US inflation data shakes up the markets

Market report Michael Blumenroth – 17.11.2023

Weekly market report

Following an almost lethargic interval, the financial markets got down to business over the course of the week, triggered by the publication of October inflation data for the US. The rise in consumer prices turned out 0.1 percentage points weaker than expected by analysts on average compared to the same month last year, as did the core rate, which excludes energy and food prices.

Treasury yields fall

While many market players had apparently secretly expected stronger data, this development is by no means a huge deviation from the forecasts, but also matches the narrative of recent days, in supposing the Fed rate hike cycle to have reached its end. Immediately following the inflation data, the markets even priced in a 30 per cent probability for the first US interest rate cuts to happen as early as March 2024. As a result, yields on two and ten-year US Treasury bonds dropped by around 0.20 percentage points on Tuesday, which in turn put pressure on the US dollar. The euro appreciated against the greenback, almost to the 1.09 mark.

After a moderate countermovement on Wednesday, burgeoning economic concerns put renewed pressure on oil prices yesterday (Thursday). Lower oil prices could mean lower inflation rates in the medium term, which in turn caused government bond yields to fall again. The US dollar also weakened, while gold prices benefited.

Gold in US dollars steady

Last Friday morning, gold traded at 1,957 US$ per ounce. After a setback to 1,931 on Monday, a strong tailwind was provided by the above-mentioned US inflation data. On Tuesday, prices rose to 1,970 and yesterday (Thursday) to 1,988. At the end of the trading day yesterday, gold was trading at 1,981 US$ per ounce.

Strong euro slows down Xetra-Gold

Xetra-Gold was held back by the robust rise of the euro against the US dollar. Still trading at 59.00 € per gram last Friday, the stronger euro following US inflation data caused the Xetra-Gold price to hit a weekly low of 58.00 before recovering yesterday to end the day at 58.80.

Continued pressure on yields could benefit gold prices in the coming days. Further upside potential is likely in the medium term as soon as the Fed’s monetary policy turns less restrictive.

Despite the gloomy November weather, I wish all readers a relaxing weekend.

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