Market recap: Week of 4–8 Dec 2023

Gold surge

Kitco and Yahoo Finance: Gold hits a new all-time high at $2,148.99. Wall Street anticipates interest rate cuts by May, potentially in March. However, this contradicts recent statements from most Federal Reserve officials. Fed Chair Jerome Powell mentioned last Friday that they are ready to tighten policy further if necessary. According to Gareth Soloway, Chief Market Strategist at InTheMoneyStocks.com, the surge results from a potent mix of rate cut expectations and technical levels. 

Canada economy

BNN Bloomberg and CBC: Canada's economy contracted by 0.3% in Q3, with stagnant household spending and a decline in exports. Doug Porter from the Bank of Montreal notes the numbers depict a non-expanding economy. Economists anticipate the Bank of Canada to maintain interest rates in this week's key policy announcement.

Global banking

The Australian Financial Review & Zacks: The global banking sector faces challenges in 2024, as per Moody’s Investors Service. With a "negative" outlook, tighter monetary policies from central banks are linked to lower GDP growth.

This may lead to reduced liquidity, strained repayment capacity, and increased asset risks. Profitability gains could diminish due to higher funding costs, lower loan growth, and reserve build-ups.

Analysts project an average price target of $34.63 for Bank of America, reflecting an 11.85% increase from the last closing price of $30.96. Monitoring the evolving dynamics in the banking landscape. 

UK election

The Straits Times: Rishi Sunak's popularity dips below that of predecessor Truss among crucial British voters, according to recent polls. The Tories have seen a net loss of 520,000 votes since the Prime Minister's speech at the Conservative Party conference in early October.

This adds pressure on Sunak as he struggles to narrow the gap with Labour leader Keir Starmer, prompting frustration in Downing Street and among senior Cabinet ministers. 

With a UK election scheduled for January 2025, the direction of the pound in the upcoming year merits consideration.

US jobs

Wall Street Journal: This Friday brings the release of the US non-farm payroll, with market estimates projecting a 19,000 job increase, as per WSJ. Despite a robust labour market supporting this year's strong economy, signs of cooling suggest potential growth easing in 2024. 

Open job numbers have declined in insurance, real estate, and retail over the past year. Economists note a decreasing quitting rate, indicating worker uncertainty about the labour market. Hiring has eased in most sectors this year, except healthcare, government, leisure, and hospitality. 

Monetary policies

Kitco and Reuters: Gold's recent record high might face short-term challenges amid uncertainty over the timing of U.S. monetary easing. Potential easing in March could be premature, and analysts caution that the gold market might not accurately predict a shift in monetary policy. 

While fundamentals favour the bulls, daily chart technicals appear bearish. Geopolitical tensions and crucial US economic data, like the NFP report, may bring more volatility this week. Some analysts suggest negative momentum could pull prices toward the $2000 level in the near term. 

European inflation

Reuters and Forexlive: Deutsche Bank foresees ECB's 150 basis points cut, while Morgan Stanley advocates EUR/USD sell-off to parity in 2024.

Deutsche Bank economists, led by Mark Wall, anticipate a 150 basis points interest rate cut by the European Central Bank in 2024, exceeding their previous forecast by 50 bps. 

This adjustment is attributed to cooling inflation and a shift toward a less hawkish stance among central bank officials. Meanwhile, Morgan Stanley analysts recommend selling EUR/USD at the current 1.10 level, targeting parity (1.00) by the end of the first quarter in 2024, among their top trades for the year.

Economic slowdown

The Wall Street Journal and the Bank of Canada: The Bank of Canada maintained the overnight rate at 5% today, with officials omitting concerns about slow progress towards the 2% inflation target. 

Economic growth in Canada stalled in mid-2023, with a 1.1% contraction in Q3. 

The broader slowdown in the economy is alleviating inflationary pressures across various goods and services. Coupled with declining gasoline prices, this led to a CPI inflation easing to 3.1% in October.

Bank of Japan

Nikkei Asia: The Japanese yen gained over 5 yen against the dollar yesterday following comments by BOJ Governor Ueda suggesting a potential move away from negative interest rates.

With the final BOJ policy meeting of 2023 approaching on Dec 18 and Dec 19, analysts expect further clarity on the bank's intentions. 

US rate hikes

The Wall Street Journal and The Daily Hodl: After 11 rate hikes, Fed & banks face rising unrealised losses.

• Bank of America: $131B+ unrealised loss on debt securities
• JP Morgan: 40B+ unrealised loss on debt securities
• Fed: $1.3T unrealised loss on securities

This means the Fed can no longer support the U.S. budget with profits.