Recession is the biggest worry for many traders and investors as central banks around the globe have turned more hawkish concerning their monetary policies. As a result, European and US futures started the week on the back foot, and signs today point to a soft yet positive open.
The Fed Chairman, Jerome Powell, made it clear on Friday that the Fed means business in controlling inflation and is determined to keep the monetary policy on its hawkish path. This means that the Fed will not be slowing down the pace of an interest rate hike, and the possibility of lowering the interest rate when they reach their target is also slim. Powel’s language on Friday was aggressive and precise; the message was that make no mistake about the Fed’s monetary policy as it has become a one-way road for the time being.
Over the weekend, European Central Bank board member Isabel Schnabel agreed with Powell’s statements. Schnabel repeated the view that central banks need to take robust action to combat increasing inflation, even if it means pulling their economy into a recession due to their actions.
Energy prices are back in focus among investors and traders. Brent and crude oil prices had some tough times, but the game has changed this week as Crude and Brent oil prices recorded serious gains yesterday. These gains have pushed the prices out of their misery as Brent oil has started to trade above the $100 price mark, reviving hopes among oil bulls that there is still much more life left in this trade.
We are seeing oil prices moving higher once again because of geopolitical tension. The Russian invasion of Ukraine is still ongoing, and the situation has become more intense in the past few days. Additionally, traders are also factoring in a production cut by OPEC+.
Having said this, traders may want to take a cautious approach to oil prices as the coordinated hawkish action by central banks around the globe is threatening economic recovery, and the risk of a recession is ever increasing. With this threat, the path of the least resistance is skewed to the downside.
Gold prices are trading lower today as the dollar index continues to hover near its 20-year high, taking the shine away from gold prices. The story is very much about the Fed being hawkish, and there is a strong potential that the next move by the Fed will be another interest rate of 50 basis points.
Traders will listen to Fed member William’s speech today, and his hawkish comments will likely make the gold prices dull.
Another critical event likely to influence the price of gold and is slated for today is the US Consumer Confidence data which will be coming at 12:30 GMT. Most traders expect this number to show a disappointing number, which means that we may see some traders placing bets on the safe haven, which may push the price of gold higher.