Fed minutes eyed after Powell dovish shift
It looks as though we’re heading for a fourth day in the green on Wednesday, as US stocks look to extend their winning streak on the back of strong data and a more dovish Fed.
The FOMC minutes this evening will be an interesting read, given the clear reluctance within the committee to dramatically alter the course for interest rates at the meeting, followed a couple of weeks later by its Chair delivering a much more flexible and, one could argue, dovish message. At the December meeting, the committee reduced its forecasts for rate hikes this year from three to two but some were expecting it to go further. Powell’s recent comments would suggest it won’t take much.
Markets have gone one step further and priced in no more hikes this year, with the odds of one at times being as low as 0%. These expectations have pared slightly but even now, a hike is only slightly priced in, with the rebound in markets taking the edge off the growing pessimism. This has naturally been helped by some good economic data on Friday and efforts to resolve the trade war.
Gold continues to pare gains
The apparent improvement in trade relations between the US and China is not only boosting equity markets, it’s taking some of the shine off gold as its safe haven appeal wanes. The dollar is also coming under pressure – which has typically been bullish for gold – as bullish positions that were built up during the escalation are slightly reversed. This hasn’t been enough to stop gold slipping though although it may limit any decline.
Gold Daily Chart
Gold is finding some support around $1,280 at the moment but may slip a little further in the near-term as risk appetite continues to improve. That said, I expect a weakening dollar to continue to support the yellow metal and any hint that policy makers are open to further downward revisions in rate hikes may give it a little push. If gold pushes below $1,280 then $1,260 will be an interesting level. That said, I still remain bullish and expect $1,300 to come under pressure again before too long.
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