The Fed still has some leeway | 01 July 2022

#SP500:

Fed Chair Jerome Powell pledged an "overarching focus" on bringing down inflation and reiterated that ongoing increases in the central bank's policy rate would be appropriate, with the pace depending on the economic outlook. The Fed still has some leeway to remain credibly committed to bringing down inflation and they’re doing what they need to do. Raising rates helps control inflation by lowering demand, but as important it keeps expectations anchored. The Fed’s main fight right now is against long-term inflation expectations becoming unanchored, because once they are they are difficult to bring back down. As a result, the Fed needs to talk tough, it has been talking tough, and it’s been following it up with action. At some point in the second half of the year, the decisions are going to get much harder.

Trading recommendation: sell 3950 and take profit 3707.

#WTI:

Fed Chair Jerome Powell said the central bank's focus on curbing inflation was "unconditional", adding to fears about more interest rate hikes. This is a negative factor for oil prices. Crude has gained support from the almost total shutdown of output in OPEC member Libya due to unrest. The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, meet on June 30 and are expected to stick to a plan to only slightly accelerate hikes in oil production in July and August. U.S. energy firms this week added oil and natural gas rigs for a second week in a row in a record 23-month streak of increases, as high crude prices and prodding by the government prompted drillers to return to the wellpad, energy services firm Baker Hughes Co said in its closely followed report.

Trading recommendation: range 103.50 -109.50.

XAUUSD:

The University of Michigan said its final consumer sentiment index reading for the month fell to 50.0 from 55.2 in May on the persistence of high inflation and rising fears of an economic slowdown. That compared with a preliminary reading of 50.2 earlier in June. The survey's one-year inflation expectation was unchanged from May at 5.3%, but ticked down from a preliminary June reading of 5.4%. The five-year inflation outlook edged up to 3.1% from 3.0% in May, but was down from 3.3% earlier in June. The moderation in inflation expectations - particularly at the 5-year horizon - triggered a drop in yields on the Treasury securities most sensitive to Fed policy expectations. The yield on the 2-year note dropped by as much as 10 basis points in the moments after the University of Michigan data was released. This is a negative signal for gold.

Trading recommendation: sell 1855 and take profit 1818.