Wednesday June 12 was a special day with the release of the Consumer Price Index (CPI) in the United States and the Fed meeting.
The last time a day like this took place was in 2020. We then saw a surge in the price of gold, as the market became aware of the imminent arrival of an inflationary wave that the Fed would have difficulty containing.
Four years later, the situation is completely different. The question was whether inflation would finally continue to fall and whether the Fed would be sufficiently convinced by this decline to cut rates.
The CPI inflation figure is in, and it’s better than expected. Overall, inflation is below expectations. However, looking at the details, few expenditure items remain in contained dynamics, and the services sector continues to soar:
Gasoline prices allowed the CPI index to stay in the lead last month.
This is the direct consequence of a decline in oil prices since April:
So the behavior of oil is the key to the next inflation number. Any new geopolitical tensions could reignite inflation, preventing it from returning to pre-Covid levels.
Other news of the day: the Fed has chosen to maintain the status quo by leaving rates unchanged.
The Fed’s press release suggests only one rate cut in 2024, a far cry from the 6-7 rate cuts anticipated at the end of last year…
The Fed also says it is prudent not to be too aggressive and cut rates too quickly, showing that it now views inflation as more persistent than expected. This marks a turnaround from her speech at the end of last year, where she confidently claimed to have brought inflation under control.
In the absence of a rate cut and with a CPI lower than expected, gold logically reacts downward, although trading volume remains very low.
Open interest on COMEX futures hit its lowest level since March, returning to the level of March 1, when gold was trading at $2,070:
This drop in open interest looks more like a covering of short positions rather than a liquidation of long positions.
Since gold broke $2,000, it has lost all its speculative momentum. This could be good news for a continued rise. Historically, gold tends to stop correcting when the number of contracts in the futures markets reaches low levels, as is currently the case. This low level of activity could therefore prepare for new phases of increase.
The decline in volumes on the gold markets contrasts sharply with the tension observed on the European bond markets.
The dissolution of the national assembly in France has created new tension on the French bond market. Political instability in France caused a spectacular jump in the spread between the French 10-year and the German 10-year.
The dissolution of the National Assembly in France has intensified tensions in the French bond market. This political instability caused a spectacular jump in the spread between the French 10-year and the German 10-year:
The French 10-year is clearly in a new bullish channel:
In a single session, Société Générale erased practically all of its annual gains:
Investors are betting on a weakening of the capitalization of the French bank in the event that the French bond sector finds itself under pressure.
The volumes are significant, proof that the markets are taking the risk of political instability in France seriously.
Like its European neighbors, France is suffering from a weakening of its middle class.
The share of wages in GDP has continued to decrease in recent years, and the effect of enrichment via the rise in stock markets only affects 1 in 10 European households. Meanwhile, employees are becoming poorer and their Savings decrease in real value due to inflation:
Tensions in France allow the dollar to cling to its bullish support and cancel its bearish movement for the moment. The surprise dissolution of the French Parliament creates a new dynamic in Europe which eases the downward pressure on the dollar:
For the moment, the euro manages to maintain its position above its support:
The results of the first round of French legislative elections in two weeks will provide a more precise indication of the behavior of the dollar in the short term.
The recent rises of the dollar against the euro and the decline of gold in dollars have not even managed to break the first support of gold in euros:
The money situation in euros is more fragile. A bearish divergence‘is formed, threatening to break the upward trend started since May 1:
Bearish silver traders are aiming for a new test of the breakout money in euros at €24, which would coincide with a safe-haven trade on the dollar in the event that France becomes unstable on June 30:
However, the situation on the physical market complicates things: stocks in China are at their lowest. It is difficult to speculate on the downside on the COMEX when stocks disappear in Shanghai!
Reproduction, in whole or in part, is authorized provided that it contains all hypertext links and a link to the original source.
The information contained in this article is purely informative and does not constitute investment advice, nor a recommendation to buy or sell.
- -
