13th September 2019 - The consuming spending in US drove UST yields higher and gold lower

Walid Salah Eldin

Active member
UST yields recovery is still weighing down on gold which is trading barely close to $1500 per ounce, while UST 10 year yield is now close to 1.85%, after falling earlier in the beginning of this month to 1.444%, JGB 10 year yield also recovered to -0.15% after reaching -0.28% close to its scored all times low which recorded in 2016 at -0.285%, The German 10 year Bund yield is now close to -0.45% rising from its scored all time low at -0.741% and UK 10 year Gilt is now looking to have a place back above 0.75% after diving to 0.346% in the beginning week of this month.

Despite the Trade War negative influences, These sovereign bonds yields recovery could gather momentum by the end of this week on higher trust in the consuming spending in US, after the release of August US retail sales showed monthly rising by 0.4%, while the median forecast was referring to increasing by only 0.2% following soaring in July by 0.8% and also The preliminary release of September Michigan Consumer Sentiment Index came also today show rising to 92, while the consensus was pointing to improving to 90.9 from 89.9 in August to lower the worries about the consuming spending strength in US.

The risk appetite could be also boosted by the end of this week by news about partial agreement between US and china to remove some of the earlier exchanged imposed levies between the two biggest economies.

After China had shown commitment to curb theft of Intellectual Property to refresh the trade Talks with Trump who decided to postpone tariffs hike on Chinese goods were scheduled to be imposed in beginning of October to the middle of it in an action considered a first step from his side to cool down the trade war worries ahead of the presidential election in 2020.

UST yields recovery could help the greenback to curb for a while its slide across the broad, following these robust consuming data which dampened the hopes for having aggressive interest rate cutting next week, when the FOMC members are to conduct their next meeting which is well expected now to end to another 0.25% Fed fund rate cut to have the first back to back cut since 2008 to boost the economy and elevate the inflation rate.

The Federal Reserve Chairman Jerome Powell assured last month in Jackson hole on the global economic slowdown because of the Trade war and the need to support the economy earlier by easier monetary policies.

EURUSD is now trading near 1.1070, after it could extend its recovery to 1.1109 earlier this morning, while the markets are waiting now to see fiscal easing actions to come from the EU members to boost the economy and underpin the inflation forces.

After The ECB president Mario Draghi's assurance on the EU need to fiscal stimulation to support the economy, praising what the ECB has already done of measurements to stimulate the economy and elevate the inflation levels.

His comment came yesterday, after the ECB decided to take further easing measurements by lowering the deposit rate by another 0.1% to -0.5% and restarting another QE plan next November buying initially €20 billion of APP per month with no reference to timeline paving the way for further steps to be taken to stimulate the economy under the presidency of Christine Lagarde.

The Germane Finance Minister Olaf Scholz has already referred recently to that need to support the economy fiscally but without breaching national spending rule.

But could other countries like Italy stand silent without reflation to support their struggling economies?

I think that Italy is in real serious need for fiscal stimulation after living for years in persisting unstable political stance mainly because of EU imposed fiscal austerities on it to fix its financial situation and tighten its deficit.

Italy could not get the best use of the global economic recovery, following the credit crisis because of these measurements and also ECB could not join the recent Fed's tightening cycle which has already ended because of the debt crisis it faced to force it to live in austerities measurements, while US could avoid fiscal cliff and it is now living in new round of reflation valued $1.5tr, after the beginning of 2018.

So, Draghi was really right in calling for fiscal policy to help at these current exceptional low reached levels of interest rate, after starting new round of QE to finance the governments need of funding at unprecedented low cost levels.

GBPUSD could also resume its recovery making 1.25 insight joyfully by the PMs ability to make in just one week the prime minister Boris Johnson's hopes for Brexit anyway so hard to be implemented limiting his efforts to just reaching a plan with EU to vote on by Oct. 31 otherwise he has to ask for postponing again.

Now, no serious need to parliament members to meet till the end of EU summit in Oct. 17, while UK is still very well-exposed to protestations in the street can turn to riots against the action of halting the parliament which considered by Scottish court against the low.

Boris Johnson could unite the opposition campaign against Brexit which can say now that EU respected the democracy of UK in June 2016 more than its PM is doing right now.

Johnson has dampened also The conservative party by eroding its majority and paving the way for new parliament elections to come eventually since taking this action which is now considered unaccepted unconstitutional conspiracy in this very critical period of time like The Speaker of the House of Commons, John Bercow who pledged to do anything to stop that crushing UK out of EU without a deal and also to quit by the end of next month.

From my perspective, it seems impossible now to watch The Brexit Advocate Boris Johnson having EU position shift on The Irish boarder backstops and he surely knows that too and that's why he was looking for a solution more inside of UK than outside of it.

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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