Currency securities: Inflation fears are boosting gold and US dollar

Want proof? Just look at the recent rise in gold and the US dollar.

What’s happening: Gold prices are back above $1,870 an ounce, a 5-month high. Meanwhile, the US dollar is the strongest dollar since July 2020.

“Inflation catalysts are clearly materializing and are unlikely to fade in the near term,” said commodity strategists at JPMorgan.

Tyson Chief Financial Officer Stewart Glendinning told analysts on Monday: “We expect to continue to take pricing actions to ensure that any increase in inflation the business does our suffering will be resolved”.

Break it: Gold is a favorite hedge for investors looking to hedge against the long-term effects of inflation. It’s a tangible asset with a limited supply, making it less susceptible to erosion in value for money due to rising prices.

The inflation outlook is also pushing money managers towards the US dollar. Bets are growing that the Federal Reserve may need to raise interest rates next year to keep prices down. That could boost returns on assets like US government bonds, which investors will need more dollars to get back in.

What else? DataTrek Research’s Nicholas Colas pointed out in a research note Tuesday that the dollar’s rally is also “a signal that markets are more confident in future U.S. economic growth than they are in the future.” with other economies.”

Coronavirus cases are skyrocketing again in Europe, forcing countries including Germany to consider implementing new restrictive measures.

Step back: Wall Street has been rattled by rising inflation but not scared. Just look at CNN Business Fear & Greed Index, our main gauge of market sentiment. It remains firmly in “extreme greed” territory.

A majority of respondents to Bank of America’s survey of global fund managers released on Tuesday acknowledged inflation as a risk. But only 35% thought it was a permanent phenomenon, while 61% believed it was a temporary phenomenon. Cash levels are falling slightly, indicating that the uptrend is growing.

However, the increase in inflation risk shows a level of caution at a time with a lot of unknowns.

Business groups want US tariffs on China to go away

Business leaders are putting pressure on the Biden administration to consider eliminating tariffs to China to help ease rising inflation.
But high stakes negotiations between President Joe Biden and Chinese President Xi Jinping on Monday produced no breakthrough on trade – dashing hopes of affected companies seeking relief.

Breaking News: Genial greetings turned more serious as Biden raised concerns about human rights, China’s aggression towards Taiwan and trade issues. According to a senior administration official present at the discussions, the leaders engaged in a “healthy debate”.

The meeting may have eased tensions between the world’s two largest economies. As expected, however, no major policy outcomes were announced.

In a letter to the Biden administration sent ahead of the summit, trade groups including the American Business and Trade Roundtable warned that tariffs on China were hurting companies. American companies and families by increasing costs. They called on the government to reconsider.

Treasury Secretary Janet Yellen said Sunday on CBS’s “Face the Nation” that such a move is “under consideration”.

But it may not happen. While the Biden administration recently reached an agreement with the European Union to ease Trump-era sanctions on aluminum and steel, it continue to criticize China’s trade practices and subsidies for domestic enterprises.

The United States has backed the “Phase 1” trade deal that former President Donald Trump signed with China in January 2020. In a speech last month, US Trade Representative Katherine Tai said that China States are responsible for the promises made in that agreement. Beijing has yet to fulfill all of its commitments, she said.

Mr. Tai also pointed out that the US can push China further.

“We continue to have serious concerns about China’s state-centered and non-market commercial practices that were not addressed in the Phase One deal,” Tai said. “As we work to enforce the provisions of Phase One, we will raise concerns about this broader policy with Beijing.”

A major central bank may be willing to raise interest rates

The Bank of England surprised markets earlier this month by voting to keep interest rates at record lows.

Remember: The central bank is said to be the first to start raising interest rates to combat inflation. The Bank of England has opted not to resume operations instead as it awaits more data on the jobs market, concerned that unemployment could rise as the UK government’s support for workers employment expires.

Now, the numbers are in – and that fear doesn’t seem to come true.

The UK’s unemployment rate fell to 4.3% in September even as the country’s growth program ended, the Office for National Statistics said.

That could pave the way for the Bank of England to act in December. Societe Generale strategist Kit Juckes said the jobs data appeared to be “the missing link” needed to convince central banks. take action.

“There could still be more layoffs,” he told clients. “But when [the Bank of England] Considering the risks to the job market against an uptrend in inflation, the latter will definitely win. “

However, others argue that the waiting game could be a bit longer. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said it was not yet a finished deal, pointing to uncertainty over whether workers who had returned to their jobs were work full time or just part time.


Dolby Labs reports earnings after US markets close.

Also today:

  • US retail sales for October post at 8:30 a.m. ET.
  • Industrial production data follows at 9:15 a.m. ET.
Until tomorrow: Income from Target (TGT), Lowe’s (SHORT) and Nvidia (NVDA).


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