Gold trading reminder: The Federal Reserve remains on hold, Powell insists on releasing interest rate cut signals, and gold prices close up more than $30

In early trading in the Asian market, spot gold fluctuated within a narrow range and is currently trading at $2,324.07 per ounce, holding on to most of the overnight gains. Gold prices climbed more than $30 on Wednesday as the dollar and U.S. Treasury yields fell after the Federal Reserve's interest rate decision and Chairman Jerome Powell's speech.

Gold prices hit their lowest level since April 5 at US$2,281.56 per ounce early in the session on Wednesday, but turned positive and closed at US$2,319.23 per ounce.

The dollar fell 0.3% on Wednesday, making gold less expensive for investors using other currencies. U.S. 10-year Treasury yields US10YT=RR also fell.

The Fed announced it would keep interest rates unchanged and signaled a "lack of further progress" on achieving its 2% inflation target. However, Fed Chairman Jerome Powell said the next move was unlikely to be a rate hike, adding that the central bank's focus has been on maintaining its current restrictive policy stance.

"I think we're in a stagflation environment and the Fed will eventually cut interest rates at some point in the future," said Phillip Streible, chief market strategist at Blue Line Futures.

Streible said: "In order to light another fire and push gold back to $2,400, we need a new trigger, and then it may reach new highs."

In terms of data, U.S. private payrolls (ADP) increased more than expected in April, suggesting that the labor market maintains momentum at the beginning of the second quarter. However, job vacancies in the United States fell to the lowest level in three years in March, and the number of resignations declined. These signs indicate that labor market conditions are loosening. The ISM manufacturing PMI in the United States fell back below the 50 line for expansion and contraction in April, which also provided support for gold prices.

In addition, the ongoing war in the Middle East has also provided support for gold prices. The Israel Defense Forces stated on May 1 that Israel dispatched fighter jets to conduct air strikes on multiple military targets of the Palestinian Islamic Resistance Movement (Hamas) and the Palestinian Islamic Jihad (Jihad) in the Gaza Strip, including weapons depots, military buildings, and rockets. bomb and mortar launching points, etc.

The Fed held steady and signaled a lack of further progress in inflation, but still signaled a rate cut

The Federal Reserve kept interest rates steady on Wednesday and signaled it still favors an eventual cut, but recent disappointing inflation data has alarmed policymakers and suggested the economy's move toward a more balanced economy may be stalling.

Indeed, Fed Chairman Jerome Powell said it may take longer than previously expected for policymakers to gain "greater confidence" needed to begin cutting interest rates.

"Inflation remains too high," he told a news conference after the Federal Open Market Committee's (FOMC) two-day policy meeting. "There is no assurance that further progress will be made in lowering inflation and the path ahead is uncertain. It is likely that greater confidence will take longer than previously expected."

Still, Powell said he still expects inflation to gradually ease over time this year. "That's my prediction," he said. "I think I'm less confident about it than I was before given the data we're seeing."

U.S. stocks and Treasury prices turned from losses to gains as Powell spoke. Investors believe Powell is not as "hawkish" as previously feared after a series of disappointing inflation data in recent months.

Evercore ISI analysts said that Powell's speech at the press conference was "clearly less hawkish than many people feared. His speech was consistent with the FOMC statement and did not trigger market shocks." For Powell, "the basic message is that the rate cut has been delayed, not that it has not been cut."

Investors in futures tied to the Federal Reserve's policy rate have increased bets that rate cuts could begin in September, rather than later this year as earlier expected.

The timing of interest rate cuts is uncertain

The Fed kept key elements of its economic assessment and policy guidance unchanged in its latest policy statement, noting that "inflation has eased" over the past year and that policymakers' discussion of interest rates centered on conditions for lower borrowing costs.

The Fed reiterated in a statement: "The Committee anticipates that it would be inappropriate to lower the target range for the benchmark interest rate until there is greater confidence that inflation will continue to fall toward 2%." Members unanimously agreed with the resolution. The statement still hinted that the next step would be to cut interest rates.

This continues to cast doubt on the timing of rate cuts. Fed policymakers have underscored their concerns that their confidence that inflation will fall has remained largely unchanged in the first months of 2024.

"In recent months, there has been a lack of further progress toward achieving the Committee's 2 percent inflation objective," the Fed said in a statement. The March statement hinted at improving dynamics, saying risks to the economy were "moving toward a better balance." . The new statement suggested the process may have stalled, saying the committee's assessment was that risks "have become better balanced over the past year."

Omair Sharif, president of Inflation Insights, said: "The committee's message to the market on inflation was that the first-quarter data did not show the further progress they had hoped to see, but the statement also suggested that they would not push inflation higher. perspective to interpret stronger labor market data.”

Slow down the pace of balance sheet reduction

The Federal Reserve also announced that it will slow down the pace of reducing its balance sheet starting on June 1. The Fed will lower the limit on Treasury securities that mature and no longer reinvest the principal from the current $60 billion per month to $25 billion, and maintain the cap on redemptions of mortgage-backed securities (MBS) at $35 billion per month.

The move is aimed at ensuring that the financial system does not run into a shortage of reserves as happened during the Fed's last round of "quantitative tightening" in 2019.

The move could prompt some easing of financial conditions as the Fed tries to keep pressure on the economy, but policymakers insist that its balance sheet and interest rate tools serve different purposes.

The Fed reiterated in its latest policy statement that "inflation remains too high." Many analysts believe the removal of that phrase from the statement could be a prelude to a rate cut.

The Fed kept its overall assessment of economic growth unchanged, saying the economy "continues to expand at a solid pace. Job growth remains strong and the unemployment rate remains low."

Analyst Comments

JEFFREY ROACH, chief economist at LPL Financial, said, "It certainly looks a bit hawkish on the surface. But judging from the fact that the Fed has slowed down the pace of balance sheet reduction slightly more than expected, I think they want to start easing financial conditions. They don't want to let Policy is tighter. In addition to slowing down the pace of balance sheet reduction, this statement should not be too surprising to the market. Treasury yields may face some downward pressure in the short term, so short-term U.S. bond yields will fall slightly. "At present, we are still concerned about the need for future inflation data."

BRIAN JACOBSEN, chief economist at ANNEX WEALTH MANAGEMENT, said, "The Fed has finally realized that their balance sheet reduction actions are doing more harm than good. It does not help reduce inflation. It just increases the volatility of the bond market. Financial stability concerns need to dominate their Idea. The Fed needs to choose the right tools for different jobs: using interest rates to control inflation and using the balance sheet to maintain financial stability.”

MICHELE RANERI, Vice President of U.S. Research and Consulting at TransUnion: believes that "the new gross domestic product (GDP) report may indicate that the Fed will not soon abandon its previously announced 'higher and longer' interest rate stance. U.S. consumers should do We are prepared to continue to face relatively high interest rates on a range of credit products for a longer period of time, with any potential rate cuts likely to be pushed back to later in 2024. Ultimately, this may cause the mortgage and car markets to remain relatively high. In fact, if interest rates don’t start to fall until later in 2024, that could mean that many homebuyers may delay buying until later in 2024 or even into 2025. "

U.S. job openings drop to lowest in three years in March as labor demand eases

U.S. job openings fell to their lowest level in three years in March while job losses fell, signs of loosening labor market conditions that could help the Federal Reserve combat inflation over time.

However, the impact of the monthly Job Openings and Labor Turnover Survey (JOLTS) released by the Bureau of Labor Statistics on Wednesday was partially offset by other data. Data showed that as commodity prices rose, a measure of how much manufacturers paid for raw materials jumped in April to the highest level in nearly two years.

Falling commodity prices were the main reason for the slowdown in inflation last year. With price pressures picking up in the first quarter, a jump in input costs is unlikely to be welcomed by Fed policymakers. Federal Reserve officials on Wednesday kept the target range for their benchmark overnight interest rate unchanged at the current range of 5.25%-5.50%. The benchmark rate has remained unchanged since July last year.

Policymakers have signaled they still favor an eventual rate cut, but recent disappointing inflation data has alarmed them.

"The continued cooling of the labor market is part of the Fed's plan to help inflation return to 2%, and job vacancies are one of the barometers that the Fed focuses on," said Mark Streiber, economic analyst at FHN Financial. "While it is too early to say that the easy inflationary slowdown we experienced in 2023 is over, upward pressure on commodity prices is an unwelcome development for the Fed."

The U.S. Bureau of Labor Statistics said Wednesday that job openings, a measure of labor demand, fell by 325,000 to 8.488 million on the last day of March, the lowest level since February 2021. Job openings in February were slightly revised up to 8.813 million, from the previous value of 8.756 million.

Economists had predicted that there would be 8.686 million job openings in March. Job vacancies reached a record high of 12 million in March 2022. There were 1.32 job vacancies for every unemployed person in March, compared with 1.36 in February. The indicator averaged 1.19 in 2019, suggesting that the labor market is gradually cooling.

The job vacancy rate fell to 5.1% from 5.3% in February, the lowest level since January 2021. Hiring fell by 281,000 to 5.5 million. The hiring rate fell to 3.5% from 3.7% in February.

However, the number of layoffs decreased by 155,000, the most in the past year, to 1.526 million. This is the lowest level since December 2022, suggesting a solid labor market. Few layoffs contributed to strong job growth.

The number of resignations fell by 198,000 to 3.329 million in March, the lowest level since January 2021.

The resignation rate, considered an indicator of labor market confidence, fell to 2.1%, the lowest since August 2020, from 2.2% in February.

The decline in resignations eased concerns that wage growth could accelerate after labor costs surged in the first quarter. But the inflation outlook remains challenging.

Manufacturing industry sluggish

A survey released by the Institute for Supply Management (ISM) on Wednesday showed that the manufacturing input price index jumped to 60.9 in April from 55.8 in March, which is the highest level since June 2022. Part of the reason is rising oil prices. The overall ISM manufacturing purchasing managers index (PMI) fell to 49.2, the highest since September 2022 after touching 50.3 in March, and the first time above 50 since then.

The U.S. dollar suffers its biggest one-day drop this year, and U.S. bond yields fall

The U.S. dollar fell 0.64% on Wednesday, its biggest one-day drop since December 21, 2023, to close at 105.64. This provided upward momentum for gold prices, as the Federal Reserve previously stated that it still prefers to eventually reduce borrowing costs, but reiterated that it hopes to obtain inflation before cutting interest rates. "Greater confidence" continues to decline.

John Velis, FX and macro strategist at BNY Mellon, said: "No change in forward guidance (still suggesting the Fed thinks the next move is to cut rates - depending on inflation), slightly dovish, I'm not sure about the lack of newly inserted guidance on inflation Is the wording of progress enough to offset that?"

"The fact that the Fed is slowing down the pace of tapering tells me they want to start easing conditions," said Jeffrey Roach, chief economist at LPL Financial. "They don't want to increase tightening."

The next major economic indicator will be Friday's April jobs report, which is expected to show employers added 243,000 jobs during the month.

U.S. Treasury yields also fell on Wednesday, reducing the opportunity cost of holding gold. The Fed's balance sheet reduction under its quantitative tightening program slowed more than expected, which brought a big surprise to the market. That also helped push U.S. bond yields lower.

The Federal Reserve said that starting June 1, it would lower the limit on Treasury securities that are allowed to mature and not be reinvested from the current high of $60 billion per month to $25 billion.

However, the Fed kept the cap on redemptions of mortgage-backed securities (MBS) at $35 billion per month and reinvested any excess principal withdrawals from MBS into Treasury securities.

Michael Rosen, chief investment officer at Angeles Investment Advisors, said, "The decision to keep interest rates steady is not surprising, but a sharp slowdown in balance sheet reduction (that is, reducing the Fed's balance sheet) is somewhat unexpected and is moderately positive for bonds because it means The Fed will allow less supply of bonds to come off its balance sheet and into the market,"

The 10-year U.S. Treasury yield fell as low as 4.589% on Wednesday and closed at 4.632%

John Velis, currency and macro strategist at BNY Mellon, said he thought the Fed's statement was slightly dovish. "I'm not sure the newly inserted language about the lack of progress on inflation is enough to offset that. I'm surprised the Fed has reserved comments on possible future rate cuts," he added.

Following the Fed statement, U.S. interest rate futures priced in a 66.4% chance of a November rate hike on Wednesday, according to CME's FedWatch tool, compared with 58% late Tuesday. The probability of interest rate hikes in September and December is about 50% and 80% respectively.

This trading day will release changes in the number of initial jobless claims in the U.S., the U.S. trade balance in March, the number of layoffs by challenger companies in the U.S. in April, and the monthly rate of U.S. factory orders in March. Investors need to focus on this. In addition, pay attention to the announcements from Federal Reserve officials. speech.