Mohicans markets：Focus on Fed Decision This Week

At 22:00 today, the United States will announce the September NAHB real estate market index, which is currently expected to be recorded at 47, compared with the previous value of 49.

Closed reminder: The Japanese stock market and the British stock market are closed for one day.

Global Views - List of Major Markets

On Friday, spot gold rose by about $23 in the U.S. market in the short-term, recovering some of the previous losses and standing at the 1670 mark, and finally closed up 0.60% at $1675.09 per ounce; spot silver rose to around $19.50 and finally closed up 2.34 %, at $19.62 an ounce. The U.S. dollar index failed to challenge the 110 mark during the European session and fell back, and finally closed down 0.05% at 109.66；The 10-year U.S. Treasury yield fell slightly to 3.453%. The pound fell below the 1.14 mark during the session for the first time since 1985; the Australian dollar fell to its lowest level since 2020. In terms of crude oil, the trend of the two oils is still tangled. WTI crude oil finally closed up 0.19% at $85.28 per barrel; Brent crude oil finally closed up 0.96% at $91.53 per barrel. U.S. stocks Dow closed down 0.45%, S&P 500 closed down 0.72%, Nasdaq closed down 0.9%, Nasdaq China Golden Dragon Index closed down 4.22%, new energy auto stocks fell broadly, Xiaopeng Motors, Weilai, Ideal Autos fell more than 6%. European stocks closed down across the board, and the German DAX index closed down 1.66% at 12,741.26 points；The UK's FTSE 100 closed down 0.62% at 7236.68 points; the Euro Stoxx 50 closed down 1.17% at 3500.41 points.

Precious Metal

Spot gold weakened again after a week, and the decline accelerated, breaking through and hitting a new low of $1,654.06 per ounce since early April 2020. This is mainly due to the higher-than-expected inflation data in the United States in August, the prospect of aggressive interest rate hikes by the Federal Reserve has been strengthened again, and the dollar has strengthened again.

August inflation strengthens Fed hawkish confidence

The Fed has been concerned that high inflation not seen in nearly 40 years could change consumers' perceptions of the stickiness of current price shocks. And as they raise interest rates to reduce overall economic activity and demand, the labor market will weaken. That will make it harder for policymakers to fight inflation.

Fed to raise rates by at least 75 basis points this week

The CME Groups “FedWatch” toolshows that the Fed will definitely raise interest rates by at least 75 basis points at its policy meeting on September 20-21, and does not rule out the possibility of raising interest rates by 100 basis points.

Potential risks cannot be ignored

The impact of the Fed's sluggish response to high inflation and a surge in the dollar after it was forced to raise interest rates sharply is already starting to show. Many economists have begun to question whether the economy can survive this bout of inflation with a surge in unemployment, possibly as high as 7.5%.  In order to bring actual inflation in line with future expectations, the Fed has no choice, even if it suppresses economic growth, a process that will lead to more Americans losing their jobs. However, even if there is a risk aversion environment, raising interest rates will increase the holding cost of non-yielding asset gold, and the path of least resistance for gold prices is still down.

Crude Oil

In the early trading session on Monday, September 19, Beijing time, the U.S. oil traded near $85.91 per barrel; oil prices rose slightly on Friday after a spill at Iraqs Basra terminal appeared likely to limit crude supplies. However, oil prices are still down on a weekly basis due to concerns that sharp interest rate hikes will curb global economic growth and demand for fuel. This week the market will focus on the Federal Reserve resolution.

Bullish factors affecting oil prices

【Russian commerce and trade delegation arrives in Iran, and will start hundreds of trade negotiations】

【Zelensky believes it is too early to talk about the end of the war】

Bearish factors affecting oil prices

【The number of confirmed cases of monkeypox exceeds 60,000 worldwide】

【Kuwait Oil Company says it can increase oil production if requested by OPEC+】

【U.S. stocks hit two-month lows】

【One-Year Consumer Inflation Expectations Fall to Lowest in a Year in September at University of Michigan】

【The number of active oil and gas rigs rose last week】

【The probability of the Fed raising interest rates by 75 basis points in September is 82%】

【Goldman Sachs cuts U.S. GDP forecast】

On the whole, geopolitical tensions show no signs of easing, and the President of Ukraine believes that it is too early to talk about the end of the war, the geopolitical situation on oil prices will continue to support. Oil prices will focus on the Federal Reserve resolution this week, and affected by the strong dollar, oil prices may maintain oscillation bearish.

Foreign Exchange

In early trading on Monday, September 19, Beijing time, the dollar index edged lower and is currently trading around 109.51. The dollar index fell slightly on Friday, but still posted gains last week as investors expect the Fed to remain aggressive when it raises interest rates this week.

Major events to watch on Monday: the ECB Vice President Guindos speaks and the number of the ECB Governing Council Holtzmann speaks on the euro.

The dollar index reached a 20-year high of 110.79 earlier this month. Last week, the dollar index rose 0.6% before closing down 0.04% at 109.66 on Friday. so far this year, the dollar index has gained about 15%.

Investors expect the Fed to raise rates by 75 basis points at its Sept. 21 meeting, with a 100 basis point hike also possible.

Although the Fed will take center stage this week, the Bank of Japan and the Bank of England will also hold monetary policy meetings, which also needs to be on investors' radar.

The dollar closed down 0.34% against the yen at 142.96 on Friday. But the exchange rate rose 0.2% last week, which was the fifth consecutive week of gains.

Three sources familiar with the Bank of Japan's thinking said the central bank has no intention of raising interest rates or adjusting its dovish policy guidance to support the yen.

The pound fell to a 37-year low of 1.1349 against the dollar on Friday, before closing down 0.39% at 1.1422.

The euro closed up 0.15% against the dollar at 1.0012 on Friday, with expectations of a rate hike by the European Central Bank still supporting the euro.

Edward Moya, senior market analyst in New York, said: “Since the Fed is likely to raise rates by a big point on Wednesday, and Monday is a Japanese holiday ...... You need to have a little more patience when you see a decision on when to strike. Any intervention now could be overwhelmed by the Fed's decision.”

Institutional Currency Viewpoint

1. Mitsubishi UFJ is not bullish on USDJPY

2. Commonwealth Bank of Australia: the dollar will remain strong

3. Mitsubishi UFJ: three reasons to keep the dollar strong

4. Rabobank:  There is a lot of resistance in sterling and it maybe in a few weeks to refresh the year's lows

5. Rabobank: The Fed will not change its hawkish stance before 2024, and interest rates may peak at 5%

6. Capital Economics: As inflation remains high, the ECB will have to continue to raise interest rates sharply

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