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Gold multi-empty collision intensified! Guard against the "distortion" of inflation in non-agricultural data may become the next catalyst
Jul 3,2020 13:51CST
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Source:Huitong network
The content below was translated by Tencent automatically for reference.

SMM: spot gold fluctuated in a narrow range on Friday, falling 0.01 per cent to $1775.16.

Gold fell about $10 at one point on Thursday as non-farm payrolls rose 4.8 million in June ahead of the Independence Day holiday, the biggest increase since the government began recording data in 1939.

But the number of new confirmed cases in the United States exceeded 50, 000 for the first time on Thursday, highlighting the risk of contagion, as downward pressure on the economy was exacerbated by the re-blockade in some states, so gold recovered all of its losses after falling $15 after the non-farm data were released.

Expectations of economic recovery and the risk of the spread of the epidemic have intensified the rivalry between gold bulls and bears near the 1780 mark. But some analysts believe that if the spread of the epidemic will hit the prospects of economic recovery, and although the number of non-farm payrolls is better than expected, it cannot be ruled out because some of the unemployed are about to expire and return to work. The market needs to pay more attention to changes in consumer spending.

At the same time, analysts believe that the market's judgment on the direction of gold should shift from risk aversion to inflation expectations, as inflation could start to pick up as countries take unprecedented stimulus measures and show signs of economic stabilisation. The Fed also said it would keep interest rates low until inflation expectations were met.

As the day is the Independence Day holiday in the United States, market trading is relatively light, the market needs to continue to pay attention to the news related to the epidemic and economic expectations.

The record number of new non-farm payrolls in the United States in June sent gold down about $10 in the short term.

Us stocks closed higher on Thursday, with the Nasdaq hitting a record closing high as investor sentiment was boosted by a record surge in jobs ahead of the long weekend, convincing people that the US economic recovery was making good progress.

Thursday's data showed that the US economy created a record number of jobs in June, with non-farm payrolls rising 4.8 million in June, the biggest increase since the government began recording data in 1939, as more restaurants and bars reopened. The unemployment rate fell to 11.1% in June from 13.3% in May. Trump praised job growth as evidence that "our economy is recovering rapidly".

All three major U.S. stock indexes rose, with the S & P 500 recording its fourth straight day of gains. The Dow Jones industrial average closed up 92.39 points, or 0.36%, at 25827.36; the s & p 500 closed up 14.15 points, or 0.45%, at 3130.01; and the Nasdaq index closed up 53.00 points, or 0.52%, at 10207.63.

In Europe, unemployment in the euro zone increased only slightly in May, and by less than expected, as the blockade was gradually lifted. The unemployment rate in the eurozone rose to a seasonally adjusted 7.4 per cent in May, the second consecutive month of rise, but below market expectations of 7.7 per cent.

At the same time, Britain is scheduled to reopen taverns, restaurants and hotels on July 4, and the government and businesses expect the arrival of this "super Saturday" to provide a huge boost to the economic recovery.

With further lifting of the blockade and signs of economic recovery, the panic index, which tracks market risk sentiment, continued to hit a three-week low of 25.90 on Thursday, highlighting the rebound in market risk sentiment, which could limit gold's gains for a short time.

The rebound in the epidemic has made the dollar more attractive as a haven, and be wary of liquidity shortages pushing up the dollar again in the second

The dollar rose on Thursday, showing renewed safe-haven appeal as investors worried that a surge in new cases in the United States could erase summer job growth, which also limited gold's gains.

Despite the risk of the second spread of the epidemic, analysts said that at the height of the epidemic in March, demand for the dollar soared as companies faced the prospect of bankruptcy and economic contraction, forcing cash-strapped companies to use loan instruments. or seek safe US assets to weather the crisis.

Analysts say that if the epidemic spreads again, it could lead to another shortage of dollars, which is an important reason why the market continues to hold dollars.

Indeed, the Eurodollar futures market, which tracks expectations of short-term funding rates over the next few years on Thursday, shows that banks and companies will face funding pressure by the end of 2020, which could trigger unusually high demand for the dollar. In other words, demand for dollars will rise as December 31 approaches, as portfolio rebalancing and capital transfers require currencies such as euros and pounds to be converted into dollars.

Eurodollar futures are bets on the direction of (LIBOR), the short-term London interbank offered rate, and are one of the most frequently traded assets in the world. Investors hedge interest rate risk in this market.

So far this year, some parts of the Eurodollar futures yield curve have been upside down. The curve depicts the expected London interbank offered rate (LIBOR) of 6 to 10 years. Between now and the end of summer, the curve is slightly upside down, which means that the implied yield on the July 2020 contract exceeds the implied yield on the August, September and October contracts.

In general, the yield of far-month contracts is higher than that of recent-month contracts. Because longer-term debt is usually more likely to inflate or default.

Brian Reynolds, chief market strategist at Renault, said: "upside down means that investors in money markets and Eurodollar futures markets believe that companies and banks have a huge demand for dollars by the end of the year.

He added: "demand for dollars is likely to increase a year after the outbreak."

Jeff Snyder (Jeff Snider), global research director at Alhambra investment firm (Alhambra Investments), said: "the market is telling you that the risk of another lack of liquidity is still high and that another lack of liquidity could lead to another surge in (LIBOR), the London interbank offered rate (LIBOR)."

A successful step forward in Europe's economic recovery plan could have an impact on the dollar and gold

July 3-the German Parliament voted in support of the ECB's bond-buying program, ending the legal impasse over the stimulus package. The ECB's asset purchase programme is seen as a key monetary support measure to boost the eurozone's weak economy.

A broad coalition of Germany's ruling coalition and the Greens and pro-business Liberal Democrats voted to accept the ECB's explanation of (PSPP), a so-called public-sector asset purchase programme. This decision shows that the German legislature intends to bring Europe together.

The dispute was initially provoked by the German Constitutional Court, which ruled in May that a 2.2 trillion euro ($2.5 trillion) PSPP from 2015 could be unconstitutional. The judges said the German parliament should challenge the ECB to provide evidence that it had considered adverse side effects. The latest parliamentary vote means the Bundesbank can continue to participate in the plan.

Leaders of the 27 countries of the European Union will hold a summit on July 17-18 to discuss the details of the 750 billion euro economic recovery plan. It is reported that European Council President Michelle Michel will announce a compromise plan next week to bridge the differences.

As Europe clears the way for a recovery plan, it will have a direct impact on the dollar and European stock markets, partly reflected in gold, and the market needs to keep an eye on it.

The risk of secondary spread of the epidemic caused gold to recover its decline quickly.

While record non-farm payrolls boosted risk appetite, 31.5 million Americans received unemployment checks in mid-June.

Another report showed that the number of initial claims for unemployment benefits fell to 1.427 million in the week of June 27, worse than expected of 1.35 million, while the number of renewed claims fell slightly to 19.29 million, higher than expected of 19 million, suggesting that the employment situation in the epidemic crisis may not be good for long. The renewed surge in new confirmed cases suggests that the labour market could suffer a setback in July.

The number of newly crowned cases in the United States rose the most since May 9 on Thursday, with the largest increase in confirmed and hospitalized cases in Florida. Infectious disease expert Fauci said that the United States is still mired in the first wave of the new crown epidemic, and the virus shows some signs of mutation, which could lead to accelerated transmission. The U. S. Centers for Disease Control and Prevention (CDC) expects the number of new crown deaths in the United States to reach 140000 to 160000 by July 25.

A growing number of analysts have warned that the US economic recovery could be hampered as a surge in the number of new cases prompted several states to suspend restart plans, and some even re-imposed blockades.

Other data on Thursday showed that the US trade deficit rose 9.7 per cent to $54.6 billion in May as the new crown epidemic pushed exports to their lowest level since 2009, reinforcing expectations that the US economy would contract at its sharpest pace since the Great Depression in the second quarter.

In response, the Congressional Budget Office downgraded the US GDP forecast to 5.9% this year, but expects a bigger rebound in 2021.

The bearish effect of strong non-farm data on gold was offset by a rebound in the epidemic and the resumption of blockades in some states, so gold fell $15 in the short term and then recovered all of its losses.

The trading mechanism of gold is shifting from risk aversion to inflation.

Ryan McKay, commodities strategist at TD Securities, said inflation is a key factor for investors to focus on gold as the gold trading mechanism shifts from risk aversion to hedging against inflation.

"We are starting to do some consolidation in a higher range," McKay said. It may try to break through $1800 again. As we start to respond more to inflation, the Fed will keep interest rates low for the foreseeable future, which is very good for gold. "

The Fed will be willing to keep interest rates low while keeping inflation rising, which will push gold above $1800 an ounce. "I don't expect any big sell-off in the future," McKay said. "any fall in prices will lead to a good point for gold."

George Gero, managing director of wealth management at Royal Bank of Canada, said inflation was already seeking some stability and he expected gold prices to climb above $1800 an ounce.

"looking to the future, stabilizing food prices, gasoline prices, political headlines, epidemic headlines, economic headlines, vaccine headlines. All will lead to inflation, so the price of gold will rise above $1800 an ounce. "

But McKay also warned that a rebound in the epidemic would lead to another shutdown, which would lead to deflation, an environment in which gold tends to perform poorly.

The possibility of distortion of non-agricultural data, pay attention to the changes of consumer expenditure

Analysts pointed out that despite the good performance of the overnight non-farm data, the market may have overlooked a key factor. With the expiration of the additional $600 a month in unemployment benefits in the United States, a considerable number of the unemployed in the United States are looking for jobs again. This may also be driving up employment.

A previous survey showed that about 2/3 of people who applied for unemployment benefits received more unemployment benefits than they had before the outbreak, leading some people and even companies to let employees leave in order to receive unemployment benefits.

But as unemployment benefits expired on July 31st, these people were forced to go back to work to earn a living.

Trump and Democrats began working on the terms of a new bailout bill on Thursday, and Treasury Secretary Mnuchin and Republican senators hope to complete the legislation by the end of this month. But Kudlow, the White House economic adviser, said the Trump administration believes that an increase of $600 a week in unemployment benefits "is bad for jobs."

Democrats and Republicans have long been divided on whether to extend unemployment benefits. Democrats want to expand spending and coverage, while Republicans believe they have cut to put people back to work.

But analysts point out that whether it is extended or not, it is better for gold. On the one hand, if we continue to expand unemployment assistance, it will cause the unemployment rate to remain high and slow down the pace of economic recovery, even if American consumers increase consumer spending for a short time after receiving unemployment assistance, but unemployment causes consumers to spend some of their money on savings to deal with other risks that may exist.

And if unemployment benefits are reduced or even stopped, although this will help the employment rate rise, it may be more restrained in consumption because of the decline in consumer income, which accounts for as much as 68% of the US economy. this will also have a negative impact on the economy.

Follow the progress of the Anglo-European negotiations

Beijing, July 3-negotiations between Britain and the European Union on the future relationship between the two sides after Brexit ended one day earlier on Thursday, warning that there are still huge differences between the two sides.

According to the statements of the two sides, follow-up negotiations will continue as planned in London next week, and government officials say the early conclusion of the talks does not mean that the talks between the two sides have broken down. According to the original plan, the last consultation in this week's round of negotiations should be held on Friday between the chief negotiators of the two sides, David Frost and Michel Barnier.

Britain said in a statement: "the negotiations are comprehensive and useful. But it also highlights that we still have significant differences on many important issues. "

These differences include whether Britain should continue to be bound by European law after Brexit, how to control fishing rights in British waters, and what role the European Court of Justice should play in upholding any agreement.

Barnier, the EU's chief negotiator, said in a statement that although "serious differences still exist", he believed that "an agreement is possible and in everyone's interest."

He said that in order to reach an agreement, the EU expects "our own position to be better understood and respected, and we need the equal participation of Britain."

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