The Gold
In recent days, gold initially experienced a sharp decline but then strengthened again as it approached the $2,604 level. This fluctuation was influenced by various global factors; on one hand, concerns about the Chinese economy put pressure on gold prices, as declining economic indicators and warnings from China’s National Development and Reform Commission about domestic and foreign challenges intensified worries. The nearly 7% drop in the Shanghai index and over 1% decline in the Hong Kong index also exacerbated this negative atmosphere. On the other hand, the U.S. dollar continued to strengthen under the Federal Reserve’s tightening approach.
In the upcoming week, gold investors will focus on economic data from China and the U.S. The report on China’s trade balance on Monday could impact market sentiment early in the week, as a decrease in the trade balance may heighten concerns about China’s economic situation and exert pressure on gold prices. Later in the week, U.S. retail data will be released on Thursday, which could influence the dollar. Following that, the report on China’s third-quarter GDP along with data on industrial production and retail sales on Friday will be very significant. A slowdown in China’s economic growth may apply more pressure on gold, while positive results could lead to a strengthening of this precious metal.
From a technical perspective, the first resistance level for gold is around $2,660, and if the price breaks through this resistance, it could push gold towards the $2,675 level and the $2,710-$2,700 range, which could serve as subsequent resistances. If gold prices fall below the $2,590-$2,600 range, new sellers may enter the market, with their next target possibly being the $2,535 to $2,545 range. On the other hand, geopolitical tensions continue regarding the potential for Israeli attacks on Iranian military targets, although concerns about attacks on oil infrastructure have eased with U.S. intervention. The deployment of U.S. military forces and advanced missile defense systems in Israel is aimed at calming the situation, while Washington urges Israel to avoid escalating the conflict.
The Euro
While the European Central Bank (ECB) did not support a rate cut in its last meeting, the significant decline in the Purchasing Managers’ Index (PMI) and inflation falling below 2% have shifted the outlook not only for policymakers but also for market participants. Investors are now almost fully anticipating a 0.25% rate cut at Thursday’s meeting, with expectations for another cut in December. We expect that a 0.25% cut alone will not have a significant impact on the euro, and market focus will quickly shift to Lagarde’s press conference.
- During this press conference, if the possibility of another cut in December is not dismissed, the euro is likely to continue its downward trend. However, the rate cut may not be as certain as the market expects. Additionally, remarks from ECB Vice President Luis de Guindos, stating that it is still too early to declare victory over inflation, have added to the uncertainty. Preliminary estimates indicated that inflation fell to 1.8% in September, although the recent increase in oil prices due to Middle Eastern tensions could exert upward pressure on inflation.
- A survey by the ECB shows that mortgage loan demand surged in the third quarter due to expectations of a rate cut. Demand for corporate loans has also increased on average. A rate cut by the ECB will have significant effects on banks, as it will reduce their profit margins and overall profitability. This situation puts additional pressure on banks to find new ways to maintain profitability in challenging economic conditions. For the first time since 2022, corporate loan demand in the Eurozone has increased.
- On the other hand, analysts predict that Germany’s GDP contracted by 0.1% in the third quarter, indicating that the largest economy in Europe is suffering from a mild recession. Additionally, analysts’ full-year forecasts suggest no growth, reflecting a downward revision from a previous estimate of 0.1% growth. The weakness in Germany’s economy is primarily due to reduced energy supplies from Russia, disappointing export demand from China, and challenges facing automakers.
The Pound
- The busy week for the UK begins on Tuesday with labor market data. According to the Office for National Statistics, average earnings excluding bonuses increased by 4.9% in the third quarter compared to the previous year, marking the lowest increase since the second quarter of 2022. The unemployment rate during this period decreased to 4%, a significant drop from 4.4% in the spring. The number of employed individuals rose by over 373,000, the largest increase on record. Economists recommend exercising caution with employment data due to data collection issues.
- Additionally, retail sales figures will be released on Friday, with estimates suggesting a sharp decline in sales, as consumers have reduced discretionary spending. However, the most anticipated news from the UK is undoubtedly the inflation data for September, which is expected to show a decrease in inflation to below 2% for the first time in three years. Last week, Andrew Bailey’s remarks indicating that if data continues to show progress on inflation, more action regarding interest rate cuts may be necessary, have added significant importance to this report. Currently, markets assign a 75% probability to a 25 basis point cut at the November meeting. A sharp drop in inflation, which is not unexpected given the PMI data for September, has solidified expectations for cuts in November and December, increasing selling pressure on the pound.
The Oil
Brent and West Texas oil prices increased by more than 1% for the second consecutive week on Friday, with the number of long-term buy contracts by portfolio managers rising to 165,000. However, the price growth of this asset was limited on Friday, with Brent crude futures dropping by 36 cents to $79.04 per barrel, and U.S. West Texas crude futures falling by 29 cents to $75.56 per barrel. Part of this decline was due to concerns about demand, which were exacerbated after an unexpected drop in the University of Michigan’s Consumer Sentiment Index. This index fell to 68.9 in October, below the forecasted increase to 71.0. Nonetheless, the weekly price growth indicates ongoing concerns and potential supply disruptions in the Middle East, along with market participants feeling increased tensions. Goldman Sachs has predicted that if Iranian oil exports are cut off, Brent prices could reach $90 per barrel.
It is noteworthy that over time, with no disruptions from the Middle East, worries have diminished but not disappeared, as analysts believe it is unlikely that the recent missile attack from Israel will go unanswered.
On the other hand, Hurricane Milton entered the Atlantic Ocean on Thursday and, after reaching Florida, resulted in at least 10 fatalities and left millions without power. Florida is the third-largest gasoline consumer in the U.S., but there are no refineries in the state, and its needs are met through marine imports. A large number of drivers filled up before the hurricane, leading to gasoline shortages in Florida early in the week, with nearly a quarter of the 7,912 gas stations empty by Wednesday morning. It is expected that the destruction of fuel stations will reduce consumption in the weeks following the storm.
Additionally, Libya’s National Oil Corporation announced on Friday that oil production has returned to pre-crisis levels at 1.25 million barrels per day, the highest in two months. In the current oil market conditions, this supply factor is recognized as contributing to further price declines. However, OPEC has reduced its forecast for oil demand growth for the third consecutive month.
- In its monthly report, OPEC stated that global oil consumption is expected to increase by 1.9 million barrels per day in 2024, which is 106,000 barrels (approximately 2%) lower than previous forecasts. It seems that if China’s new policies do not stimulate the economy of the world’s largest oil importer and geopolitical tensions subside, we should expect a drop in oil prices.
- Our bullish scenario suggests that if fears of supply disruptions similar to those in 2022 arise, oil prices could reach $120 per barrel, with a 20% probability of this occurring.
- The bearish scenario includes the onset of increased production by OPEC+ in December and reduced supply risks, which could bring Brent prices down to $60 in the fourth quarter and $55 in the first quarter of 2025.
Sentiment Analysis of the Pound:
- The busy week for the UK begins on Tuesday with labor market data. According to the Office for National Statistics, average earnings excluding bonuses increased by 4.9% in the third quarter compared to the previous year, marking the lowest increase since the second quarter of 2022. The unemployment rate during this period decreased to 4%, a significant drop from 4.4% in the spring. The number of employed individuals rose by over 373,000, the largest increase on record. Economists recommend exercising caution with employment data due to data collection issues.
- Additionally, retail sales figures will be released on Friday, with estimates suggesting a sharp decline in sales, as consumers have reduced discretionary spending. However, the most anticipated news from the UK is undoubtedly the inflation data for September, which is expected to show a decrease in inflation to below 2% for the first time in three years. Last week, Andrew Bailey’s remarks indicating that if data continues to show progress on inflation, more action regarding interest rate cuts may be necessary, have added significant importance to this report. Currently, markets assign a 75% probability to a 25 basis point cut at the November meeting. A sharp drop in inflation, which is not unexpected given the PMI data for September, has solidified expectations for cuts in November and December, increasing selling pressure on the pound.