Restoring price stability | 02 September 2022

#SP500:

Hawkish Fedspeak grew louder in the run-up to the Jackson Hole confab as financial conditions eased after a stock rally that began with short covering, restored $7 trillion to values since mid-June and ironically was also linked to dovish expectations. Another reason cited by traders for week's rout was the concern that a restrictive policy raises the odds of a recession in 2023. Powell can’t come right out and say that the Fed is fine walking us right into recession in order to crush inflation, but that is what this messaging unequivocally implies. The Fed Chief reiterated that another “unusually large” hike could be appropriate next month, though he stopped short of committing to one, adding that the decision will depend on incoming data.

Trading recommendation: sell 4215 and take profit 4055.

#DAX30:

European stocks slumped as traders priced in a more aggressive pace of rate increases by the European Central Bank, betting on a fifty-fifty chance of a three-quarter point hike at its September rate decision for the first time. Such a move would be the biggest-ever single increase by the ECB and would take its key interest rate to 0.75%, the highest level since November 2011. Two-year German bond yields which are the most sensitive to changes in monetary policy surged to 1.05%, the highest level in more than two months. In light of deteriorating inflationary developments a hike of 50 basis points is the minimum.

Trading recommendation: sell 13000 and take profit 12610.

XAUUSD:

Gold extended declines after Federal Reserve Chair Jerome Powell warned against any idea that the US central bank would start loosening monetary policy soon. Powell signaled the Fed will likely keep raising interest rates and leave them elevated for a while to contain high inflation. “Restoring price stability will likely require maintaining a restrictive policy stance for some time,” he said in remarks prepared for the Kansas City Fed’s annual policy forum in Jackson Hole. There is no waffling in Powell’s speech - high rates will be here for some time. The only question now is will September be 50 bps or 75 bps. This is a negative signal for the precious metal.

Trading recommendation: sell 1730 and take profit 1711.