The dollar index continued to come under pressure on Wednesday, trading around 99.70, while spot gold has since rebounded above $1,710 an ounce. This trading day, investors will be fed interest rate decision and the us first quarter GDP data. The dollar could sell off if U.S. GDP data turns out to be worse than expected, while safe-haven buying sparked by recession fears could give gold more momentum. In terms of global epidemic situation, the global cumulative number of confirmed COVID 19 cases has exceeded 3.13 million, among which the cumulative number of confirmed COVID 19 cases in the United States has exceeded 1.03 million. The death toll of COVID 19 in the United States is higher than that in the Vietnam war.
Focus on us GDP data for the first quarter to alert the dollar to a sell-off
The us is due to release first-quarter gross domestic product data at 20:30 Beijing time on Wednesday. The dollar fell sharply ahead of Wednesday’s us first-quarter GDP report. Consumer confidence also fell to its lowest level in four years.
The dollar index.dxy fell for a second day Tuesday, closing at 99.97 after hitting an intraday low of 99.45.
The preliminary estimate of real U.S. GDP for the first quarter is expected to show a 3.8 percent annualized decline, compared with 2.1 percent growth in the previous estimate, according to an authoritative media survey.
Wells Fargo forecasts initial real GDP for the first quarter to be -1.2%. Wells Fargo said economic activity in the United States was strong at the start of the year, but the sudden stalling in March was so negative that the bank believes it was enough to turn growth negative in the first quarter.
Kathy Lien, managing director of BK asset management, wrote that the U.S. GDP data should cause more volatility than the federal open market committee between Wednesday’s events because the fed is not expected to change interest rates. GDP will give us our first look at how badly the us economy has been hit by a novel coronavirus and whether the contraction is worse than expected.
Lien wrote that the first quarter had only a two-week blackout period, such as poor data, so investors immediately sold the dollar because they feared the second quarter would be worse. Any contraction would be the first since 2011, and a contraction of more than 1 per cent would be the biggest in 11 years. If GDP growth declines less than expected because the data only includes a two-week economic shutdown, the dollar could see a rebound, but it will be short-lived as investors downplay the data and turn their attention to the fed.
The first-quarter GDP figures may be a preview of what happened in the second quarter, when all the shutdowns actually took effect. The COVID 19 outbreak is widely expected to have a significant impact on the us economy in the second quarter.
Although the virus-related blockade didn’t really begin until the last two weeks of the first quarter, the impact appears to be large enough to translate into a 3.5% annualized drop in first-quarter GDP, said Andrew Hunter, U.S. economist at capital economics. It would be the first contraction in output in six years and Hunter added that the second quarter would be worse.
Kevin Hassett, a senior economic adviser to Mr. Trump, said Monday that the initial estimate for first-quarter GDP was negative. However, he said the real damage to the economy from a novel coronavirus would come in the future. “The GDP contraction in the second quarter could be 20 to 30 percent,” hassett said.
Most economists expect the us economy to contract as the spread of COVID 19 causes a widespread “shutdown,” according to a survey released on April 27 by the national association for business economics.
The survey showed 86 per cent of respondents expected us GDP to contract. A third of respondents said business operations had been “severely affected” by the outbreak.
The FOMC’s decision came as a bombshell
At 02:00 Beijing time on Thursday, the federal open market committee will release its decision on interest rates. The fed is widely expected to keep interest rates on hold Wednesday, following a sharp cut in March. Economists and strategists said the agenda could include clearer guidance on how long the benchmark rate will stay low.
The fed has made clear that its current purchases of treasuries and agency mortgage-backed securities are “open-ended” — in effect, a form of quantitative easing without a ceiling.
At 02:30 Beijing time on Thursday, fed chairman colin Powell will hold a press conference. Powell will have an opportunity to comment on the first-quarter GDP data, which will be the focus of market analysts at his news conference on Wednesday.
The bank of America merrill lynch research team said on Tuesday that the fed is likely to stay on hold, but is likely to make a significant change to its policy statement, stressing that it will keep interest rates at their current level for some time and is committed to using all tools to support credit.
“I don’t think the fed is going to keep cutting interest rates,” said Ryan McKay, commodities strategist at td securities. They’ve cut interest rates as much as they can. Their comments on the growth outlook and how long it might take for the economy to recover are certainly important.”
Kathy Lien, managing director at BK asset management in New York, said the fed faces three major questions about the FOMC policy statement: 1. How long will low interest rates last? 2. How deep will the contraction be? 3. What else can the fed do?
Lien notes that after the first-quarter GDP data, investors will be eagerly watching the fed’s forecasts for the economy this year — how deep the contraction will be, how long the fed will keep interest rates near zero, and what else they can do.
The fed is expected to reiterate its pledge not to raise interest rates any time soon. Fed officials must acknowledge that the economy has been hit hard by a novel coronavirus and that “growth in the second quarter is likely to be very weak”. The question now is whether Mr Powell is stressing a “strong rebound” when the economy reopens, or whether there is serious uncertainty about the future. If he remains upbeat in his speech, then the dollar could rise, but if he hints that new social distancing measures will slow the recovery, then the dollar could fall below 106.
Traders should also keep an eye on the fed’s GDP forecast, the pace of asset purchases and any technical adjustments to the ratio of excess reserves. The fed has now slowed its bond-buying as markets normalise.
Wall Street expects the fed to keep interest rates under control and maintain liquidity and lending programs for the foreseeable future until the U.S. economy recovers and financial markets move smoothly.
Lewis Alexander, chief U.S. economist at Nomura, said in a note that this week’s meeting “comes after one of the most dynamic and streamlined policymaking periods in the fed’s history. Given how much the fed has already done, we don’t expect major innovations in fed policy… As for the direction of short-term interest rates, we expect the FOMC to reiterate that they expect to keep their target at current levels for the foreseeable future.”
The fed will not change its target for the federal funds rate, currently between 0% and 0.25%, but it may change the rate at which Banks pay for excess reserves held at the fed, currently 0.1%.
The FOMC is also likely to confirm so-called “forward guidance”, a pledge not to raise interest rates until certain indicators, particularly employment and inflation, are hit. However, fed watchers expect the central bank to issue a more formal statement at a later meeting, with this month’s pledge to be only a general statement.
“We expect the statement to be revised, perhaps to say that interest rates will remain low until the recovery is’ well under way ‘and the committee is’ confident’ it can achieve its dual mandate,” wrote Citigroup economist Andrew Hollenhorst. At some point, probably in late summer, we expect the fed to explicitly commit to keeping rates low until inflation reaches or exceeds 2 per cent and stays there for some time. However, with interest rates already very low and a lot of uncertainty to be resolved in the months ahead, we see no reason for the fed to announce this at its April meeting.”
“The FOMC statement will have to take into account the sharp deterioration in the economy since the last meeting in March,” said economists at Goldman Sachs. Goldman expects the FOMC statement to point to a “sharp contraction” in economic activity and acknowledge a “sharp decline” in household spending and business investment, given the historic surge in job cuts.
Economists at Goldman sachs said that since chairman colin Powell had said “officials are comfortable with the current policy approach”. As a result, they now predict the fed won’t raise rates until the end of 2023.
Gold bulls are preparing to explode
Spot gold rebounded above $1,710 an ounce in Asian trading on Wednesday. Spot gold briefly fell more than $20 to just above $1,690 an ounce in U.S. trading on Tuesday.
Gold briefly fell to a one-week low on Tuesday as investors took profits and signs that countries might soon ease a blockade triggered by a novel coronavirus lifted risk sentiment.
Gold week international spot trading fell as low as $1691.19 an ounce to $1706.98, down $7.21, or 0.42 percent.
Gold investors are now turning their attention to us GDP data and the fed’s decision. Worse than expected GDP data could further depress the dollar, while safe-haven buying sparked by recession fears could give gold momentum. Moreover, if the fed were to sound dovish, the dollar might also take a hit, which would encourage gold to strengthen.
Edward Meir, analyst at ED&F Man Capital Markets in New York, said every correction in the gold market has been followed by a wave of bargain buying, which is clearly a big strategy for the gold market right now.
Td securities commodity strategist Ryan McKay said the gold market will continue to perform strongly, especially after a selloff, with further gains this week.
“Even if the blockade is lifted, the world is still far from returning to normal,” commerzbank analysts wrote in a report. The bigger risk is of economic collapse. To deal with this, governments around the world are likely to continue to pour unprecedented amounts of money – much of it made by central Banks. In this environment, gold as a crisis currency should continue to maintain demand, as reflected in ongoing ETF inflows.”
In an article on Wednesday, Economies.com, a leading financial website, said the four-hour chart showed gold rising back above EMA 50, reinforcing expectations that gold will continue its bullish trend within days and in the short term, with an initial target of $1,747.43 an ounce. A break above $1,747.43 an ounce would continue the bullish trend to $1,780.00.
Economies.com added that maintaining gold above $1,678.45 an ounce is the most important condition for gold to continue to be bullish.
Analysts noted that the unprecedented stimulus measures taken by governments remained a potential support for gold prices. Safe-haven gold tends to benefit from broad stimulus from central Banks and governments because it is widely seen as a hedge against inflation and currency depreciation.
More than 3.13 million people have been infected globally. The United States has had more than 1.03 million confirmed cases and more deaths than the Vietnam war
According to the latest statistics, the global cumulative number of confirmed COVID 19 cases has exceeded 3.13 million. So far, there have been more than 100,000 confirmed cases in seven countries, including 1.03 million in the United States. The number of americans killed in COVID 19 exceeded the number killed during the Vietnam war.
Worldometers world real-time statistics show that as of 10:00 PM Beijing time on April 29, the global covid-19 cumulative confirmed cases of more than 3.13 million, to 3138,115 cases, cumulative deaths of more than 217,000, to 217,970 cases. The United States has the highest number of cumulative confirmed COVID 19 cases in the world, with more than 1.03 million cases to 1035,765 and more than 58,000 cumulative deaths to 59,266, which is already more than the number of U.S. military deaths in the Vietnam war.
U.S. officials and public health experts have repeatedly compared the country’s efforts to reduce coronavirus to a war, and now a novel coronavirus is claiming more American lives than the Vietnam war. The U.S. national archives says 58,220 U.S. soldiers died in the Vietnam war. The war began in 1955 and ended in 1975.
The head of the centers for disease control and prevention, Robert redfield, said on April 21 that the start of winter in the United States could usher in a second, more severe outbreak, with the overlap of the flu season and the new pandemic threatening “unimaginable” strains on the health care system. Redfield said governments at all levels should use the months to prepare, including improving their detection and monitoring capabilities.
US President Donald trump on April 11 declared Wyoming a “state of major disaster” for the new outbreak. For the first time in U.S. history, all 50 states, Washington, d.c. and four overseas territories — the U.S. virgin islands, northern mariana islands, Guam and Puerto Rico — are in a “major state of disaster.”
Another major epidemic in overseas countries, Worldometers world real-time statistics show that by the Beijing time April 29 at 10, Spain COVID – 19 accumulative total of 232128 cases of the patients, Italy has confirmed 201505 cases, confirmed 165911 cases of France, and Britain has confirmed 161145 cases, Germany has confirmed 159735 cases, Turkey has confirmed 114653 cases, Russia has confirmed 93558 cases, Iran has confirmed 92584 cases, Brazil has confirmed 73235 cases, Canada has confirmed 50026 cases, A total of 47,334 cases have been confirmed in Belgium, 38,416 in the Netherlands and 31,324 in India.