The Fed has to be careful about over-tightening | 11 November 2022

#SP500:

It is time for the Federal Reserve to shift to smaller interest rate hikes to avoid tightening monetary policy more than needed, and slow the pace further once risks become more "two-sided," Chicago Fed President Charles Evans said. The Fed should now pull back on the pace of its rate increases, given that tighter policy will likely only bring inflation down slowly, he said, echoing, but with a slightly more dovish emphasis, the view Fed Chair Jerome Powell laid out earlier this week. "There's ample capacity" to tighten monetary policy even at a slower pace, he said. "We have accomplished front-loading and now we are at the point where we are looking for the right level of restrictiveness and mindful of data dependency in a world where inflation just lags more than the real economy."

Trading recommendation: buy 3735 and take profit 3910.

XAUUSD:

The Fed's preferred measure of inflation is running at more than three times the central bank's 2% target. It isn't expected to return to that target for a couple of years, even in the face of the Fed's most aggressive rate-hike campaign since the 1980s. The Fed on last Wednesday delivered its fourth straight 75-basis-point interest rate increase, bringing the policy rate to 3.75%-4.00%, as part of an effort to "expeditiously" get borrowing costs high enough that they begin to slow growth and bite into inflation. Interest rates and the terminal rate discussion is what is driving market valuations more than anything right now.

Trading recommendation: range 1635 -1720.

#WTI:

A looming EU ban on Russian oil and the possibility of China easing some COVID restrictions supported markets. The EU ban on Russian crude imports is due to take effect from Dec. 5. Details of G7 price cap aimed at alleviating constraints on Russian flows outside the EU are still under discussion. China is sticking to its strict COVID-19 curbs after cases rose on Saturday to their highest since August, but a former Chinese disease control official said substantial changes to the country's COVID-19 policy are to take place soon. China's stock markets have been buoyed last week by the rumours of an end to stringent lockdowns despite the lack of any announced changes. This is a positive signal for oil prices.

Trading recommendation: buy 89.00 and take profit 93.20