FOMC Fischer put many interest rate
options back on the table. Janet Yellen downplayed the possibility of a rate
increase as early as September but affirmed that the economy was doing well and
a rate increase was warranted. Within hours of her speech Mr. Fisher
telegraphed the Fed’s approaches.
The Fed chair indicated that the FOMC is
moving nearer to raising interest rates again, as well as other members said on
Friday in comments that left the door open for a hike as early as next month.
Also on Friday FOMC member Fed Governor Jerome Powell told Bloomberg Television
that they could afford to be patient and that he wanted to see inflation rise
before lifting rates.
When we see progress toward 2 percent
inflation and a tightening in the labor market and growth strong enough to
support all that, we should take the opportunity,” Powell said.
Yellen said that the case for a rate
increase had grown stronger, while Fed Vice Chair Stanley Fischer suggested a
move could come at the central bank’s September policy meeting if the economy
was doing well.
Data from the US on Friday showed the
economy growing only sluggishly in the second quarter, Yellen said a lot of new
jobs were being created and economic growth would likely continue at a moderate
pace.
The Fed has policy meetings scheduled in
September November, and December. It a year ago from the December meeting that
the Fed raised their rates for the first time in many years.
With the US election in full tilt the Fed might just put everything off until after the election cycle leaving December once again the month for the rate increase.
GOLD:
Gold is trading at 1321.15 down $4.25 for
the session. It is likely that gold prices will be boosted by the Federal
Reserve's reluctance to increase lending rates in order not to jeopardize a
fragile US economic recovery, though money market futures predict one rate hike
by December.
Yellen’s speech confirmed this view. This
could mean that downside risk in gold on a Fed rate hike is limited to $1,270
an ounce. As long as the US central bank does not aggressively raise interest
rates, there is no reason why the gold bull market cannot continue, though I
expect the easy money in this asset class has now been made for 2016.
The market attention will be on Friday’s U.S. non-farm payroll numbers, and should the reading again be strong, a further selloff of gold can be expected, Lum said.
CRUDE OIL:
OPEC and outside producers such as Russia
will agree steps next month to support prices such as a production freeze.
The market is increasingly likely to
discount the outcome of the event, given, even in the instance of a freeze
being agreed, compliance will be an issue," Barclays said in a report.
Members of the Organization of the Petroleum Exporting Countries are due to meet informally in Algeria on Sept. 26-28 on the sidelines of the International Energy Forum. Russia is also expected to attend the IEF.
COPPER:
Copper market is set stay in surplus
despite some curtailment by top producers Freeport McMoRan and Glencore as new
mines and expansions, particularly in Peru, ramp up to capacity.
While top producer Chile settled into a gentle decline, Peruvian
copper production surged by more than 50% to just under 741,000 tonnes in the
first half of the year.
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