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On April 26, according to the Wall Street Journal, in order to simplify the negotiations on reciprocal tariffs, US negotiating officials plan to use a new framework developed by the Office of the United States Trade Representative (USTR), which lists major categories of negotiations, such as tariffs and quotas, non-tariff trade barriers, digital trade, product origin principles, economic security and other commercial issues. In these categories, US officials will put forward specific requirements for individual countries, but people familiar with the matter emphasized that this document may also be adjusted at any time. People familiar with the matter said that the United States initial plan is to negotiate with 18 major trading partners in turn over the next two months. The initial plan is to alternately participate in the talks with six countries per week for three weeks (six countries in the first week, another six countries in the second week, and another six countries in the third week) until the deadline of July 8. If US President Trump does not extend the 90-day suspension period he set by then, those countries that cannot reach an agreement will begin to face reciprocal tariffs.On April 26, after the United States announced additional tariffs on goods from many countries, Peruvian business people expressed concerns that the US governments extreme measures would disrupt the global trade order and may even trigger a global economic recession. Alvaro Barrenechea Chavez, vice president of the Peruvian-Chinese Chamber of Commerce, said that the negative impact of the US tariff policy has begun to emerge and hoped that the US government would rethink. Recognizing the importance of countries working together to promote development, I think this is the best way to become a true "world citizen."Market news: Musks xAI company plans to raise about US$20 billion in a financing round.Conflict situation: 1. Ukrainian top commander: Russia tried to use air strikes as a cover to increase ground attacks, but was repelled by Ukraine. 2. Ukrainian Air Force: Russia launched more than 103 drones in the night attack on Ukraine. 3. Local officials said Ukraine launched an attack in the Belgorod region of Russia, killing two people. 4. The local governor said that Russia launched an attack on the Dnipropetrovsk region of Ukraine, killing one person and injuring eight people. Peace talks: 1. Trump: ① The situation between Russia and Ukraine is gradually becoming clear, and they are "very close" to reaching an agreement. ② Ukraine is unlikely to join NATO. ③ Ukraine has not yet signed the rare earth agreement and hopes that the agreement can be signed immediately. ④ It is foreseeable that the United States will conduct commercial cooperation with Ukraine and Russia after reaching an agreement. 2. Russian Foreign Minister: Russia is "ready to reach an agreement on Ukraine." 3. Russian Presidential Assistant Ushakov: Russia and the United States will continue to maintain active dialogue. 4. Russian Presidential Assistant: Putin discussed the possibility of resuming direct negotiations between Russia and Ukraine with the US envoy. 5. The differences between the United States, Europe and Ukraine are clear. The documents show that European countries and Ukraine have raised objections to some of the US proposals to end the Russia-Ukraine conflict. 6. Market news: As part of the peace agreement, the United States asked Russian President Putin to abandon the demilitarization requirement. Other situations: 1. President of Hungarys OTP Bank: We hope to return to all business areas in Russia after the (Russia-Ukraine) conflict ends. 2. Ukrainian President Zelensky: US ground forces are not necessary for Ukraine. 3. Trump said Crimea will remain in Russia, Zelensky: Never recognize it. Agreeing with Trumps view, Crimea cannot be recovered by force. 4. NATO Secretary-General Rutte met with Trump and senior US officials to discuss defense spending, NATO summit, and the Ukrainian conflict.Rising global trade risks, overall policy uncertainty and the sustainability of U.S. debt top the list of potential risks to the U.S. financial system, according to the Federal Reserves latest financial stability report released on Friday. This is the first time the Fed has conducted a semi-annual survey on financial risks since Trump returned to the White House. 73% of respondents said that global trade risks are their biggest concern, more than double the proportion reported in November. Half of the respondents believe that overall policy uncertainty is the most worrying issue, an increase from the same period last year. The survey also found that issues related to recent market turmoil have received more attention, with 27% of respondents worried about the functioning of the U.S. Treasury market, up from 17% last fall. Foreign withdrawals from U.S. assets and the value of the dollar have also risen on the list of concerns.

Spot gold bottomed out and rebounded, the FED must clarify the impact of this change in response to inflation

Oct 26, 2021 10:54

On Wednesday (October 6), spot gold continued to be under pressure as the US dollar index soared, investors worried that soaring energy prices might stimulate inflation and raise interest rates. However, before the release of the September non-agricultural employment data in the United States, gold bears were cautious. The price of gold rebounded from a four-day low of $1,745.99 per ounce, regaining most of the decline. Investors waited for the data to give the Fed tighten monetary policy. Clues to timing.


At GMT+8 20:08, spot gold fell 0.15% to US$1757.47 per ounce; the main COMEX gold contract fell 0.18% to US$1758.0 per ounce; the US dollar index rose 0.36% to 94.316.


The U.S. dollar bullish situation is gratifying


The market predicts that the US September employment data to be released on Friday (October 8) is expected to add 470,000 jobs. The data is considered essential to inform the Fed's future policy tone and pace of policy adjustments, especially when these data are impressive or disappointing.

U.S. Treasury Secretary Yellen on Tuesday: "I believe the Fed will make the right decision. We have received an incredibly unusual shock: On the one hand, we still have nearly 6 million fewer jobs than before the outbreak of the new crown, which means Many people still need jobs; on the other hand, many companies find it difficult to recruit."

The federal funds rate futures market predicts that the Fed will start raising interest rates around November 2022, but interest rates will only reach a level of just over 1% before the end of 2025, although Fed members expect interest rates to reach 1.75% in 2024.

Francesco Pesole, G10 foreign exchange strategist at ING, said that the U.S. dollar has a bullish outlook and the U.S. Treasury yield curve has become steeper again. The dot plot announced after the Fed’s September meeting tends to be hawkish. The Fed will enter a three-year tightening cycle starting next year."

Inflation expected to last longer


US Treasury Secretary Yellen warned on Tuesday that the inflationary pressures hitting the US economy may continue for some time. She said in a live interview on the SquawkBox program: "Supply bottlenecks have formed, leading to inflation. I believe they are temporary, but this does not mean that they will disappear in the next few months."

The Federal Reserve has set an inflation target of 2%, but the recent consensus reached by the Federal Open Market Committee estimates that the inflation level in 2021 may be around 3.7%, and then decline in the next few years.

And Yellen remains optimistic about the economic situation in general: "Our demand pattern has undergone an extraordinary shift, from services to goods. I know the Fed is trying to sort out its impact."

Chicago Fed President Evans said on Tuesday that he still believes that the supply bottleneck is the main reason for the recent increase in inflation. Although the inflation rate is higher than initially expected and may last longer, it will subside.

In an interview with CNBC, Evans said that he expects the inflation rate to reach 3.5% or 4% this year. “This will cut incomes, wages, etc. This is a problem. We will definitely monitor this, but it’s not true. The issue of monetary policy is an issue of infrastructure and supply."

Like most other Fed policymakers, he also reiterated his view that the Fed will begin to reduce the scale of monthly asset purchases during the year. If the reduction in debt purchases is completed in the middle or autumn of 2022, he will not be surprised.

The US dollar has won the favor of investors because the market expects that the Fed will start the process of reducing the scale of asset purchases during the year and lay the foundation for the withdrawal of the ultra-low interest rate policy implemented by the European Central Bank and the Bank of Japan in response to the new crown pandemic.

Moreover, inflation is not just a problem for the United States. Tight supply chains around the world will aggravate upward pressure on prices and make the market nervous. This will increase the pressure on the Fed to accelerate monetary policy tightening and put pressure on gold.

Investors are upset about the U.S. debt ceiling


There are still two weeks before the October 18 deadline. As the U.S. Congress raises the debt ceiling to avoid the historic debt default deadline approaching, concerns about the debt ceiling begin to disturb investors.

Arthur Hogan, chief market strategist at National Securities Corp, said: "Washington's debt ceiling and infrastructure negotiations continue to be the focus this week, and there are more signs that if the situation continues to deteriorate, the rating agencies may lower the US credit rating by one notch."

US President Biden said on Monday that unless Republicans and Democrats work together to vote to raise the debt ceiling in the next two weeks, the federal government may exceed the $28.4 trillion debt ceiling and default on an unprecedented level.

U.S. Treasury Secretary Yellen said on Tuesday that it is “completely necessary” for Congress to raise the federal debt ceiling before the October 18 deadline to avoid US defaults. But Yellen added that she opposes the use of loopholes in the U.S. currency law to resolve the crisis, and opposes the forging of a trillion dollars in platinum coins.

The idea of minting platinum coins came from a legal loophole that allowed the Ministry of Finance to mint platinum coins of any denomination. Some progressive commentators and Democratic lawmakers have suggested minting one or more $1 trillion coins to break the deadlock of the Republican Party’s refusal to support raising the $28.4 trillion debt ceiling.

Dan Belton, a fixed-income strategist at BMO Capital in Chicago, said: "Except for the possibility of a slight increase in volatility, the current volatility is not large enough to make me feel that the debt ceiling has led to increased market panic."

October 18 is the deadline for raising the debt ceiling. Otherwise, the Ministry of Finance will exhaust its extraordinary borrowing capacity and its limited cash reserves will soon be exhausted. A default will be catastrophic, will lead to a recession in the U.S. economy, and threaten the reserve status of the U.S. dollar.

Look at $1727 under spot gold


On the daily chart, the price of gold has started a three-wave downward trend from US$1770. The support below looks to the 23.6% target of US$1744 and the 38.2% target of US$1727. Wave 3 is a sub-wave of the downward (3) wave that started at $1834. (3) Wave is a sub-wave of the downward ((Y)) wave that started from 1917 USD. The ((Y)) wave belongs to the adjusted IV wave that started at $2,075.

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