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Market News Gold trading reminder: global central banks are "scrambling" to raise interest rates, gold prices are under pressure, focus on US CPI
Gold trading reminder: global central banks are "scrambling" to raise interest rates, gold prices are under pressure, focus on US CPI
The European Central Bank announced overnight that it would end a long-term stimulus program and said it would raise interest rates in July for the first time since 2011, with a former Fed vice-chair saying the Fed needs to raise rates by 50 basis points each at the next three or four meetings. The number of initial jobless claims in the United States last week showed that the labor market is still very tight. The survey showed that the probability of the Federal Reserve raising interest rates by 50 basis points for four consecutive times has increased. The market is worried about the opportunity cost of holding gold. Three-week highs and rising U.S. bond yields also weighed on gold.
2022-06-10
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In Asian time on Friday (June 10), spot gold fluctuated in a narrow range around $1,845. Overnight, the European Central Bank announced that it would end a long-term stimulus program and said it would raise interest rates for the first time since 2011 in July. The vice chairman said that the Fed needs to raise interest rates by 50 basis points each time in the next three or four meetings. The number of initial jobless claims in the United States last week showed that the labor market is still very tight, and the survey showed that the probability of the Fed raising interest rates by 50 basis points for four consecutive times increased , the market is worried that the opportunity cost of holding gold will increase, which has put pressure on gold prices, and the dollar has risen to a nearly three-week high, and U.S. bond yields have risen, also putting pressure on gold prices. However, the geopolitical situation is still tense, and the U.S. stock market has fallen sharply, still providing some safe-haven support, which has limited the decline of gold prices.
Market targets for the session will focus on the performance of U.S. CPI data for May, with higher-than-expected inflation data likely to increase concerns that the Federal Reserve will raise interest rates more aggressively than previously expected. In addition, it is necessary to pay attention to news related to the geopolitical situation in Russia and Ukraine and the new crown epidemic.
[The European Central Bank hinted that it will raise interest rates by 25 basis points in July, and there may be more action in September]
The European Central Bank announced on Thursday that it would end a long-term stimulus program and said it would raise interest rates in July for the first time since 2011, before possibly more in September.
With inflation in the euro zone at a record 8.1 percent and still climbing, the ECB worries that price increases are widening and could turn into an unbreakable wage price spiral, heralding a new era of prolonged high prices.
The ECB said it would end quantitative easing on July 1, before raising rates by 25 basis points on July 21. Rates will be raised again on Sept. 8, and possibly more, unless the inflation outlook improves in the interim.
"We will ensure that inflation returns to the 2 percent target in the medium term," ECB President Christine Lagarde told a news conference. "It's not just a step, it's a journey," she said of the move hinted at on Thursday.
Some policymakers had advocated for a bigger move in July but backed down and the final policy decision was passed unanimously, the sources said.
ECB policymakers have had a heated debate over the size of rate hikes aimed at curbing price growth, with chief economist Len Len leaning on a 25 basis point hike in July and September but others arguing that it should be 50 basis points into consideration.
The ECB has raised its inflation forecast again and now expects inflation to be at 6.8% this year, compared with a previous forecast of 5.1%. Inflation is forecast at 3.5% in 2023 and 2.1% in 2024, suggesting inflation will be above target for four consecutive years. The new forecast justifies the latter camp.
Lagarde said that was too high, and said that if the forecast was maintained after three months, it would need to raise rates at a faster pace. “If inflation is expected to remain at 2.1% in 2024 or beyond, will the rate hikes be higher? The answer is yes.”
50 basis points would be the largest rate hike by the ECB since June 2000. The ECB’s deposit rate is currently minus 0.5%, having been in negative territory since 2014.
After the announcement, markets began to price in 144 basis points of rate hikes this year, implying a rate hike at every meeting from July onwards, with several more than 25 basis points. The previous forecast was for a rate hike of 138 basis points this year. The market also expects that by the end of 2023, the deposit rate will increase by a cumulative 240 basis points, with the maximum rate expected to be close to 2%.
Lagarde said, “I think in times of great uncertainty, it may be appropriate to take a step-by-step approach, more so than to a situation where the path is clear and clear and we all know the way forward.” Just a few months ago, She also said there was little chance of a rate hike this year.
Some economists argue that the ECB has been too slow to act to curb inflation, so raising interest rates to a neutral level, one that neither stimulates nor constrains the economy, will not be enough.
Jörg Krömer, chief economist at Commerzbank, said, “The ECB is still behind the curve. It’s not enough to just take your foot off the gas pedal, you have to hit the brakes, but that’s precisely what the ECB is not prepared to do. That's why we expect inflation to average well above 2% for the next few years."
Despite her pledge to raise interest rates, Lagarde vowed not to allow borrowing costs for countries hit hard by the euro zone debt crisis to be pushed up sharply by financial markets again. Goldman Sachs said it now expects the European Central Bank to raise interest rates by 25 basis points in July, followed by 50 basis points in September and October, and the rate hike will be narrowed to 25 basis points in December.
Bob Haberkorn, senior market strategist at RJO Futures, said, "The ECB signaled that it will start raising rates in July and continue to raise rates, which has sent gold down a little... It feels like there is some risk aversion in the market that has spread to gold as well. In addition, Treasury yields have also climbed.”
[The number of Americans filing for unemployment benefits last week was near the highest in five months, but the labor market is still very tight]
U.S. jobless claims rose to their highest level in nearly five months last week, but that may not mark a material shift in labor market conditions, which remain very tight.
The Labor Department report on Thursday also showed that the number of unemployed remained at the lowest level in more than 52 years as of the end of May, underscoring the strength of the labor market.
Weekly unemployment figures are closely watched amid news that companies are freezing hiring or considering layoffs in anticipation of a recession next year. Still, overall demand for labor remains strong, with 11.4 million job openings at the end of April. Economists were largely unconcerned by the larger-than-expected increase in jobless claims last week, arguing that it was just noise.
Dante DeAntonio, senior economist at Moody's Analytics, said: "Wide difficulties in hiring workers still keep companies reluctant to lay off workers, but some tech start-ups and retailers are showing fatigue, which has felt consumer spending shifting from goods to services. Impact."
Initial jobless claims rose by 27,000 to a seasonally adjusted 229,000 in the week ended June 4, the highest level since mid-January. Economists polled by Reuters had forecast 210,000.
This period includes the Memorial Day holiday. Seasonality, a model the government uses to remove seasonal fluctuations from the data, had expected unadjusted claims to fall by 21,362, as summer hiring typically picks up. But unadjusted claims are already at very low levels due to a severe shortage of workers and limited room for a sharp decline. Unadjusted claims rose by 1,008 to 184,604 last week.
Initial jobless claims have been stuck in a narrow range since plummeting to a 53-year low of 166,000 in March, having retreated sharply from a record high of 6.137 million hit in April 2020.
Continuing claims for unemployment benefits were flat at 1.306 million in the week ended May 28, the lowest level since late 1969, the report showed. The insured unemployment rate for workers enrolled in the unemployment insurance program remained at a record low 0.9 percent at the end of May.
[Former Fed Vice Chairman: Need to raise interest rates by 50 basis points each time in the next three or four meetings]
Former Fed Vice Chairman Alan Blinder said the Fed will likely need to raise rates by 50 basis points each at its next three to four meetings and may have to endure a recession to bring inflation back to its 2 percent target.
Federal Reserve Chairman Jerome Powell and his colleagues are expected to raise interest rates by half a percentage point at next week's policy meeting, the second straight hike of that magnitude. They were already laying the groundwork for a similar move in July, but kept options for a subsequent meeting in September.
"If things are broadly in line with what we're expecting right now, then I think they need more than" two 50-basis-point rate hikes in June and July, Blinder said. "Maybe 50 basis points three or four times."
Blinder, who served as Fed vice-chairman under Alan Greenspan in the 1990s, sees a recession likely next year: He sees a "slightly higher" 50 percent chance of a recession. He said in an interview on Wednesday that the Fed would have to be "pretty, pretty lucky" to avoid a contraction in gross domestic product.
Inflation is likely to climb in the short term due to disruptions to commodity markets caused by Russia's invasion of Ukraine and supply chain problems caused by Asia's coronavirus lockdowns, said Blinder, now a professor at Princeton University. But Blinder believes that eventually those pressures will dissipate.
"We have to slow down the economy, we have to slow down employment growth," Blinder said. "That means unemployment has to go higher."
He admits there are risks too. The longer inflation remains high, the more likely it is to affect expectations and become entrenched in the economy. Fortunately for the Fed, that hasn't happened yet, with longer-term inflation expectations still contained and no evidence of a wage-price spiral, Blinder said. At the same time, the labor market is strong, with the unemployment rate near a 50-year low of 3.6%.
Blinder said he hoped the slowdown would be mild and unemployment would not climb significantly.
[Survey: The Fed is expected to keep raising interest rates this year, and the probability of raising interest rates by 50 basis points for four consecutive times increases]
The U.S. Federal Reserve will raise interest rates by 50 basis points in June and July, a Reuters poll showed, and the odds of another rate hike of a similar magnitude in September are rising, with analysts seeing the Fed not until next year. rate hikes will be suspended.
With inflation just below a 40-year high and the labor market tightening further, the Fed is under pressure to raise interest rates quickly to neutral or higher.
After the Fed raised interest rates by 50 basis points in May, 85 analysts polled by Reuters on June 6-9 all expected the Fed to raise the federal funds rate by 50 basis points to 1.25%-1.50% on June 15. All but a few respondents expected another 50 basis point hike in July.
More than two-thirds (59 of 85) of respondents expect a quarter-point rate hike in September, and more than a quarter (23) believe the Fed will raise rates by another 50 basis points. That's up from one-fifth in last month's survey.
"The bad news for the Fed is that with inflation well above target, the Fed has no choice but to aggressively tighten monetary policy," said Ethan Harris, global analyst at BofA Securities.
(U.S. economy and Fed rate outlook: orange bars represent changes in U.S. real GDP; yellow bars represent median U.S. real GDP Reuters poll estimates; solid red lines represent year-on-year changes in U.S. CPI; dotted red lines represent U.S. CPI Reuters polls Median estimate; solid blue line represents the federal funds rate; dashed blue line represents the median estimate of the federal funds rate Reuters poll)
In an additional question, 43 respondents gave a 50% chance of a 50 basis point rate hike in September. The median odds of a similar rate hike in November and December are 30% and 25%, respectively.
In a separate question, nearly 60% (24 of 41) respondents said the Fed will pause rate hikes in the first or second quarter of next year. Nine forecast the second half or later, with the remainder forecasting sometime this year.
However, analysts expect the federal funds rate to break through the neutral 2.4% level to 2.50-2.75% by the end of the year, slightly below market expectations of 2.75%-3.00%.
The poll expects the federal funds rate to peak at a level of 3.00%-3.25% or higher by the end of the second quarter of 2023, three months earlier than the poll found a few weeks ago. This level would be at least 75 basis points above the neutral rate and above the peak of the last rate hike cycle of 2.25%-2.50%.
The median probability of a recession in the U.S. in the next two years remains at 40%, and the probability of a recession in the next year is 25%, the survey showed. Economic growth is projected at 2.6% in 2022 and 2.0% in 2023, down slightly from last month's survey results.
However, price pressures are expected to persist as supply chain disruptions continue to push up global costs. Inflation is expected to average 7.4% this year and exceed the Fed’s 2% target until at least 2024.
[The dollar surged to a new high in nearly three weeks]
The U.S. dollar index rose 0.73% on Thursday, rising for a second day at 103.31, after hitting a near three-week high of 103.36 during the session after the European Central Bank released its latest policy decision suggesting it will start raising interest rates. However, the euro was lower against the dollar in the absence of any details on plans to deal with the fragmented funding environment. The European Central Bank said differences in borrowing costs among European countries hindered the execution of its monetary policy.
Huw Roberts, head of analysis at Quant Insight, said, “We knew QE was coming to an end, but they themselves started to come up with the idea of a special contingency plan to address fragmentation risks without providing any details. Because they’ve been talking about contingency plans, the market is hoping There is more information, more details on what they will do. It's disappointing that no details have been disclosed."
With most of the world's central banks already moving to curb rising inflation by raising interest rates, investors will see May U.S. consumer price index (CPI) data on Friday. The consensus forecast is that the U.S. CPI rose 8.3% year-on-year in May, the same as the increase in April.
While some investors are hoping that inflation may have peaked, the recent rise in oil prices to 13-week highs has dampened that optimism and boosted the appeal of the safe-haven dollar.
The Fed is due to release its latest policy statement next Wednesday, and CME's FedWatch tool showed the market fully priced in a rate hike of at least 50 basis points.
U.S. Treasury yields climbed Thursday, holding above 3 percent, increasing the opportunity cost of holding non-yielding gold, while a firmer dollar made gold less attractive to overseas buyers.
[The Governor of the Bank of Canada said that inflation will determine the speed and scale of interest rate hikes, and the magnitude may be greater than 50 basis points]
Bank of Canada Governor Macklem said on Thursday that inflation will determine how quickly rates rise, reiterating that the bank may need to raise rates multiple times in a row or consider moves greater than 50 basis points.
Answering questions after the release of the annual financial system review, Macklem made it clear that getting inflation back to its 2 percent target is the central bank's top priority, even as it wants to avoid cooling the economy too much.
The bank last week raised its benchmark interest rate to 1.5% from 1.0% and said it was ready to take "more forceful" action if needed to curb inflation, which is currently at a 31-year high.
"What we want to say is that we may need to do more ... to get inflation back on target, or we need to move faster, or we need to do more," Macklem said. "The most important factor is really is the prospect of inflation."
Macklem also said the bank needs to bring domestic demand more in line with supply without overly cooling the economy. "We don't want to stifle demand. We want to get rid of excess demand, excess parts".
[Street fighting in North Donetsk is fierce, Ukraine claims progress in the south]
Ukraine's Luhansk region's governor said on Thursday that Ukrainian troops held their ground amid fierce street battles in the eastern city of Severo-Donetsk while Russians "died like flies" but faced a "catastrophic" lack of artillery fire. question.
The battle in the ruins of Severo Donetsk has become one of the bloodiest scenes of the war, as Russian troops have increasingly concentrated there. Both sides claimed to have inflicted heavy casualties on the other.
"They (Russians) are dying like flies...Fighting in Severo Donetsk continues," Serhiy Gaidai, governor of Luhansk region, said in an online post.
Gaidai predicts that the Russians will try to take advantage of the lower water levels to cross the North Donets River. "We are watching and if there is any situation, we will be proactive."
Oleksiy Danilov, secretary of Ukraine's Security Council, said in an interview on Thursday that the Russian army was concentrating all its forces in the region.
Petro Kunsyk, commander of the Svoboda National Guard Battalion in Ukraine, provided a rare update on the situation in Severo Donetsk, saying that the Ukrainians were introducing Russian troops into street fighting to offset Russia's artillery advantage.
But he added that his troops had a "catastrophic" lack of counter artillery fire to hit back at Russia, and that having such weapons would be a game-changer.
In the self-declared Donetsk People's Republic (DPR) in eastern Ukraine, a court has sentenced two Britons and a Moroccan captured fighting for Ukraine to death, according to Russian news agencies. Britain slammed the court's decision as a "sham judgment" without legality.
Ukraine's defense ministry said Ukrainian forces had seized new positions in a counterattack in the southern state of Kherson, aiming to retake the largest swathe of territory since the Russian invasion.
Ukraine is one of the world's largest exporters of grain and edible oils, and in recent weeks there has been serious international concern over the threat of a global famine, thought to be caused by Russia's blockade of Ukraine's Black Sea ports.
"Millions of people could go hungry if Russia's blockade of the Black Sea continues," Ukrainian President Volodymyr Zelensky said in a televised address on Thursday.
Moscow has blamed Western sanctions for the food crisis, saying it is willing to keep Ukrainian ports open to resume exports if Ukraine removes mines and other conditions are met. But Kyiv called the proposal an empty promise.
Russia has also been trying to sell grain from areas it controls in Ukraine, in what Kyiv and the West call looting. Asked if there was an agreement to sell southern Ukraine's grain to Turkey or a Middle Eastern country, Kremlin spokesman Dmitry Peskov said, "So far, no agreement has been reached and work continues."
[Yellen said the U.S. economy is unlikely to decline, but it will definitely slow, and gasoline prices won't fall back anytime soon]
U.S. Treasury Secretary Janet Yellen said on Thursday she did not see a recession in the U.S. economy, but growth would "absolutely" slow and gasoline prices were unlikely to fall back anytime soon.
"I don't think there's a recession (there will be)," she said at an event organized by The New York Times. "Consumer spending is very strong. Investment spending is strong. I know people are very upset about inflation, which makes sense, but there is no sign of that. ..a recession is brewing."
Yellen admitted last week that her prediction that inflation was temporary was wrong, saying at the event that she would not change U.S. policy decisions if she could go back in time.
"I'm not going to change course," Yellen said. "President Biden's signature $1.9 trillion U.S. rescue package was necessary to prevent a generation of Americans from suffering from high unemployment. The unexpected happens all the time. ... the world has a high level of uncertainty."
Yellen said fighting inflation is a top priority for President Biden, adding that she doesn't expect gasoline prices, which have just hit $5 a gallon, to fall back anytime soon.
U.S. households are clearly concerned about soaring oil prices, which play a key role in influencing consumer expectations, but given the U.S. labor market is now the strongest since World War II, the level of pessimism about the economy is "surprising," she said. ".
Yellen said Biden had done "what he could" to address high gasoline prices by directing a significant release of the Strategic Petroleum Reserve. She added that U.S. officials would also continue to tighten sanctions aimed at punishing Russia and halting its war in Ukraine.
As the Fed tightens monetary policy to rein in demand and reduce inflation, Yellen said she sees a path to a soft landing that would avoid a recession.
[IMF is expected to further downgrade its global growth forecast for this year]
The International Monetary Fund (IMF) spokesman said on Thursday that it is expected to further cut its 2022 global growth forecast next month, while the World Bank and the Organization for Economic Cooperation and Development (OECD) have already downgraded their respective forecasts this week.
This will be the third time the IMF has downgraded its forecast this year. In April, the IMF cut its global growth forecast for 2022 and 2023 by almost a full percentage point to 3.6 percent.
IMF spokesman Gerry Rice said at a regular IMF briefing that the overall forecast remains that the global economy will grow, but at a slower pace, although some countries may face a recession.
"Obviously, something has happened that could lead us to lower our forecast further," Rice told reporters. "A lot has happened since we last issued our forecast, and it's happening very quickly."
The IMF will release its latest World Economic Outlook report in mid-July.
The World Bank on Tuesday cut its 2022 global growth forecast by 1.2 percentage points to 2.9 percent and warned that Russia's invasion of Ukraine has exacerbated the damage caused by the new crown epidemic, and many countries may face a recession.
The OECD on Wednesday downgraded its growth forecast and raised its inflation forecast, saying that while the global economy should avoid stagflation like the 1970s, the war in Ukraine has dimmed growth prospects far.
Rice said the downward revision was due to the ongoing war in Ukraine, volatile commodity prices, very high food and energy prices, a sharper-than-expected slowdown in Asia and higher interest rates in some advanced economies. "We're seeing crises come together...all of these things are moving in the same direction, and that is downside risks could materialize."
[The three major U.S. stock indexes all have their biggest declines since mid-May]
U.S. stocks ended sharply lower on Thursday as investor anxiety grew ahead of Friday's consumer price data, which is expected to show inflation remained elevated in May.
Selling intensified near the close. Growth giants led losses, with Apple and Amazon down 3.6% and 4.2%, respectively, the biggest drag on the S&P 500 and Nasdaq. All 11 S&P 500 sectors ended lower, with communications services and technology stocks falling the most.
The 10-year U.S. Treasury yield hit 3.073 percent, its highest since May 11, adding to nervousness. The recent surge in oil prices also weighed on sentiment ahead of Friday's U.S. consumer price index (CPI) report.
"We're preparing for the news that may come out tomorrow on inflation," said Peter Tuz, president of Chase Investment Counsel. "I think the data will be mixed. If headline inflation is high, but core inflation is showing some decline, I actually think the market could bounce back from that because the data will show that inflation is pulling back slightly."
Data is expected to show that the CPI rose 0.7% in May, while the core CPI, which excludes volatile food and energy, rose 0.5%.
As of Thursday's close, the Dow Jones Industrial Average fell 638.11 points, or 1.94%, to 32,272.79; the S&P 500 fell 97.95 points, or 2.38%, to 4,017.82; the Nasdaq lost 332.05 points, or 2.75%, to 11754.23 points.
All three major indexes posted their biggest one-day percentage losses since mid-May. The S&P 500 is down 15.7% so far this year, while the Nasdaq is down about 25%.
On the whole, concerns about the geopolitical situation, high inflation and economic recession still provide safe-haven support for gold prices, but the Fed's aggressive interest rate hike is expected to rise, the US dollar and US bond yields continue to rise, and most global central banks such as the European Central Bank and the Bank of Canada. Bias to take measures to raise interest rates, are not good for gold prices, short-term gold prices are slightly inclined to shock down.
At GMT+8 10:06, spot gold is now at $1,845.89 per ounce.
Market targets for the session will focus on the performance of U.S. CPI data for May, with higher-than-expected inflation data likely to increase concerns that the Federal Reserve will raise interest rates more aggressively than previously expected. In addition, it is necessary to pay attention to news related to the geopolitical situation in Russia and Ukraine and the new crown epidemic.
bearish fundamentals
[The European Central Bank hinted that it will raise interest rates by 25 basis points in July, and there may be more action in September]
The European Central Bank announced on Thursday that it would end a long-term stimulus program and said it would raise interest rates in July for the first time since 2011, before possibly more in September.
With inflation in the euro zone at a record 8.1 percent and still climbing, the ECB worries that price increases are widening and could turn into an unbreakable wage price spiral, heralding a new era of prolonged high prices.
The ECB said it would end quantitative easing on July 1, before raising rates by 25 basis points on July 21. Rates will be raised again on Sept. 8, and possibly more, unless the inflation outlook improves in the interim.
"We will ensure that inflation returns to the 2 percent target in the medium term," ECB President Christine Lagarde told a news conference. "It's not just a step, it's a journey," she said of the move hinted at on Thursday.
Some policymakers had advocated for a bigger move in July but backed down and the final policy decision was passed unanimously, the sources said.
ECB policymakers have had a heated debate over the size of rate hikes aimed at curbing price growth, with chief economist Len Len leaning on a 25 basis point hike in July and September but others arguing that it should be 50 basis points into consideration.
The ECB has raised its inflation forecast again and now expects inflation to be at 6.8% this year, compared with a previous forecast of 5.1%. Inflation is forecast at 3.5% in 2023 and 2.1% in 2024, suggesting inflation will be above target for four consecutive years. The new forecast justifies the latter camp.
Lagarde said that was too high, and said that if the forecast was maintained after three months, it would need to raise rates at a faster pace. “If inflation is expected to remain at 2.1% in 2024 or beyond, will the rate hikes be higher? The answer is yes.”
50 basis points would be the largest rate hike by the ECB since June 2000. The ECB’s deposit rate is currently minus 0.5%, having been in negative territory since 2014.
After the announcement, markets began to price in 144 basis points of rate hikes this year, implying a rate hike at every meeting from July onwards, with several more than 25 basis points. The previous forecast was for a rate hike of 138 basis points this year. The market also expects that by the end of 2023, the deposit rate will increase by a cumulative 240 basis points, with the maximum rate expected to be close to 2%.
Lagarde said, “I think in times of great uncertainty, it may be appropriate to take a step-by-step approach, more so than to a situation where the path is clear and clear and we all know the way forward.” Just a few months ago, She also said there was little chance of a rate hike this year.
Some economists argue that the ECB has been too slow to act to curb inflation, so raising interest rates to a neutral level, one that neither stimulates nor constrains the economy, will not be enough.
Jörg Krömer, chief economist at Commerzbank, said, “The ECB is still behind the curve. It’s not enough to just take your foot off the gas pedal, you have to hit the brakes, but that’s precisely what the ECB is not prepared to do. That's why we expect inflation to average well above 2% for the next few years."
Despite her pledge to raise interest rates, Lagarde vowed not to allow borrowing costs for countries hit hard by the euro zone debt crisis to be pushed up sharply by financial markets again. Goldman Sachs said it now expects the European Central Bank to raise interest rates by 25 basis points in July, followed by 50 basis points in September and October, and the rate hike will be narrowed to 25 basis points in December.
Bob Haberkorn, senior market strategist at RJO Futures, said, "The ECB signaled that it will start raising rates in July and continue to raise rates, which has sent gold down a little... It feels like there is some risk aversion in the market that has spread to gold as well. In addition, Treasury yields have also climbed.”
[The number of Americans filing for unemployment benefits last week was near the highest in five months, but the labor market is still very tight]
U.S. jobless claims rose to their highest level in nearly five months last week, but that may not mark a material shift in labor market conditions, which remain very tight.
The Labor Department report on Thursday also showed that the number of unemployed remained at the lowest level in more than 52 years as of the end of May, underscoring the strength of the labor market.
Weekly unemployment figures are closely watched amid news that companies are freezing hiring or considering layoffs in anticipation of a recession next year. Still, overall demand for labor remains strong, with 11.4 million job openings at the end of April. Economists were largely unconcerned by the larger-than-expected increase in jobless claims last week, arguing that it was just noise.
Dante DeAntonio, senior economist at Moody's Analytics, said: "Wide difficulties in hiring workers still keep companies reluctant to lay off workers, but some tech start-ups and retailers are showing fatigue, which has felt consumer spending shifting from goods to services. Impact."
Initial jobless claims rose by 27,000 to a seasonally adjusted 229,000 in the week ended June 4, the highest level since mid-January. Economists polled by Reuters had forecast 210,000.
This period includes the Memorial Day holiday. Seasonality, a model the government uses to remove seasonal fluctuations from the data, had expected unadjusted claims to fall by 21,362, as summer hiring typically picks up. But unadjusted claims are already at very low levels due to a severe shortage of workers and limited room for a sharp decline. Unadjusted claims rose by 1,008 to 184,604 last week.
Initial jobless claims have been stuck in a narrow range since plummeting to a 53-year low of 166,000 in March, having retreated sharply from a record high of 6.137 million hit in April 2020.
Continuing claims for unemployment benefits were flat at 1.306 million in the week ended May 28, the lowest level since late 1969, the report showed. The insured unemployment rate for workers enrolled in the unemployment insurance program remained at a record low 0.9 percent at the end of May.
[Former Fed Vice Chairman: Need to raise interest rates by 50 basis points each time in the next three or four meetings]
Former Fed Vice Chairman Alan Blinder said the Fed will likely need to raise rates by 50 basis points each at its next three to four meetings and may have to endure a recession to bring inflation back to its 2 percent target.
Federal Reserve Chairman Jerome Powell and his colleagues are expected to raise interest rates by half a percentage point at next week's policy meeting, the second straight hike of that magnitude. They were already laying the groundwork for a similar move in July, but kept options for a subsequent meeting in September.
"If things are broadly in line with what we're expecting right now, then I think they need more than" two 50-basis-point rate hikes in June and July, Blinder said. "Maybe 50 basis points three or four times."
Blinder, who served as Fed vice-chairman under Alan Greenspan in the 1990s, sees a recession likely next year: He sees a "slightly higher" 50 percent chance of a recession. He said in an interview on Wednesday that the Fed would have to be "pretty, pretty lucky" to avoid a contraction in gross domestic product.
Inflation is likely to climb in the short term due to disruptions to commodity markets caused by Russia's invasion of Ukraine and supply chain problems caused by Asia's coronavirus lockdowns, said Blinder, now a professor at Princeton University. But Blinder believes that eventually those pressures will dissipate.
"We have to slow down the economy, we have to slow down employment growth," Blinder said. "That means unemployment has to go higher."
He admits there are risks too. The longer inflation remains high, the more likely it is to affect expectations and become entrenched in the economy. Fortunately for the Fed, that hasn't happened yet, with longer-term inflation expectations still contained and no evidence of a wage-price spiral, Blinder said. At the same time, the labor market is strong, with the unemployment rate near a 50-year low of 3.6%.
Blinder said he hoped the slowdown would be mild and unemployment would not climb significantly.
[Survey: The Fed is expected to keep raising interest rates this year, and the probability of raising interest rates by 50 basis points for four consecutive times increases]
The U.S. Federal Reserve will raise interest rates by 50 basis points in June and July, a Reuters poll showed, and the odds of another rate hike of a similar magnitude in September are rising, with analysts seeing the Fed not until next year. rate hikes will be suspended.
With inflation just below a 40-year high and the labor market tightening further, the Fed is under pressure to raise interest rates quickly to neutral or higher.
After the Fed raised interest rates by 50 basis points in May, 85 analysts polled by Reuters on June 6-9 all expected the Fed to raise the federal funds rate by 50 basis points to 1.25%-1.50% on June 15. All but a few respondents expected another 50 basis point hike in July.
More than two-thirds (59 of 85) of respondents expect a quarter-point rate hike in September, and more than a quarter (23) believe the Fed will raise rates by another 50 basis points. That's up from one-fifth in last month's survey.
"The bad news for the Fed is that with inflation well above target, the Fed has no choice but to aggressively tighten monetary policy," said Ethan Harris, global analyst at BofA Securities.
(U.S. economy and Fed rate outlook: orange bars represent changes in U.S. real GDP; yellow bars represent median U.S. real GDP Reuters poll estimates; solid red lines represent year-on-year changes in U.S. CPI; dotted red lines represent U.S. CPI Reuters polls Median estimate; solid blue line represents the federal funds rate; dashed blue line represents the median estimate of the federal funds rate Reuters poll)
In an additional question, 43 respondents gave a 50% chance of a 50 basis point rate hike in September. The median odds of a similar rate hike in November and December are 30% and 25%, respectively.
In a separate question, nearly 60% (24 of 41) respondents said the Fed will pause rate hikes in the first or second quarter of next year. Nine forecast the second half or later, with the remainder forecasting sometime this year.
However, analysts expect the federal funds rate to break through the neutral 2.4% level to 2.50-2.75% by the end of the year, slightly below market expectations of 2.75%-3.00%.
The poll expects the federal funds rate to peak at a level of 3.00%-3.25% or higher by the end of the second quarter of 2023, three months earlier than the poll found a few weeks ago. This level would be at least 75 basis points above the neutral rate and above the peak of the last rate hike cycle of 2.25%-2.50%.
The median probability of a recession in the U.S. in the next two years remains at 40%, and the probability of a recession in the next year is 25%, the survey showed. Economic growth is projected at 2.6% in 2022 and 2.0% in 2023, down slightly from last month's survey results.
However, price pressures are expected to persist as supply chain disruptions continue to push up global costs. Inflation is expected to average 7.4% this year and exceed the Fed’s 2% target until at least 2024.
[The dollar surged to a new high in nearly three weeks]
The U.S. dollar index rose 0.73% on Thursday, rising for a second day at 103.31, after hitting a near three-week high of 103.36 during the session after the European Central Bank released its latest policy decision suggesting it will start raising interest rates. However, the euro was lower against the dollar in the absence of any details on plans to deal with the fragmented funding environment. The European Central Bank said differences in borrowing costs among European countries hindered the execution of its monetary policy.
Huw Roberts, head of analysis at Quant Insight, said, “We knew QE was coming to an end, but they themselves started to come up with the idea of a special contingency plan to address fragmentation risks without providing any details. Because they’ve been talking about contingency plans, the market is hoping There is more information, more details on what they will do. It's disappointing that no details have been disclosed."
With most of the world's central banks already moving to curb rising inflation by raising interest rates, investors will see May U.S. consumer price index (CPI) data on Friday. The consensus forecast is that the U.S. CPI rose 8.3% year-on-year in May, the same as the increase in April.
While some investors are hoping that inflation may have peaked, the recent rise in oil prices to 13-week highs has dampened that optimism and boosted the appeal of the safe-haven dollar.
The Fed is due to release its latest policy statement next Wednesday, and CME's FedWatch tool showed the market fully priced in a rate hike of at least 50 basis points.
U.S. Treasury yields climbed Thursday, holding above 3 percent, increasing the opportunity cost of holding non-yielding gold, while a firmer dollar made gold less attractive to overseas buyers.
[The Governor of the Bank of Canada said that inflation will determine the speed and scale of interest rate hikes, and the magnitude may be greater than 50 basis points]
Bank of Canada Governor Macklem said on Thursday that inflation will determine how quickly rates rise, reiterating that the bank may need to raise rates multiple times in a row or consider moves greater than 50 basis points.
Answering questions after the release of the annual financial system review, Macklem made it clear that getting inflation back to its 2 percent target is the central bank's top priority, even as it wants to avoid cooling the economy too much.
The bank last week raised its benchmark interest rate to 1.5% from 1.0% and said it was ready to take "more forceful" action if needed to curb inflation, which is currently at a 31-year high.
"What we want to say is that we may need to do more ... to get inflation back on target, or we need to move faster, or we need to do more," Macklem said. "The most important factor is really is the prospect of inflation."
Macklem also said the bank needs to bring domestic demand more in line with supply without overly cooling the economy. "We don't want to stifle demand. We want to get rid of excess demand, excess parts".
Bullish fundamentals
[Street fighting in North Donetsk is fierce, Ukraine claims progress in the south]
Ukraine's Luhansk region's governor said on Thursday that Ukrainian troops held their ground amid fierce street battles in the eastern city of Severo-Donetsk while Russians "died like flies" but faced a "catastrophic" lack of artillery fire. question.
The battle in the ruins of Severo Donetsk has become one of the bloodiest scenes of the war, as Russian troops have increasingly concentrated there. Both sides claimed to have inflicted heavy casualties on the other.
"They (Russians) are dying like flies...Fighting in Severo Donetsk continues," Serhiy Gaidai, governor of Luhansk region, said in an online post.
Gaidai predicts that the Russians will try to take advantage of the lower water levels to cross the North Donets River. "We are watching and if there is any situation, we will be proactive."
Oleksiy Danilov, secretary of Ukraine's Security Council, said in an interview on Thursday that the Russian army was concentrating all its forces in the region.
Petro Kunsyk, commander of the Svoboda National Guard Battalion in Ukraine, provided a rare update on the situation in Severo Donetsk, saying that the Ukrainians were introducing Russian troops into street fighting to offset Russia's artillery advantage.
But he added that his troops had a "catastrophic" lack of counter artillery fire to hit back at Russia, and that having such weapons would be a game-changer.
In the self-declared Donetsk People's Republic (DPR) in eastern Ukraine, a court has sentenced two Britons and a Moroccan captured fighting for Ukraine to death, according to Russian news agencies. Britain slammed the court's decision as a "sham judgment" without legality.
Ukraine's defense ministry said Ukrainian forces had seized new positions in a counterattack in the southern state of Kherson, aiming to retake the largest swathe of territory since the Russian invasion.
Ukraine is one of the world's largest exporters of grain and edible oils, and in recent weeks there has been serious international concern over the threat of a global famine, thought to be caused by Russia's blockade of Ukraine's Black Sea ports.
"Millions of people could go hungry if Russia's blockade of the Black Sea continues," Ukrainian President Volodymyr Zelensky said in a televised address on Thursday.
Moscow has blamed Western sanctions for the food crisis, saying it is willing to keep Ukrainian ports open to resume exports if Ukraine removes mines and other conditions are met. But Kyiv called the proposal an empty promise.
Russia has also been trying to sell grain from areas it controls in Ukraine, in what Kyiv and the West call looting. Asked if there was an agreement to sell southern Ukraine's grain to Turkey or a Middle Eastern country, Kremlin spokesman Dmitry Peskov said, "So far, no agreement has been reached and work continues."
[Yellen said the U.S. economy is unlikely to decline, but it will definitely slow, and gasoline prices won't fall back anytime soon]
U.S. Treasury Secretary Janet Yellen said on Thursday she did not see a recession in the U.S. economy, but growth would "absolutely" slow and gasoline prices were unlikely to fall back anytime soon.
"I don't think there's a recession (there will be)," she said at an event organized by The New York Times. "Consumer spending is very strong. Investment spending is strong. I know people are very upset about inflation, which makes sense, but there is no sign of that. ..a recession is brewing."
Yellen admitted last week that her prediction that inflation was temporary was wrong, saying at the event that she would not change U.S. policy decisions if she could go back in time.
"I'm not going to change course," Yellen said. "President Biden's signature $1.9 trillion U.S. rescue package was necessary to prevent a generation of Americans from suffering from high unemployment. The unexpected happens all the time. ... the world has a high level of uncertainty."
Yellen said fighting inflation is a top priority for President Biden, adding that she doesn't expect gasoline prices, which have just hit $5 a gallon, to fall back anytime soon.
U.S. households are clearly concerned about soaring oil prices, which play a key role in influencing consumer expectations, but given the U.S. labor market is now the strongest since World War II, the level of pessimism about the economy is "surprising," she said. ".
Yellen said Biden had done "what he could" to address high gasoline prices by directing a significant release of the Strategic Petroleum Reserve. She added that U.S. officials would also continue to tighten sanctions aimed at punishing Russia and halting its war in Ukraine.
As the Fed tightens monetary policy to rein in demand and reduce inflation, Yellen said she sees a path to a soft landing that would avoid a recession.
[IMF is expected to further downgrade its global growth forecast for this year]
The International Monetary Fund (IMF) spokesman said on Thursday that it is expected to further cut its 2022 global growth forecast next month, while the World Bank and the Organization for Economic Cooperation and Development (OECD) have already downgraded their respective forecasts this week.
This will be the third time the IMF has downgraded its forecast this year. In April, the IMF cut its global growth forecast for 2022 and 2023 by almost a full percentage point to 3.6 percent.
IMF spokesman Gerry Rice said at a regular IMF briefing that the overall forecast remains that the global economy will grow, but at a slower pace, although some countries may face a recession.
"Obviously, something has happened that could lead us to lower our forecast further," Rice told reporters. "A lot has happened since we last issued our forecast, and it's happening very quickly."
The IMF will release its latest World Economic Outlook report in mid-July.
The World Bank on Tuesday cut its 2022 global growth forecast by 1.2 percentage points to 2.9 percent and warned that Russia's invasion of Ukraine has exacerbated the damage caused by the new crown epidemic, and many countries may face a recession.
The OECD on Wednesday downgraded its growth forecast and raised its inflation forecast, saying that while the global economy should avoid stagflation like the 1970s, the war in Ukraine has dimmed growth prospects far.
Rice said the downward revision was due to the ongoing war in Ukraine, volatile commodity prices, very high food and energy prices, a sharper-than-expected slowdown in Asia and higher interest rates in some advanced economies. "We're seeing crises come together...all of these things are moving in the same direction, and that is downside risks could materialize."
[The three major U.S. stock indexes all have their biggest declines since mid-May]
U.S. stocks ended sharply lower on Thursday as investor anxiety grew ahead of Friday's consumer price data, which is expected to show inflation remained elevated in May.
Selling intensified near the close. Growth giants led losses, with Apple and Amazon down 3.6% and 4.2%, respectively, the biggest drag on the S&P 500 and Nasdaq. All 11 S&P 500 sectors ended lower, with communications services and technology stocks falling the most.
The 10-year U.S. Treasury yield hit 3.073 percent, its highest since May 11, adding to nervousness. The recent surge in oil prices also weighed on sentiment ahead of Friday's U.S. consumer price index (CPI) report.
"We're preparing for the news that may come out tomorrow on inflation," said Peter Tuz, president of Chase Investment Counsel. "I think the data will be mixed. If headline inflation is high, but core inflation is showing some decline, I actually think the market could bounce back from that because the data will show that inflation is pulling back slightly."
Data is expected to show that the CPI rose 0.7% in May, while the core CPI, which excludes volatile food and energy, rose 0.5%.
As of Thursday's close, the Dow Jones Industrial Average fell 638.11 points, or 1.94%, to 32,272.79; the S&P 500 fell 97.95 points, or 2.38%, to 4,017.82; the Nasdaq lost 332.05 points, or 2.75%, to 11754.23 points.
All three major indexes posted their biggest one-day percentage losses since mid-May. The S&P 500 is down 15.7% so far this year, while the Nasdaq is down about 25%.
On the whole, concerns about the geopolitical situation, high inflation and economic recession still provide safe-haven support for gold prices, but the Fed's aggressive interest rate hike is expected to rise, the US dollar and US bond yields continue to rise, and most global central banks such as the European Central Bank and the Bank of Canada. Bias to take measures to raise interest rates, are not good for gold prices, short-term gold prices are slightly inclined to shock down.
At GMT+8 10:06, spot gold is now at $1,845.89 per ounce.
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