November vaccine news waves after waves of good news, gold and silver were “blood-washed”, while U.S. stocks are up like a rainbow. Although Biden’s boots are basically on the ground and the dust has settled on a candidate for treasury secretary, the election drama is still on, what are the other key nodes to focus on in December? Can the gold price turn around against the wind? Let’s take a look ahead.
With non-farm payrolls on the horizon, how did the initial data get blown out of proportion?
The first major event ushered in at the beginning of December is the size of the non-farm payrolls to be announced this week. Since June’s 4.8 million increase in U.S. nonfarm payrolls, the number has been hitting the “slow play” button, increasing by only 638,000 in October, and the market is widely expecting another drop in job creation in November, adding only 500,000.
Several factors that have been slowing the U.S. economy are now beginning to show up in the jobs data. Initial jobless claims are rising, the benefits of the census effort to expand hiring have evaporated, and thousands of Americans who lost their jobs during the spring sequester will gradually become ineligible for unemployment benefits.
Also alarming is the fact that a government oversight report released Monday by the U.S. Government Accountability Office (GAO) found that 12 million unemployed people may be owed money and are not claiming the full amount of unemployment benefits to which they are entitled.
In addition, according to the GAO, the Department of Labor’s weekly unemployment claims reports are distorted. This is due to the largest number of unemployment claims in history during the epidemic, which has overwhelmed many state agencies and caused a backlog of backlogged data.
GAO said most states have been paying claimants minimum unemployment benefits instead of the scheduled pro-rata payments based on their prior earnings. The data distortions have also been a setback to the development of new rounds of assistance programs and have even resulted in assistance programs that are too small to meet the needs of large numbers of people with real needs.
Therefore, GAO recommended that the Department of Labor revise its weekly reports to clarify the inaccuracies in the numbers it reports and provide solutions to correct the data. The DOL agreed with both recommendations, but did not support correcting the inaccurate prior values. John Moncrief, an analyst at gold analysis site GOLDPRICE, believes that poor employment data does not mean that gold prices will take off immediately, but at least investors will price in the health of the U.S. economy, and there is room for recovery in gold prices.
The last interest rate decision at the end of the year, the Fed’s bond-buying pace of where to go?
The general market consensus is that the Fed will keep interest rates low at the December 16 rate decision, local time, and will not raise rates until 2023. As for the asset purchase program, most of the Fed’s current purchases are concentrated in short-term bonds, an action that could lead to a steepening yield curve if the economy strengthens.
But the Fed will not let yields get too high, and some market participants expect that this suggests that the Fed will soon begin to implement yield curve control, and that the FOMC will increase purchases of long-term Treasuries and extend the weighted average duration of the Fed’s purchases of U.S. Treasuries.
The minutes of the monetary policy meeting released in late November indicated that Fed officials generally believed that the current pace and structure of easing was effective and that no immediate adjustments were necessary, but they recognized that circumstances could change at any time and, therefore, officials felt it was necessary to strengthen forward guidance at the next rate decision to ensure that the asset purchase program was appropriate.
In addition, if the Fed increases its purchases of longer-dated Treasuries, such as 10-year and 30-year notes, it could avoid rising interest rates on mortgages and other loans.
Gold at $1800 is critical as vaccine progress continues to come in.
Since November, news of positive vaccine developments has been frequent, market risk sentiment has rebounded, and gold and silver have plummeted. As December approaches, more news on vaccine developments will be released.
According to DailyForex analyst Christopher Lewis, the gold price will be volatile in December at least, with several different scenarios that must be monitored at the same time.
On the weekly chart, the gold price has repeatedly tested the $1,800 level, with the 50-day moving average just below it, while on the daily chart, the 200-day moving average is also near that point. It was the same scenario the last time the gold price surged all the way to its all-time peak in early August, which did increase confidence in the prospects of a rebound.
However, things are not that simple. Gold and the U.S. dollar have been falling together lately. People are starting to get hopeful that the epidemic will subside and are selling the dollar. Normally this would be good for gold, but risk sentiment across the market has suddenly risen, and so even gold has been sold off.
In the long term, the outlook for gold is bright, mainly because central banks are still pumping a lot of liquidity into the market. However, there are no signs of inflation yet, which is the biggest problem facing gold.
In December, $1,800 is the most critical turning point. If the gold price goes below this level, the gold market will continue to struggle. If it can break through $1800, then the market will start buying on dips. The first target on the upside would be $1,900, then $1,950. $2,000 is also a target, according to Christopher Lewis, but it won’t happen in December.
The best that gold bulls can hope for is that the price of gold stabilizes, and then possibly slowly moves higher.
ECB may raise QE as epidemic rages
Recently, the EU’s “big brother” Germany’s new coronary pneumonia cumulative diagnosed cases has more than 1 million cases, the German government decided to extend some of the blockade measures until December 20. According to the German “Der Spiegel” weekly, Germany’s new debt in 2020 will reach about 160 billion euros, while planning to add 179.8 billion euros of debt in 2021, an increase of 83.6 billion euros over the previous plan.
Against this backdrop, the minutes of the recent ECB meeting confirmed that the central bank is wary of a weakening economic outlook and the impact of a second embargo. In the discussion on policy instruments, the ECB emphasized the effectiveness of the PEPP and TLTRO (Targeted Long-Term Refinancing Operation).
In the view of ING, the ECB’s interest rate decision in December will focus on the TLTRO and PEPP, which is perhaps the best way to gain support from the ECB hawks, who do not want the anti-epidemic measures to become permanent.
ING believes that the ECB will extend the TLTRO, increase the PEPP by €500 billion and continue it until at least the end of 2021, while emphasizing the role of the asset purchase program in keeping inflation elevated.
There will always be a Brexit deal, and the UK economy will still be in recession
As we enter the first week of December, the EU negotiating team remains in London for more talks. According to Guardian columnist Polly Toynbee, the two sides could eventually reach a trade deal, whether the talks end this week or extend into next week or even the last day of the Brexit transition period.
Such an outcome may disappoint the Brexiteers, as any trade deal would undermine British sovereignty, but reaching an agreement would help avoid major trade disruptions next year. On the other hand, because the U.K. is more severely affected by the epidemic than most developed countries, the U.K.’s GDP is likely to fall below the level of remaining in the EU regardless of the outcome.
According to the U.K.’s Office for Budget Responsibility, a free trade agreement with the EU would result in a long-term GDP decline of 4% and an unemployment rate of 7.5%; without an agreement, the economy would decline by 5.5% and the unemployment rate would reach 8.3%.
It is worth mentioning that the Bank of England’s most recent interest rate meeting was very optimistic about Brexit. The minutes said that household spending and GDP are expected to pick up in the first quarter of 2021 as restrictions are eased. It seems that even the Bank of England is betting that the UK will reach a deal with Brexit.
Tesla’s “Big Guy” Enters S&P, Beware the Ripples
U.S. stocks had an amazing November, with the Dow up about 12% in November, the biggest monthly gain since 1987, the Nasdaq up the most since April, and the S&P 500 recording its best November performance ever. The S&P will include Tesla in the S&P 500 index with full market capitalization weighting before the market opens on December 21, and will announce on the same day which company Tesla will replace.
The move will send ripples throughout the U.S. stock market, as fund managers adjust their allocations and sell other stocks to buy shares of the $538 billion company. In addition, there are about $11 trillion in funds linked to the S&P 500 index, and trading is expected to be frequent in the coming weeks.
Steve Sosnick, chief strategist at PCG, said sarcastically.
“It’s like ripping a Band-Aid off a wound, and this largest-ever index increase will have a devastating impact.”
It’s also important to note that JPMorgan previously warned that, as an end-of-quarter month, a large number of derivatives will expire in December, and Tesla’s inclusion in the S&P 500 could amplify volatility even more.
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