Korean Jitters Keep Haven Assets Elevated

Daily Analysis - 16/04/2017

Gold Hits New Multi-Month High

geopolitics-and-gold


With the pressure on North Korea heightened amid increased posturing from both the US and China, precious metals continued their recent rally, with momentum pushing gold to new multi-month highs as the Yen carry-trade continued to unwind throughout the week.

Last Week


Geopolitical concerns continued to drive risk aversion and safe-haven flows last week, with gold prices reaching the highest point since before the November US elections as tensions on the Korean Peninsula continued to climb.  The dollar remained under pressure, finishing the week flat despite amped up rhetoric as comments President Trump flipped on interest rates while cementing earlier comments that the dollar was getting “too strong.”  US inflation however may contribute to weakened rate hike prospects after both the headline and core annualized consumer price growth slowed during March.  Chinese inflation also came in weaker than anticipated, coming in at 0.90% on an annualized basis after missing forecasts of 1.00%.

The trade balance managed to rebound however, widening to $23.92 billion amid a significant rebound in exports as the lunar new year holiday aberration gradually passes.  On the employment side, jobless rates in Australia and the United Kingdom remained on hold at 5.90% and 4.70% respectively, with UK CPI stable at 2.30% despite the gradual base effect of energy prices passing.  In other news, the Bank of Canada left interest rates on hold at 0.50% as the economy continues to experience uneven growth.  As a result, markets are now not anticipating any rate hikes before 2018.

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The Week Ahead


Although many global market centers will be closed on Monday for the Easter holiday, the week will kick off with fresh data from China.  GDP figures for the first quarter are expected to taper modestly from the fourth quarter, with forecasts for 1.60% expansion compared to 1.70% reported prior.  Apart from GDP, industrial production and retail figures will be reported, with the former expected to remain on hold at 6.30% while retail momentum picks up modestly to 9.60%.  Moving east, Japan is set to release figures for March trade, with the surplus projected to narrow modestly amid a pickup in imports as export growth decelerates.

The political outlook will continue to dominate European news flow with one week until French elections, keeping volatility high especially for equities.  Apart from election fervor, Euro Area inflation data for March will be unveiled Wednesday, with headline annualized consumer inflation forecast to retreat to 1.50% after coming in at 2.00% in February.  To cap off the week, US existing home sales are expected to bounce modestly after tumbling -3.70% to a 5.48 million annualized pace back in February.  Building permits due earlier in the week are forecast to rise while housing starts pullback further after peaking in October.

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