Mohicans markets：Focus on the ECB interest rate resolution this week

The U.S. and Canadian stocks are closed; ICE‘s Brent crude oil futures contract trading ends earlier at 01:30 GMT the next day; CME’s precious metals and U.S. crude oil contract trading ends earlier at 02:30 GMT the next day. 

At 19:30, the UK will announce the result of the Conservative leadership election, and the leader of the Conservative Party will be the new Prime Minister of the United Kingdom. It is widely expected that Truss will become the new British Prime Minister and the pound may face the risk of falling. Truss said that it is the responsibility of the Bank of England to reduce inflation. She declined to comment on whether she would support a significant interest rate hike, saying she has “great faith” in the independence of the Bank of England. 

OPEC and non-OPEC oil producing countries ministerial meeting was held. According to the Wall Street Journal, sources said OPEC+ may keep production unchanged at Monday's meeting, and Russia said it opposes OPEC+ production cuts.

Global Views - List of Major Markets

On Friday, September 2, spot gold recovered the $ 1710 mark, once upward approaching the $ 1720 mark, which finally closed up 0.91% at $ 1712.84 per ounce; spot silver rallied back to the highs, late testing the $ 18 mark, which finally closed up 1.23% at $ 18.06 per ounce. The U.S. dollar index rebounded after touching the daily low, recovering most of the lost ground during the day, eventually closing down 0.046% at 109.63; the ten-year U.S. bond yield retraced to 3.2% below, eventually closing at 3.193%; the two-year U.S. bond yield fell to a high of 3.50%, eventually closing at 3.393%. In terms of crude oil, WTI crude oil approached the $90 mark upward, then gave back most of its intraday gains, eventually closing up 0.76% at $87.06 per barrel; Brent crude oil closed up 1.25% at $93.31 per barrel. The U.S. stocks rose before falling, the three stock indexes fell more than 1%, the S&P 500 index closed down 1.07%, the Nasdaq closed down 1.31%, the Dow closed down 1.07%; before the three stock indexes rose more than 1%. European stocks closed up across the board, Germany‘s DAX index closed up 3.33%, France’s CAC40 index closed up 2.21%, the FTSE 100 index closed up 1.86%, Spain‘s IBEX35 index closed up 1.62%, Italy’s FTSE index closed up 2.91%, the European Stoxx 50 index closed up 2.54%.

Precious Metals

In early trading hours on Monday September 5, Beijing time, spot gold is currently trading near $11,708.53 per ounce. International spot gold prices fell for the third consecutive week, hitting an intraday low since July 21 to $1,688.71 per ounce. The U.S. index rose for the third straight week, hitting an intraday high to the 110 mark since late June 2002. Despite the rise in the U.S. unemployment rate in August, it can not fundamentally shake the Federal Reserve's strategy to raise interest rates sharply. The U.S. is facing a permanent reduction in labor supply and has a long way to go to normalize inflation.

As of this writing, spot gold is down 1.60% for the week to $1,710.77 per ounce; the dollar index is up 0.36% to 109.227.

The non-farm payrolls report in August suggests that the Fed will believe the job market can withstand more aggressive tightening. Despite the fact that U.S. employment will slow as interest 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. According to the Chicagoland “Fed Watch” tool, financial markets expect the Fed to raise interest rates 75 basis points at the September policy meeting, down to 64 percent from nearly 75 percent previously. But market demand for the Fed still seems strong, so the Fed is unlikely to let financial conditions ease significantly.

Rising unemployment can't shake Fed's aggressive hawkishness

Fed's hawkish posture unlikely to waver significantly

Labor Supply Decline Prolonged

A long way to go to normalize inflation

As we suggested on Friday morning, “the U.S. non-farm payrolls data that shows the U.S. economy remains strong could instead be viewed as a negative as it could lead to a continuation of the Feds aggressive rate hikes. Expectations for the Fed to extend aggressive rate hikes are rising due to solid economic data.” More and more Americans are stepping out of the field in search of work, but are not finding jobs immediately. The increase in non-farm payrolls in August could be welcomed by the Fed. The U.S. job openings remain high, while the pace of layoffs is low. It suggests that most companies still want to hire and that the economy is unlikely to enter, or even approach, a recession.

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 Feds hawks expect to continue to favor dollar bulls, so the precious metal remains at risk of further declines.

Crude Oil

In early trading on Monday September 5, Beijing time, U.S. oil rose 1.4% and is now trading around $88.37 per barrel;Although the Federal Reserve's interest rate hike may curb oil demand growth and intensified global economic worries drag down oil prices, Russia on Saturday completely halted the Nord Stream-1 natural gas pipeline due to the discovery of multiple equipment failures, adding another obstacle to the European energy crisis. As geopolitical tensions continue to escalate, oil prices may be boosted in the short-term, with the focus on the OPEC+ meeting within days.

The focus will be on the holding of the 32nd OPEC+ ministerial meeting of oil-producing countries in the past few days.

Bullish factors affecting oil prices

[Beixi-1 natural gas pipeline closed indefinitely]

[If the EU implements visa restrictions, Russia will respond severely]

[The last transmission line of the Zaporozhye nuclear power plant was interrupted]

[Indonesia raises the price of the most commonly used gasoline by 30%]

Bearish factors affecting oil prices

[G7 finance ministers agree to cap Russian oil prices]

[Fed rate hikes may dampen oil demand growth]

[U.S. stocks fell for the third week in a row]

[South Korea reports second confirmed case of monkey pox]

[The cause of unexplained pneumonia in northern Argentina was confirmed to be Legionella infection]

[Total and Shell explore amazing oil reserves]

Overall, although the Fed's interest rate hike may curb the growth of oil demand, coupled with intensified global economic concerns, dragging down oil prices to a certain extent, and G7 finance ministers agreed to set a ceiling for Russian oil prices. However, in the short-term, oil prices may benefit more from the fact that Russia will completely stop the “North Stream-1” natural gas pipeline. Russia's move will make the European energy crisis worse, and oil prices are expected to return to the 90 mark; In addition, the OPEC+ ministerial meeting will be held in the day, and oil prices may fluctuate greatly in the short-term, so caution is required.

Foreign Exchange

In early trading hours on Monday September 5, Beijing time, the U.S. dollar index rose slightly and is currently trading around 109.95, a 20-year high. According to CMEs “Fed Watch”: The probability of the Fed raising interest rates by 50 basis points by September is 44%, and the probability of raising interest rates by 75 basis points is 56%.

USD/JPY closed up 0.02% at 140.22 on Friday, rising above 140 for the first time since 1998. Japanese Finance Minister Shunichi Suzuki said on Friday that the government would take “appropriate” action if necessary in response to the exchange rate hitting a 24-year high, signaling the possibility of government intervention.

Data on Friday showed U.S. non-farm payrolls rose more than expected in August, but wage growth slowed and unemployment rose, giving the Federal Reserve some leeway when it raises interest rates later this month, and the dollar index last week Friday closed down 0.07% at 109.59. The U.S. dollar index jumped to 109.99 on Thursday, its strongest level since June 2002, after Fed Chairman Jerome Powell said Friday at the Jackson Hole seminar in Wyoming that interest rates need to stay high “for some time.” The U.S. dollar has been trading at a high level since it was battling stubbornly high inflation. The U.S. dollar index eased after the jobs data, but posted a third straight weekly gain. EUR/USD clawed back some of the previous day's losses on Friday to close 0.12% higher but remained below par at 0.9956. The European Central Bank will meet on Thursday, September 8, and money markets are betting that it will raise interest rates by an unprecedented 75 basis points. GBP/USD closed down 0.28% on Friday at 1.1511.

Britains new prime minister will be announced on Monday, and is widely expected to be Foreign Minister Truss. USD/JPY closed up 0.02% at 140.22 on Friday, rising above 140 for the first time since 1998.

Major events to watch on Monday: The 32nd OPEC+ oil-producing ministerial meeting was held, the results of the British Conservative Party leadership election were announced, and the Bank of England monetary policy member Mann delivered a speech.

Institutional Currency Viewpoint

1. TD Securities: ECB rate hike decision unlikely to change near-term outlook for euro

2. Sterling faces downside risks if Truss becomes UK prime minister   

3. Mitsubishi UFJ: Indications by BOE officials for more rate hikes to be limited support for sterling

4. PGIM Fixed Income: It is not clear whether the ECB is necessary to raise interest rates by 75 basis points

5. ING: And this week, the European Bank will only raise interest rates by 50 basis points

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