GOLD: Another All-Time High As Familiar Bullish Arguments Underpin
Spot gold has registered a fresh all-time high of $4,242.1/oz, with pullbacks remaining limited and short-lived at this stage.
- Fresh extension higher would target round number resistance ($4,300/oz).
- Our technical analyst notes that the bullish trend is in overbought territory. A move down would be considered corrective and would allow the overbought set-up to unwind. Initial support located at the October 10 low ($4,006.5/oz)
- Familiar arguments continue to drive gold demand, namely buying from both official accounts and ETFs, questions surrounding Fed independence, ongoing global trade frictions, broader geopolitical risk, bearish views surrounding the USD and expectations for further Fed easing.
- The sell-side remains bullish, with risks to their calls generally centred on risks surrounding the speed of the recent rally, as opposed to any fundamental headwinds.
- UBS note that gold “remains an effective portfolio diversifier and hedge against political and economic risks. Lower real interest rates, a weaker dollar, and renewed concerns about rising government debt or geopolitical uncertainty could spur additional gains toward our upside case of $4,700/oz, making gold a valuable component of a resilient investment strategy”.
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SOFR: SFRZ5 Sold
Recent trade in SFRZ5 sees 5K given at 96.355 as bonds move away from highs, goes offered on the follow.
GERMAN DATA: Don't Read Into The Stronger-than-expected ZEW Expectations Index
The September German ZEW survey’s expectations component was much stronger-than-expected at 37.3 (vs 25.0 cons), but was only a little higher than August’s 34.7 reading. We suspect that consensus for the expectations component was weighed down by the late-August pullback in the Stoxx50 index. The ZEW has historically been sensitive to prior M/M stock market moves, though this signal appears to have lost some power in recent months.
- The current conditions component meanwhile was weaker-than-expected at -76.4 in August (vs -73.6 cons, -68.6 prior), down from a cycle high of -59.5 in July.
- The press release notes that “The outlook has improved in particular for export-oriented sectors, which had recently suffered a strong decline. Among the industries that benefit most are the automotive sector, the chemical and pharmaceutical industry and the metal sector. Nevertheless, the three indicators for these industries continue to be in the negative range”
EGBS: Bund Futures Weaken Into 5-year German Auction Before Stabilising
Bund futures weakened into this morning’s E4.5bln 2.20% Oct-30 Bobl auction before stabilising. Futures are currently -9 ticks at 128.64, off earlier session highs of 128.90. Initial support is Friday’s low at 128.51, which shields the Sep 4 low at 128.25.
- The German auction saw slightly softer cover ratios than last month's outing, but the lowest accepted price was nonetheless in excess of the pre-auction mid price. Finland will sell bonds later this morning, while Slovakia has also already come to the market today.
- Bunds found light support from a pullback in equities and crude oil futures earlier, but moves have generally lacked conviction.
- The German curve has bear steepened, with yields +0.5 to +2.5bps higher.
- 10-year EGB spreads to Bunds are biased slightly tighter. The BTP/Bund spread is eyeing a test of the August low of ~76.7bps (currently -0.5bps at 77.5bps).
- The September German ZEW survey’s expectations component was much stronger-than-expected at 37.3 (vs 25.0 cons), but was only a little higher than August’s 34.7 reading. Meanwhile, Eurozone July industrial production was slightly softer than forecast at 0.3% M/M (vs 0.4% cons, an upwardly revised -0.6% prior).
- ECBspeak hasn’t been market moving. Maltese CB Governor Scicluna had a more hawkish tone than Kazaks earlier in the morning.
