US non-farm payrolls (Aug) – 02/09 – the resilience of the US labour market has been a standout when it comes to US economic data this year. The last three payrolls’ reports have seen the numbers beat expectations; even as weekly jobless claims hit an eight month high earlier this month. Wage growth has also proved to be resilient even as vacancy rates are still close to record levels. The July payrolls report was doubly impressive given that consensus expectations were for the lowest number this year, and what we got was over double forecasts, at 528k. Wage growth also remained solid rising to 5.2%, while the unemployment rate fell to 3.5%. We should also see the return of the ADP payrolls after this survey took a break as ADP adapted the methodology behind the numbers. Another positive payroll number this week is likely to rubber stamp the possibility of a 75bps rate hike when the US Federal Reserve next meets in September. Expectations are for 290k jobs to be added, however given how much forecasts missed in July one has to question how reliable these estimates are likely to be.        EU flash CPI (Aug) – 31/08 – already at record highs of 8.9% with core prices of 4% for July, this week’s flash numbers for August could see EU CPI push above 10% given what we’ve seen in energy prices, and more specifically natural gas prices over the past few weeks. In Germany, PPI surged to a record high of 37.2% in July, which means that its more than likely this will feed into higher headline rates over the coming months. With the ECB set to meet on the 8th September another strong number here is likely to increase the pressure on the governing council to go by 50bps, or even 75bps in an attempt to try and support the euro which has now slipped below parity and to new 20 year lows. Of course, any rise in rates needs to be balanced against the risk of pushing borrowing costs even higher for the likes of Italy, who can ill afford for rates to go a lot higher.          UK Consumer Credit (Jul) – 30/08 – the effect of higher interest rates as well as the rising cost of living has already started to manifest itself in the most recent lending data. It’s been a trend that has been in place since the start of this year, but appears to be accelerating as we head into the autumn. In June mortgage approvals slipped to their lowest levels in two years, coming in at 63.7k. Having seen a well flagged 50bps rate rise delivered in August and the possibility of another on in September, it’s likely that we will probably see another slowdown in July. Net consumer credit was more resilient in June, jumping sharply to £1.8bn from £0.9bn in May, however this could be down to consumers loading up on debt to get by as monthly bills increase in size.     US Consumer Confidence (Aug) - 30/08 – there has been a significant disconnect in recent consumer confidence numbers this year, when compared to how the US labour market has been faring, along with resilient retail sales numbers. Even as US unemployment has continued to fall and retail sales have been positive in every month with the exception of May it has been notable that US consumer confidence has been on the decline over the last 12 months. It’s been particularly notable in the last 6 months, although in relative terms it’s still above the lows of last year. Nonetheless the combination of higher gasoline prices and rising food prices has seen a particularly sharp drop in the last two months to 95.7 in July. This week’s August numbers may see a slight improvement to 97.5, due to the recent fall in US petrol prices.   Broadcom Q3 22 – 01/09 – Broadcom was in the news earlier this year after agreeing a deal to pay $61bn for cloud company VMWare as part of a strategy to reduce its reliance on the surge in semi-conductor revenues which according to Broadcom CEO Hock Tan won’t last as capacity gets added to the market. This appears to be part of a strategy to make Broadcom a an even more diversified business than your average chip maker. Broadcom not only makes components for iPhones and industrial equipment, it also has a data centre business, and a software services business. At the end of Q1 Broadcom reported a profit of $8.39c a share, on sales of $7.7bn, beating expectations on both top and bottom lines. For Q2 the company beat expectations on revenues with $8.1bn, which did little to help stem the decline in the share...

The FOMC hiked rates by 75 basis points in July. However, the recession drums are getting louder, and gold likes such music. Another large interest rate hike! The Fed raised the federal funds rate by 75 basis points to 2.25-2.50%. It was the second such big move in a row, making the current tightening cycle the steepest in modern history. So, the Fed must be hawkish now, right? Well, not necessarily. The Fed is tightening its monetary policy – and it’s doing it relatively fast. That’s true. However, the Fed hasn’t turned hawkish or restrictive yet. You see, the Fed raised rates to a merely neutral level – and to “neutral” only in the very specific meaning of “the projected appropriate target range for the federal funds rate over the longer run” (according to the latest dot-plot). However, according to the Taylor rule, the federal funds rate should be around 7% (the median) or at least 4.7%. Hence, despite all the hawkish rhetoric, so far, the Fed has lifted interest rates from extremely accommodating rates to moderately accommodative levels. There is still much to go to reach restrictive levels. This is bad news for gold, which generally doesn’t like rising interest rates. As the chart below shows, the Fed’s balance sheet has barely declined in recent weeks, despite the beginning of the quantitative tightening. However, it shouldn’t be long before the Fed throws in the towel and eases its stance again. In the July monetary policy statement, the FOMC admitted that “recent indicators of spending and production have softened,” and during the press conference, Powell signaled that the pace of increases will likely slow down in the near future. Additionally, the Fed got rid of its forward guidance. Then Powell said: “We think it's time to just go on a meeting by meeting basis, and not provide the kind of clear guidance that we did on the way to neutral,” which indicates that the US central bank is very uncertain about the state of the US economy. The Fed could have provided a decisive hawkish path of rate hikes – instead, it will be data-dependent. It suggests that the Fed is worried about the recession and is preparing a justification for a dovish turn. Last but definitely not least, the American economy has already entered a technical recession, as defined as a period of two quarters with negative economic growth. According to the Bureau of Economic Analysis, the U.S. GDP dropped 0.9% in Q2, following a 1.6% contraction in Q1. And please remember that the full effect of interest rate hikes hasn’t been felt by the economy yet. Hence, the odds of soft landing have decreased – and Powell admitted it, saying: “We know that the path [to soft landing] has clearly narrowed, really based on events that are outside of our control. And it may narrow further.” The only thing that makes the Fed feel quite comfortable when tightening its monetary policy stance is that the unemployment rate remains very low. However, the labor market is in worse condition than the unemployment rate suggests. Moreover, the unemployment rate is a lagging indicator. Thus, if economic news worsens, especially that related to the labor market, the Fed may pivot and return to a very accommodative stance. Actually, as the chart below shows, the federal funds rate is at the same target range of 2.25-2.50% seen in 2019, when the Fed ended its previous tightening cycle and started to cut interest rates. Of course, inflation is now much higher, so the rates could go up in a more decisive way. However, it could be difficult for the heavily indebted and financially fragile economy to stomach much higher interest rates. My bet is that the Fed could raise the federal funds rate three more times by 50 basis points at best. Then it would reach its predicted level for 2023 in the last dot-plot. Given that the economy has already weakened significantly since the time of this projection, I wouldn’t be surprised if the Fed stopped its tightening cycle earlier, for example, after only two 50 basis point hikes. It could be hard to justify interest rate cuts with such high inflation, but if inflation peaks and there is disinflation, the US central bank could at least pause hikes and adopt a more dovish rhetoric. In other words, the Fed could pull the lever and divert a runaway trolley from ‘recession’, sacrificing rather high inflation than a deep recession. What does it all mean for the gold market? Well, the US economy is going to slow down, but that doesn’t automatically mean that the Fed will bring inflation under control. Rather, we could have stagflation, which should be positive for gold prices. The July FOMC meeting could be a game-changer for gold....

The US nonfarm payrolls report will take centre stage next week as speculation about the size of the Fed’s next rate hike goes into overdrive. Investors will also be keeping a close eye on the latest inflation readings in the euro area ahead of the September rate decision amid growing gloom about the bloc’s economic outlook. PMI indicators out of China and as well as quarterly data from Australia and Canada will be important too in helping to gauge the health of the big economies.

EUR/USD - 0.9968 Euro's break of July's 0.9953 low Monday to a fresh 20-year trough of 0.9901 Tuesday confirms long term downtrend has resumed, however, subsequent bounce to 1.0018, then erratic rise to 1.0033 yesterday signals a temporary low is made, intra-day fall to 0.9950 would yield 0.9901, break, 0.9883. On the upside, only a daily close above 1.0000 would risk stronger retracement of said decline towards 1.0033, 1.0071. Data to be released on Friday Japan Tokyo CPI. Germany Gfk consumer confidence, France consumer confidence, Italy business confidence, consumer confidence. U.S. personal spending, personal income, PCE prices index, goods trade balance wholesale inventories, University of Michigan sentiment and Canada budget balance.

The annual Jackson Hole Economic Symposium is scheduled for August 25-27. Fed Chair Jerome Powell could use his speech to double down on the hawkish stance. US dollar set to rock on Powell’s pivot predictions on policy tightening as inflation rages on. The US dollar made another attempt to take on the two-decade peak heading into the Jackson Hole  Symposium, which is crucial for the market’s pricing of the Fed’s rate hike expectations in the coming months. Will Fed Chair Jerome Powell’s speech provide additional legs to the dollar rally? Jackson Hole Economic Symposium: Overview The Federal Reserve Bank (Fed) of Kansas City has been organizing an annual economic policy symposium in Jackson Hole, Wyoming, since 1978. The Kansas City Fed hosts a number of central bankers, academics and economists from all around the world and central bankers have taken the opportunity to direct their monetary policy at this Summit. It’s worth mentioning that in 2020, Powell announced the incorporation of the new average inflation targeting (AIT) framework into the Fed's forecasts. This year’s event  is held from August 25 to August 27, with the main theme centered on "Reassessing Constraints on the Economy and Policy."  What to expect from Fed Chair Powell? A week ahead of the much-awaited Fed’s Jackhole Sympoisum, markets repriced expectations of an outsized rate hike as early as next month, triggering an impressive recovery in the US dollar as well as the Treasury yields. Softer US inflation, earlier this month, had doused hopes for a 75 bps September Fed rate hike despite outstanding Nonfarm Payrolls. With renewed hawkish expectations surrounding the Fed’s tightening path, benchmark 10-year Treasury yields recaptured the 3% level while the US dollar index tested the 19-year high of 109.29 on Tuesday. Powell’s keynote address, scheduled on Friday, is eagerly awaited by traders, as his speech will be closely examined for fresh signals on the policy outlook. Economists widely expected Powell to reiterate that “the Fed’s commitment to controlling inflation will require an extended period of restrictive policy and thus below-potential growth and higher unemployment.” Also, Powell could use his speech to push back expectations that the world’s most powerful central bank will start easing policy next year. In doing so, the Fed President will likely join the chorus of his colleagues who have recently dampened speculations of the Fed’s pivoting from its hawkish stance, despite mounting recession risks. As we progress towards the event, however, the market’s expectations of a potential super-sized rate hike next month are vaporing out, courtesy of the weak US S&P Global business PMI surveys and housing data. The same is being reflected by the CME Group’s FedWatch Tool, which now shows a 48% chance of a 75 bps September Fed rate hike, down from a 55% probability seen a day ago. Source: CME Economists at the US banking giants, Goldman Sachs and JP Morgan, now see Powell hinting at pulling the plug on aggressive Fed rate increases. JP Morgan said, “we expect the Fed to become more sensitive to softer activity dataflow now that they have moved policy rates above what was historically considered as neutral. September could be the last of the outsized Fed hikes.” Meanwhile, Goldman Sachs noted, “He is likely to balance that message by stressing that the FOMC remains committed to bringing inflation down and that upcoming policy decisions will depend on incoming data.” US dollar index: Technical outlook At the time of writing, the US dollar is looking to resume its bullish momentum against its main competitors while the 10-year Treasury yields defend the 3% level. The greenback’s fate hinges on Powell’s words, which could turn out to be more hawkish, as suggested by the bullish short-term technical structure on the daily chart. US dollar index: Daily chart Following a bullish wedge confirmed on August 15, dollar bulls have been on a roll but capped by the only hurdle at the July 14 high of 109.29. Powell could provide that much-needed push to bulls, which may prompt the buck to record a new 20-year high. The next upside target is aligned at the 109.50 psychological level before the 110.00 threshold could come into play. The dollar gauge trades well above all the major Daily Moving Averages (DMA) and the 14-day Relative Strength Index (RSI) holds firmer just beneath the overbought region, suggesting that there is more room for the upside. However, if Powell’s speech signals a slower pace of tightening in the months ahead, then that would be a serious setback to the ongoing dollar. The index could fall back towards Tuesday’s low of 108.06. The last line of defense for buyers is envisioned at 107.29. 

EUR/USD regains some positive traction on Thursday amid a modest USD downtick. Signs of stability in the financial markets seem to weigh on the safe-haven greenback. Hawkish Fed expectations, elevated US bond yields should limit losses for the buck. Worries about an energy crisis in Europe should cap gains ahead of German/US GDP. The EUR/USD pair witnessed good two-way price moves on Wednesday and finally settled nearly unchanged for the day. In the absence of any major market-moving economic releases from the Eurozone, the shared currency continues to be weighed down by worries about a deeper economic downturn. Natural gas and electricity prices have spiralled higher in recent weeks to record highs, raising concerns about an extreme energy crisis in Europe. This has been fueling speculations that the region's economy could drop faster and deeper into a recession over the coming months. Apart from this, strong intraday US dollar buying exerted some downward pressure on the major. Tuesday's knee-jerk reaction to the dismal US PMI prints and weak US home sales data turned out to be short-lived amid expectations that the Fed would stick to its policy tightening path. The bets were reaffirmed by hawkish remarks from Minneapolis Fed President Neel Kashkari, which pushed the yield on the benchmark 10-year US government bond to a two-month high. This, along with mostly upbeat US Durable Goods Orders data, assisted the USD to make a strong comeback and climb back closer to a two-decade high. That said, signs of stability in the financial markets capped the upside for the safe-haven buck and helped limit any further losses for the EUR/USD pair. Spot prices bounced over 50 pips from the vicinity of the 0.9900 mark - the lowest level since December 2002 touched on Tuesday - and edged higher during the Asian session on Thursday. A modest USD downtick turns out to be a key factor lending support to the EUR/USD pair, though any meaningful recovery still seems elusive. Expectations that Fed Chair Jerome Powell will deliver a more hawkish message at the Jackson Hole symposium on Friday should continue to underpin the greenback and act as a headwind for the major. This makes it prudent to wait for strong follow-through buying before confirming that the pair has bottomed out and positioning for any further gains. In the meantime, traders on Thursday might take cues from German data - the final Q2 GDP print and the August IFO survey on Business Climate. This, along with the ECB Monetary Policy Meeting Accounts (minutes) might influence the shared currency. The US economic docket features the release of the Prelim (second estimate) Q2 GDP print. Apart from this, the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the EUR/USD pair. Traders, however, might refrain from placing aggressive bets ahead of the Jackson Hole symposium. Technical Outlook From a technical perspective, any subsequent move up is likely to confront some resistance near the 1.0020-1.0025 region. Some follow-through buying might trigger a short-covering rally and lift the EUR/USD pair further towards the 1.0065-1.0070 intermediate hurdle en route to the 1.0100 round-figure mark. This is closely followed by the 1.0130-1.0135 horizontal barrier, which if cleared decisively will set the stage for some meaningful upside in the near term. On the flip side, the 0.9965 region now seems to protect the immediate downside, below which the EUR/USD pair could drift back to challenge the YTD low, around the 0.9900 round-figure mark. Sustained weakness below the latter will be seen as a fresh trigger for bearish traders and accelerate the fall towards the next relevant support near the 0.9850-0.9845 zone.