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On January 30, ABN AMRO said that the European Central Bank will almost certainly cut interest rates by 25 basis points today, reducing the deposit rate from the current 3.00% to 2.75%. As for what will happen next, much depends on the tariff policies of the new US government and how they affect trade and inflation. At present, no ECB official has made a case for an accommodative policy stance, and most officials seem to be taking a wait-and-see approach, which is logical. However, if the ECB indicates that its views on the impact of tariffs on the economy are taking shape, this may indicate a more dovish stance. US tariffs will have a negative impact on economic growth in the euro area and will also lead to its deflation. This is because the direct upward impact of tariffs on inflation is moderate, while the indirect downward impact on inflation through global trade and falling commodity prices may be huge. This is also an important factor in our view that the ECB policy rate will eventually fall to 1%.Deutsche Banks European shares fell 5% after its fourth-quarter profit fell short of expectations.Futures news on January 30, there are reports that the EU proposed a ban on aluminum imports from Russia, and supply concerns resurfaced. London aluminum performed strongly. As of 3 pm, London aluminum rose by $4, or 0.15%, to close at $2,624. The results of the Federal Reserves interest rate meeting were finalized, maintaining the original interest rate, and there is no rush to cut interest rates in the future. The news is bearish, and London aluminum may still be under pressure in the short term.The European Stoxx 600 index rose to a record high and is now up 0.25%.On January 30, Kathleen Brooks, an analyst at British securities investment company XTB, said that the European Central Banks 25 basis point rate cut this week is a foregone conclusion, so the rate cut will not particularly affect the market. The focus will be on Lagardes press conference. The market currently expects an 88% probability of a rate cut in March, and a high probability of further rate cuts by June, with a total of 3.5 rate cuts in 2025. Therefore, Lagardes further dovishness at this meeting is limited. Trumps tariffs are currently the main threat to the eurozone economy. It may be wise for the ECB to wait for tariffs to land before sending a signal to accelerate the pace of rate cuts. If it preemptively indicates at todays meeting that it will accelerate the pace of rate cuts, the ECB will have no tools to deal with the tariffs when they really come. Therefore, it is expected that the ECB will follow the Bank of Canadas example this time, cut interest rates by 25 basis points and cancel forward guidance. If so, the euro may rebound slightly.

After Its Worst Week in Seven Months, Gold Rises Before Powell's Address

Skylar Williams

Feb 06, 2023 10:49

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Gold prices were subdued on Monday following their worst week in seven months, with attention now shifting to a talk with Federal Reserve Chair Jerome Powell after stronger-than-anticipated U.S. job statistics stoked fears of additional monetary tightening.


The price of gold fell by 2.5% on Friday and more than 3% in the previous week after U.S. employment data for January was significantly stronger than anticipated. The readings sparked concerns that the Fed has sufficient economic room to continue raising interest rates, resulting in a dollar and Treasury yields recovery rally.


This dragged on most metal prices, with gold- which had a good run-up to Friday’s data- suffering substantial losses. For the first time in nearly a month, the price of gold went below the important $1,900 support level.


Spot gold was steady at $1,864.93 an ounce, while gold futures expiring in April slid 0.2% to $1,876.40 an ounce by 18:50 ET (23:50 GMT) (23:50 GMT).


Tuesday's discussion with Chairman Jerome Powell at the Economic Club of Washington, D.C. will provide additional economic guidance. Any remarks on the current employment numbers and inflation trajectory will be attentively monitored.


As anticipated, the Fed hiked interest rates last week and hinted that it will continue to do so in the near future. This sparked greater bets that the central bank could swing away from its hawkish posture by the year-end.


However, these wagers were quickly reversed by Friday's strong employment figures, which also fueled fears that U.S. inflation may remain rising for a longer period of time than anticipated.


Additionally, other precious metals declined on Friday and were trading in a range on Monday. After plunging below $1000 per ounce, platinum futures climbed 0.2%, while silver futures resumed losses, sliding 0.4% to $22.340 per ounce.


Copper prices recovered marginally this week after falling nearly 4% the previous week, as markets balanced a potential demand resurgence in China against rising fears of a worldwide recession. Rising interest rates and soaring inflation are projected to severely weigh on the global economy this year.


High-grade copper futures increased 0.4% to $4.0475 a pound.


This week, the focus is on additional economic indicators from the world's largest copper importer, China, as well as social upheaval in the world's second-largest copper exporter, Peru.

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