Asian equities followed Wall Street’s late rebound higher, and in Tokyo, Nikkei 225 index lost 0.4%, Hang Seng Index, rose 0.10 percent, while the Shanghai Composite index was up 0.35%. The S&P/ASX 200 Index rose 103.4 points or 1.9% to 5596.3 points, its best performance since November 2016. In U.S markets the Standard & Poor’s 500 rose 0.9% to 2,488.83 after being down 2.8% at midday. The Dow Jones Industrial Average gained 1.1% to 23,138.82. The Nasdaq composite added 0.4% to 6,579.49. The CBOE Volatility Index (VIX) was up by 0.2% to near 30 points. The Euro rose from lows near US$1.1367 to highs near US$1.1453 and was near US$1.1440 in late U.S trade. The AUDUSD fell from highs near US70.77 cents to lows near US70.14 cents and was near US 70.32 cents. The Japanese yen strengthened from 111.21 yen per US dollar to JPY110.45, but was near JPY111.02 in late US trade.
Gold futures price rose by US$8.10 an ounce or 0.6% to $1,281.10 an ounce. The spot gold price was trading near US$1,275 an ounce in late US trade. Iron ore rose by US55 cents or 0.8% to US$72.40 a tonne.
On the Lookout: In the US, pending home sales, Chicago purchasing managers’ index, advance goods trade balance, and wholesale inventories are all due to be released. Han de Jong, chief economist at ABN AMRO, points out that globally, financial conditions have tightened in many countries in 2018 with higher US interest rates, a stronger dollar, the shortening of the balance sheet of the US Federal Reserve and weak stock markets (outside the US) contributing to this tightening.
“Emerging economies are particularly vulnerable to this phenomenon, and in a range of emerging economies, monetary policy has been tightened. Some of them have, in addition, had their own homegrown problems related to a lack of macroeconomic stability.”
“But a key issue for the world economy and for financial markets has been the continued tightening of US monetary policy. While this may be the slowest pace at which the Fed has ever conducted a tightening cycle, they have actually accelerated the pace this year. That is fair enough. The Federal Reserve sets policy for the US economy.”
“The problem lies in the fact that US interest rates are important to the rest of the world and to global financial markets. Arguably, higher (US) interest rates are not particularly suitable at this point in time for other economies or financial markets. Fed policy may be appropriate for the US, but it is not for the rest of the world.”
Trading Perspective: Gold inched higher through the early European session on Friday and is currently placed at over six-month tops, just above $1280 level. The $1283 level could get extended towards $1290 horizontal resistance before the metal eventually darts towards reclaiming the $1300 round figure. On the flip side, any meaningful retracement now seems to find immediate support near the $1270-68 region, below which the commodity could fall further towards $1260 horizontal support.
EURUSD still drives higher as the short term bulls are in control. The pair is heading to key resistance in 1.1480 to meet the 100-day moving average. I don’t expect any major move above that level soon as supply will prevail. On the flipside, the 1.1400 handle is the first support.
GBPUSD failed to follow euro higher and stalled one more time at the 100-hour Moving average. The short-term technical picture is still negative and the pair needs a move above 1.27 to regain some bids.