Federal Reserve Chair Jerome Powell said he's looking for compelling signs that inflation is cooling before the U.S. central bank will let up on what's so far been its most aggressive set of interest rate hikes in decades. Inflation by the Fed's preferred measure, the personal consumption expenditures price index, jumped 6.8% in June, its steepest increase since 1982, and the rise in core prices - excluding food and energy prices and used by the Fed as an indicator of the inflation outlook - accelerated. Meanwhile labor costs surged 5.1% in the second quarter from a year earlier, the fastest pace in decades. The Fed's fast pace of rate hikes this year has already begun to slow the economy, contributing to a negative reading on gross domestic product in the second quarter and fanning worries that the economy is already, or soon will be, in a recession.
Trading recommendation: sell 4150 and take profit 3800.
The Fed last week raised the target range for its policy rate to 2.25%-2.50%, and for the first time since the current cycle of rate hikes began in March, Powell declined to specify exactly how much he expected the central bank would have to raise rates at its next meeting. U.S. labor costs increased strongly in the second quarter as a tight jobs market boosted wage growth, which could keep inflation elevated and give the Federal Reserve cover to continue its aggressive interest rate hikes. The Bank of England is expected to step up its fight against inflation in this week, joining some 70 other institutions around the world in delivering a half-point increase in borrowing costs. The growth of interest rates of Central Banks is a negative factor for gold.
Trading recommendation: sell 1788 and take profit 1736.
The OPEC+ group of oil producers will meet this week to discuss production plans for September. Their deliberations come after US President Joe Biden visited Saudi Arabia to press the group’s Gulf Arab members — the only ones with significant spare production capacity — to open their taps wider. The group also faces uncertainty over demand for its crude in the coming months as rising interest rates, Europe’s energy crunch and China’s never-ending Covid battle cloud the economic outlook. OPEC’s analysts see the world’s need for its crude nearly 1 million barrels a day above current production, rising further in the fourth quarter. Meanwhile, consuming nations are drawing record amounts from emergency stockpiles, but that can’t go on forever. This is a positive signal for oil prices.
Trading recommendation: buy 94.90 and take profit 98.90.