US and European futures are trading lower as traders are concerned about the Fed being overly aggressive with their monetary policy. The reality is that traders do want the Fed to take its foot off the gas paddle and ease its hawkish monetary policy stance. The fear is that if the Fed doesn’t back off from its current monetary policy, it is bound to push the US economy into a deep recession. These are the very concerns among traders and investors in Europe last week.
Last week the Fed increased the interest rate by 50 basis points and showed no signs of easing its hawkish monetary policy stance. Since then, the case for the Santa rally has weakened. Now, traders know that it is very unlikely that anything else will change the sentiment as trading activity is likely to slow down as we move toward the end of the year.
Going forward, we are likely to hear from a number of Fed members which will give us some idea of how various Fed members are thinking about the Fed’s monetary policy. Most traders believe that the comments from the Fed members do not add anything but noise. Most of them are going to say their opinion of the market, and usually, there is a vast difference of opinion among them. What that does is makes traders more confused and brings unnecessary market volatility.
In terms of economic data, today we have the German IFO Business Climate data due at 09:00 AM GMT, and the forecast is for 87.6, while the previous reading was 86.3. Later in the week, we are going to see the US Consumer Confidence data, which is due on Wednesday at 3:00 PM, and the forecast is for 101. The US Core PCE Price Index m/m number will be released on Friday at 1:30 PM, and the forecast is for 0.2%.
Overall, trading is likely to remain on the quiet side. As we mentioned, a large number of traders are going to break for the Christmas holiday. The chances of a Santa rally taking place are minimal as the monthly losses are only piling up more. The Dow Jones Industrial Average dropped 281.76 points, or 0.85%, on Friday. The thirty-stock index saw a loss of 1.66% for the week, bringing the total loss for the month to 4.83%. The Standard & Poor’s 500 Index (S&P 500) had a decrease of 1.11% and a fall of 2.08% for the week, bringing its monthly falls to 5.58%. The Nasdaq Composite had a drop of 0.97% on Friday and a weekly loss of 2.72%. This month, it has decreased by 6.65%.
This week sees the continuation of the earnings season with results coming out of Nike and FedEx on Tuesday. On Monday, the results of a poll that is conducted monthly by the National Association of Home Builders is expected to be released.
Gold prices are mostly consolidating now as traders are unsure about the future direction of the dollar index. There is no doubt that the strength in the dollar index triggered some sell-off in the precious metal, but it seems that traders still want to support the price of the precious metal as it still continues to trade near the important resistance level of 1,800.
In order for the gold prices to move higher, what we need to see is less of a hawkish monetary policy stance from central banks. But listening to the commentaries of the Fed and the ECB, it is reasonable to say that both central banks do not want to give any false hope of a dovish monetary policy. At the same time, their excessive hawkish monetary policy stance is also making traders nervous about central banks making another critical mistake which is triggering a sell-off in the equity markets. T his is positive for gold as the precious metal does act as a safe haven asset.
In terms of the price level, it is more about the resistance of 1,800. As mentioned earlier, with momentum if the price breaks this level and stays above this price point, the odds are likely to become stronger for bulls taking further control of the price.
Crude oil prices recorded price recovery last week, and the price respected the recent low of 71.48. This indicates that bears are struggling to push the price of oil lower. There is no doubt that demand is being adversely influenced, and this is mainly because traders do not like the fact that central banks are dealing with their monetary policy. However, not everything is so negative as China has vowed to fight all pessimism about its economy, and it will do what it takes to boost economic growth.
Going forward, it seems more likely that we will see further support from the PBOC to support economic growth in China, and Beijing is likely to ease off all the policies around covid. So all of this should bring more price stability for oil prices. In addition to this, many traders believe that it is highly unlikely that OPEC will sit on its hand and let oil prices side: every action is likely to see a reaction, and this means an aggressive reaction in terms of oil supply reduction if demand continues to see slower growth.