are currently pricing in a 55% chance of a 50 basis point rate hike by the Fed in September and a 45% chance of a 75 basis point hike. The euro closed down 0.46% against the dollar on Friday at 1.0038. Recession fears continued to weigh on the euro. Although the euro fell to parity against the dollar for a time and is currently hovering near parity, many investors have not given up and continue to short the euro. Sterling fell 2.55% to $1.1825 last week, its biggest weekly loss since September 2020. The Bank of England's rate hike expectations have cooled and the economic recession has become the two major bears facing the pound.

Institutional Currency Viewpoint

1. Mitsubishi UFJ: Downside risks to the pound persist and may continue to fall

① Derek Halpenny, head of global market research at Mitsubishi UFJ Financial Group, said: “Downside risks to the pound persist.”

② He added: “GBP/USD has fallen below the 1.2000 level, and leveraged funds have recently accumulated long GBP positions that could easily be liquidated to push GBPUSD further down.”

2. Capital Economics: Sterling has downside risks, may fall to 1.18

① Capital Economics economist Kieran Tompkins said: “Investors continue to expect the Bank of England's policy to rapidly shift from rate hikes to rate cuts; we believe the rate of BoE rate hikes will be less than what money markets are currently expecting, which in turn should weigh on sterling.”

② Capital Economics expects that the pound will remain under pressure for the remainder of 2022 due to recent economic developments and market dynamics.The agency currently predicts that the exchange rate of the pound to the dollar will drop slightly to 1.18, with downside risks.

3. Bank of New York Mellon: The market has reached a new level of shorting against the euro

① Bank of New York Mellon said that although the tendency to short the euro is no longer news, the extent of shorting has reached a new level.

②The bank modeled the overall position and exchange rate profitability based on the aggregation of forward and swap positions in its own database. Strategist Daniel Tenengauzer wrote in a note that its scores show investors are currently holding short positions in the euro against all currencies including the dollar, pound and Swiss franc.

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