The US economy is on the verge of recession. Gold is rising despite Fed tightening policy

Fears of an impending recession are growing in the United States. Goldman Sachs predicts that a significant narrowing of the gap between the number of vacancies in the labor market and the number of workers is a sign of the beginning of the recession. The US Federal Reserve will have the difficult task of tightening its monetary policy enough to reduce inflation without causing an economic slowdown in the United States. Despite all the assurances from the Fed officials that they can tighten monetary policy and reduce inflation without destroying the economy (economists call it a "soft landing"), this idea raises many skeptics, including former US Treasury Secretary Larry Summers. He believes that the recession is now the most likely outcome for the US economy soon. But it is worth noting that this will not happen tomorrow or next week. The deviation is significant. Analytical houses predict the beginning of a recession in the US in the next 1-2 years.

As the stock market closed yesterday, the Dow Jones index (US30) decreased by 0.11%, the S&P 500 index (US500) lost 0.02%, and NASDAQ Technology Index (US100) fell by 0.14%.

Bank of America reported second-quarter results that exceeded analysts' expectations. Revenue growth was driven by strong trade growth and increased lending. Shares of BAC gained more than 3%.

The World Bank lowered its 2022 global GDP growth forecast to 3.2% from 4.1%.

The US convenes an unscheduled meeting with the heads of several states: France, Germany, Great Britain, Canada, Italy, Poland, and Romania as part of Russia's offensive on Ukraine. The NATO Secretary-General, the presidents of the European Commission, and the European Council will also take part.

Major European indices were not traded yesterday. Incumbent French President Emmanuel Macron has said that France does not need Russian gas and has called for sanctions against Russia's energy sector. The question is, is France really that serious, or does Macron want to raise his rating in this way before the decisive round of the presidential election?

Foreign investments in Russian real estate have fallen to a record high – in the first three months of 2022, their share of investments in commercial real estate was only 1.8%, and at the end of the year, it will be close to zero.

Oil is rising in price for the fourth day in a row as disruptions in Libya exacerbate the situation with supplies from Russia. The 70,000 bpd El-Fil oil field was shut down on April 16 after protests demanding the resignation of Prime Minister Abdul Hamid Dbeiba. Oil production in Russia continued to decline in April, down 7.5% in the first half of the month compared to March.

Last week, EU governments said the EU leadership was preparing proposals to ban Russian oil, although diplomats said Germany did not actively support the embargo. The International Energy Agency has warned that about 3 million barrels per day of Russian oil could be halted from May due to sanctions or buyers who voluntarily reject Russian cargoes.

Gold resumes gains despite the tighter monetary policy of the US Federal Reserve. Gold has inversely correlated with government bond yields, which rise as monetary policy tightens, leading to lower precious metals prices. But at the moment, the gold market shows the outperformance of the gold miners' equity sector both over the price of gold and the broader equity market. This picture indicates a stable demand for gold and positively impacts the continuation of the uptrend in gold.

Japan's Nikkei 225 (JP225) decreased by 1.08% yesterday, and Hong Kong's Hang Seng (HK50) and Australia's S&P/ASX 200 (AU200) were not trading yesterday. The Chinese Central Bank cut the reserve requirement ratio for most commercial banks by 0.25%, freeing up to 530 billion yuan of liquidity. The reserve requirement ratio will be reduced by 0.5% for small rural and urban commercial banks. This is a positive signal for Asian stock markets. The International Monetary Fund will consider quick financial assistance for debt-laden Sri Lanka. The IMF will help replenish financial reserves and raise financing to pay for basic fuel, food, and medicine imports. Sri Lanka's devastating financial crisis has erupted as the effects of COVID-19 have exacerbated poor public financial management and rising fuel prices eroded foreign exchange reserves.

Main market quotes:

S&P 500 (F) (US500) 4,391.69 -0.90 (-0.02%)

Dow Jones (US30) 34,411.69 -39.54 (-0.11%)

DAX (DE40) 14,163.85 +87.41 (+0.62%)

FTSE 100 (UK100) 7,616.38 +35.58 (+0.47%)

USD Index 100.80 +0.48 (+0.48%)

Important events for today:
  • – Australia RBA Meeting Minutes (m/m) at 04:30 (GMT+3);
  • – Japan Industrial Production (m/m) at 07:30 (GMT+3);
  • – US Building Permits (m/m) at 15:30 (GMT+3);
  • – Switzerland SNB Chairman Thomas Jordan Speaks at 19:30 (GMT+3).

by Justforex, 2022.04.19

We advise you to get acquainted with the daily forecasts for the major currency pairs.

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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