Risk-aversion among traders | 30 June 2023

#SP500:

U.S. business activity fell to a three-month low in June as services growth eased for the first time this year and the contraction in the manufacturing sector deepened, closely watched survey data out fresh showed. The S&P Global survey's measure of new orders received by private businesses slipped to 53.5 this month in June from 54.3 in April, with the services sector keeping that key metric above the 50 mark. New orders on the manufacturing side dropped to a six-month low. The survey's flash services sector PMI fell to 54.1 from 54.9 in May. The inflation handoff underway from manufacturing to services, which could keep the Fed on a hawkish footing. Overall input prices were up this month, with the services sector's gauge climbing to the highest since January even as input costs at factories slid to the lowest in about three years.

Trading recommendation: sell 4365 and take profit 4299.

XAUUSD:

Another possible Fed rate hike has pushed bond yields higher and could be a short-term drag for gold. Debt-ceiling uncertainty has passed, removing some fear from markets. The deal struck between Democrats and Republicans in the debt-ceiling saga may calm near-term skittish bond prices. This is a negative signal for gold. Recent strong data has led to a slightly higher than expected Fed terminal rate and fewer cuts in 2024 – a near-term gold headwind; but more visibility on where rates might peak could re-establish gold’s link to longer maturity yields – a medium-term gold tailwind.

Trading recommendation: sell 1939 and take profit 1902.

#WTI:

Oil prices settled lower on last week, posting a weekly decline as traders worried interest rate hikes could sap demand despite signs of tighter supplies including lower U.S. crude stocks. More U.S. interest rate hikes also seemed likelier. San Francisco Federal Reserve Bank President Mary Daly said two more rate hikes this year was a very reasonable projection. There seems to be a growing risk back off type of trade now in crude, triggered by the interest rate rises in the EU and disappointing stimulus numbers out of China. Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

Trading recommendation: range 65.00 -70.50