Weekly outlook: Powell and non-farm data “bombing ground”! Is gold really aiming for $3,000?

This week, US data continued to decline. The inflation index favored by the Federal Reserve continued to pressure the Fed to cut interest rates by 50 basis points in November. Market participants are paying more and more attention to this rate cut. Now they believe that the possibility that the Fed will cut interest rates by 50 basis points in November is over 50%.

In addition, China has also released a stimulus plan to help emerging market stock indexes record their best weekly gains in four years. From South Africa to India, emerging markets and emerging market currencies performed well, and the Shanghai Composite Index recorded its biggest weekly gain since 2008.

Recent comments by Federal Reserve policymakers are dovish, which has encouraged market participants. Weak data from the US and uncertain geopolitical risks and tensions also play a key role in current market dynamics.

The precious metals market continues to rise, which is not surprising. Gold continues to reach record highs, and silver has also reached new highs in nearly 12 years. Although OPEC+ updated its long-term outlook, oil prices are struggling to keep up with the gains they had at the beginning of the week. The organization said it is expected that the peak in oil demand will not occur until 2050 due to demand from emerging markets.

In the foreign exchange market, the US dollar hit its lowest point so far this year on Friday, and has been struggling for most of this week. Currently, the market is more dovish than the European Central Bank and the Bank of England, which has helped the euro and pound rise significantly against the US dollar.

Next week, Eurozone inflation data and the US non-farm payrolls report will be released one after another. These two major events may become the key to shaping the policies of the respective central banks. Market participants have fully anticipated that the ECB will cut interest rates in October and the possibility that the Federal Reserve will cut interest rates by 50 basis points in November still have a slight advantage. Will these two reports actually make the market as desired?

Here are the key points the market will focus on in the new week (all Beijing time):

Bank dynamics: Powell will once again “blow up the field”! Can the market win this time?

Federal Reserve:

At 01:00 on Tuesday, Federal Reserve Chairman Powell delivered a speech at the National Association for Commercial Economics

On Tuesday at 23:00, the 2024 FOMC Voting Committee, Atlanta Federal Reserve Chairman Bostic, and Federal Reserve Governor Lisa Cook co-chaired the meeting

On Wednesday at 06:15, 2024 FOMC voting committee Bostic, Barkin, and 2025 FOMC voting committee Collins participated in a group event

At 21:00 on Wednesday, 2024 FOMC voting committee and Cleveland Federal Reserve Chairman Hamak delivered a speech

On Wednesday at 22:05, the 2025 FOMC voting committee and St. Louis Federal Reserve Chairman Mussalem delivered the opening speech at an event

At 23:00 on Wednesday, Federal Reserve Governor Bowman delivered a speech

At 22:40 on Thursday, Minneapolis Federal Reserve Chairman Kashkari and Atlanta Federal Reserve Chairman Bostic had a fireside conversation on the inclusive economy

At 21:00 on Friday, FOMC Permanent Voting Committee and New York Federal Reserve Chairman Williams delivered the opening address at a meeting held by the New York Federal Reserve

According to data released on Friday, the PCE price index, the most popular inflation data of the Federal Reserve, rose 2.2% year on year in August, which is in line with expectations expressed by Federal Reserve Chairman Powell at a press conference after cutting interest rates by 50 basis points last week. The beginning of this sharp interest rate cut is expected to be the beginning of a further reduction in policy interest rates in the future, with the aim of boosting the slowing but still strong labor market seen by the Fed's policymakers.

Although the Federal Reserve suggests that it will cut another 50 basis points for the rest of the year, market participants' expectations are more aggressive. They expect to cut 75 basis points each time in November and December. Federal funds futures data shows that it is more than 50% likely that the Fed will continue to cut 50 basis points at the November interest rate meeting.

“If the Federal Reserve wants to cut interest rates by another 50 basis points in November, inflation data will not be an obstacle,” Omair Sharif of Inflation Insights wrote after the report was released. “In fact, the faster inflation cools, the more motivated they are to move towards neutral interest rates faster.”

Either way, traders are betting that the policy interest rate (currently in the 4.75%-5.00% range) will drop 75 basis points by the end of the year and fall to the 3.00%-3.25% range by mid-2025. This is slightly higher than what most Federal Reserve policymakers think is a neutral interest rate, that is, the level of borrowing costs neither stimulates nor inhibits a healthy economy.

However, given that Federal Reserve Governor Waller and Minneapolis Federal Reserve Chairman Kashkari have clearly indicated that they prefer to slow down the pace of interest rate cuts in the future, current market pricing suggests that if more officials hold similar “hawkish” views, or if the latest data confirms this, there may be a risk of market pricing revisions.

Next week, investors will have a chance to hear statements from many members of the Federal Reserve, including Powell's continued “bombardment” on Tuesday, but considering that the bitmap already indicates the future direction of the Fed's actions quite clearly, the latest data may be more interesting, especially Friday's non-farm payrolls data.

Important data: Non-agricultural data hits hard, is the current round of gold's pullback just for a better rise?

Monday 09:30, China's official manufacturing PMI for September

At 09:45 on Monday, China's September Caixin manufacturing and service sector PMI

At 14:00 on Monday, the final value of the UK GDP annual rate for the second quarter, the monthly rate of the Nationwide housing price index in September, and the current account for the second quarter

Monday at 20:00, German CPI data for September

Monday at 9:45, US Chicago PMI for September

At 22:30 on Monday, the US Dallas Fed Business Activity Index for September

Tuesday 07:30 Japan's unemployment rate for August

Tuesday 15:50-16:30, France/Germany/Eurozone final manufacturing PMI for September; UK manufacturing PMI for September

Tuesday 17:00, Eurozone CPI data for September

At 9:45 on Tuesday, the final value of the US S&P global manufacturing PMI for September

22:00 on Tuesday, US ISM manufacturing PMI for September, JoLTS job vacancies in August, monthly construction expenditure rate for August

Wednesday at 17:00, Eurozone unemployment rate for August

Wednesday at 20:15, the number of ADP employees in the US in September

Wednesday 22:30 US EIA crude oil inventory for the week from September 27th

Thursday 15:50-16:30, France/Germany/Eurozone final service PMI for September; UK service sector PMI for September

Thursday 17:00, Eurozone August PPI data

At 19:30 on Thursday, the number of US challenger companies laid off employees in September

Number of jobless claims in the US at 20:30 on Thursday until the beginning of the week of September 28

At 9:45 on Thursday, the final value of the US S&P Global Services PMI for September

Thursday 22:00, US ISM non-manufacturing PMI for September, monthly rate of factory orders in August

At 20:30 on Friday, the US unemployment rate in September and the number of non-farm payrolls after the September seasonal adjustment

Friday 22:00, US September Global Supply Chain Pressure Index

In terms of data, the focus is on the final GDP data for the second quarter to be released by the US on Thursday, but this data is unlikely to trigger a huge market reaction. Also, on Friday, the US will release PCE data for August, which is one of the Federal Reserve's preferred inflation indicators.

However, before the release of the non-agricultural data, the ISM manufacturing and non-manufacturing PMIs for September, which were released on Tuesday and Thursday, respectively, may receive close attention. The market may look for early signs of how the US economy performed in the third quarter. If these data are consistent with Powell's view of the good state of the economy after the decision last week, then the dollar may strengthen, as investors will reconsider whether it is necessary for the Federal Reserve to take another bold action.

However, in order for the dollar to maintain its gains, Friday's non-farm payrolls report may need to show improvement. According to current market forecasts, the US economy added 145,000 jobs in September, slightly higher than the 142,000 in August, and the unemployment rate remained at 4.2%. The average hourly wage is expected to slow slightly, from 0.4% to 0.3%.

Overall, the forecast does not point to a definitive report, but any unexpected news that is better than expected, combined with good ISM data and more hawkish remarks made by Federal Reserve policymakers, is likely to “add the icing on the cake” to the dollar's strong rebound. Even if strong data means that interest rate cuts will slow down in the future, Wall Street may welcome this, as more evidence that the US economy will not fall into recession is certainly good news.

Currently, Wall Street is divided over whether gold will rise or fall in the short term. Among them, Ole Hansen, head of commodity strategy at Saxo Bank, said, “I think the price of gold will fall because I think the gains are being exhausted. FOMO and surging traders are using derivatives to drive the gains. In the short term, until investors adapt to these new higher price levels, physical demand may dry up.”

Kevin Grady, president of Phoenix Futures and Options, said he was not concerned about Friday's gold price pullback.

“There has been a good wave of gains in gold prices,” he said. “I think you can see that both markets (stocks and precious metals) are rising. I think now is the right environment to do that. I think the pullback is normal, healthy, and it can't last all the time. I think the interest rate situation will continue to be favorable to metals and stocks.”

Grady pointed out that although market expectations seem to be shifting, he believes the Federal Reserve will not cut interest rates by another 50 basis points at the next meeting. However, even if there is a correction, the current situation is generally very favorable to gold. He said:

“I think the psychological price of gold is $3,000, and apparently we've never reached this level. I know this sounds counterintuitive, but these sell-offs actually help the rebound because what they're doing is weeding out a lot of weak bulls that are just trying to push prices higher. Investors who really want to hold gold for a long time, that is, powerful investors, are buying and holding gold. They bought in a pullback.”

In the Eurozone, preliminary consumer price index (CPI) data for September to be released on Tuesday will be the focus of market attention. Although Lagarde and her colleagues did not explicitly suggest that interest rates will be cut in October, disappointing manufacturing PMI data encouraged market participants to increase their bets on ECB interest rate cuts. Specifically, the market anticipates that the possibility of cutting interest rates by 25 basis points at the October 17 meeting is currently about 75%.

Despite this, foreign media previously quoted several sources as reporting that the European Central Bank's internal decision on the October meeting is still pending. The report pointed out that dovish people will try to cut interest rates after the manufacturing PMI data is weak, but they may be resisted by hawks, who will insist on keeping interest rates unchanged. According to some sources, a compromise solution may be adopted, that is, keeping interest rates unchanged, but if the data does not improve, interest rates will be cut in December.

However, the market's baseline scenario is that the ECB will cut interest rates in October and December, and a series of CPI data pointing to a further slowdown in Eurozone inflation may reinforce this view.

IMPORTANT EVENT: Israel claims to have killed Hezbollah's leader! Can Iran still sit still?

Currently, Israel's attack on Hezbollah in Lebanon is intensifying. On the morning of the 28th local time, the Israel Defense Forces released news that Israeli fighter jets have launched multiple rounds of air raids on dozens of targets in Lebanon “within the past two hours.” The targets include Hezbollah's weapons depots and rocket launchers in the Bekaa Valley and southern Lebanon. Among them, the Israeli military claims that they killed Hezbollah leader Nasrallah in Lebanon in an air strike. If this news is confirmed, it would be a major blow to Hezbollah and Iran.

Hezbollah in Lebanon has yet to respond to this. On the evening of September 27, local time, a violent explosion occurred in the southern suburbs of the Lebanese capital Beirut. On the same day, Israeli and American media quoted Israeli sources as reporting that Lebanese Hezbollah leader Nasrallah himself was the target of this attack. Sources close to Hezbollah in Lebanon say they have “lost contact” with Hezbollah and Nasrallah since Friday night.

Following this attack, Iran faced a serious dilemma. Israel has now “beheaded” several leaders of military organizations supported by Iran. Iran said the latest attack against Hezbollah would not go unanswered, but it did not say whether it would aid its allies by attacking Israel. Iran directly attacked Israel in April, launching hundreds of ballistic missiles and drones, almost all of which were intercepted. This probably indicates that Iran's ability to strike key targets within Israel has been limited.

Iranian President Pezzahizyan also attended the UN General Assembly this week. Although he criticized Israel, he also expressed his desire to improve relations with the West and push the West to ease economic sanctions against his country.

Market closure schedule:

On Monday (September 30), due to the National Day, domestic futures exchanges will not conduct night trading;

On Tuesday, due to the National Day, the Shanghai, Shenzhen, Beijing Stock Exchange, and domestic futures exchanges will be closed until October 8. The Hong Kong Stock Exchange will be closed for one day, and the market will open normally on Wednesday; at the same time, the Korean stock market and foreign exchange market will be closed for one day due to a one-time holiday;

On Wednesday, South Korea's Seoul Stock Exchange was closed for one day due to National Foundation Day.