NATO summit is about to start, maybe bring a bullish opportunity for gold?

At the beginning of the Asian market on Tuesday (June 28), spot gold fluctuated in a narrow range and is currently trading around $1,825 an ounce. Overnight, gold prices weakened slightly due to a rebound in U.S. Treasury yields. However, the market lowered the Fed’s aggressiveness. Expectations of interest rate hikes, the US dollar index weakened slightly, and the G7 meeting discussed strengthening sanctions against Russia, and the NATO summit will be ushered in this trading day. , which is expected to provide short-term upward momentum for gold prices.

Gold was weaker on Monday as the bond market sold off again after another U.S. bond auction with weak demand, said Edward Moya, senior analyst at OANDA. The outlook for gold is mixed in the short term, with a lot of uncertainty this summer. nature, the possibility of a more aggressive Fed on one side and the risk of a recession on the other. "

On the whole, the short-term gold price is still in a narrow range and weakened, but there are more bullish factors in the market. Before falling below, the daily Bollinger line at 1810.90, the market outlook tends to fluctuate slightly.

Bullish 1: Dallas Fed manufacturing index falls to lowest since May 2020

A measure of manufacturing activity in Texas fell to a two-year low in June, in line with recent economic reports from other Fed jurisdictions that showed producers facing high inflation, weak demand and supply problems.

A gauge of manufacturing activity fell to -17.7, the lowest since May 2020, from -7.3 the month before. A reading below zero indicates a higher share of respondents who believe the situation has worsened.

Orders, shipments and production metrics from the Dallas Fed also fell to their lowest levels since the early months of the outbreak. A measure of expected business activity over the next six months fell to -26, the lowest since April 2020.

Inflation and wage indicators have fallen but remain high.

Bullish 2: U.S. dollar falls, markets reassess Fed rate hike bets and focus on ECB annual forum

The dollar struggled against major currencies on Monday as softening inflation expectations prompted a reassessment of the prospect of aggressive interest rate hikes, but volatile markets cushioned broader losses.

Aggressive rate hike bets boosted the dollar, which rose to a near two-decade high of 105.79 earlier this month. But investors are turning cautious as some high-frequency data indicators show economic momentum is starting to cool and commodity prices are broadly lower.

Edward Moya, senior market analyst at OANDA, said, "It's hard to say with confidence that a bottom has been reached in U.S. stocks, so many traders are still looking to downplay any rebound that occurs," said Edward Moya, senior market analyst at OANDA.

The dollar index fell 0.17% to 103.95 on Monday. It touched 105.79 earlier this month, the highest since late 2002.

Interest rate futures pricing showed traders now expect the Fed's benchmark funds rate to stabilize at around 3.5% from March next year, up from a forecast of 4% two weeks ago.

Bullish 3: Russian missile hits a Ukrainian shopping center, the West promises to further support Ukraine

Western nations on Monday pledged unwavering support for Ukraine in its war with Russia, with Ukrainian officials saying 28 civilians were killed in Russian attacks, including a missile strike on a crowded shopping mall.

G7 leaders said at a meeting in Germany that they would continue to impose sanctions on Russia as long as necessary and increase international pressure on President Vladimir Putin's government and its ally Belarus.

British Prime Minister Boris Johnson told the BBC: "Imagine what it would be like if we allowed Putin to violently acquire large swaths of sovereign independent territory in another country."

The United States said it was finalizing a new batch of weapons for Ukraine, including long-range anti-aircraft missile systems — something Ukrainian President Volodymyr Zelensky specifically requested in a video address to G7 leaders on Monday. 

After weeks of bombing and street fighting, Ukraine has suffered another setback on the front line, with the now razed city of Severo Donetsk having fallen.

Russian artillery is bombarding the city of Lisichansk on the other side of the Severo Donets River. A Russian missile strike killed eight people and wounded 21 in the city on Monday, said Serhiy Gaidai, the district's chief.

Firefighters and soldiers were searching among the rubble for survivors after two missiles hit a shopping mall in the city of Kremenchug, southeast of Kyiv, killing at least 13 people and injuring 40, Ukrainian officials said. 

"This was not an accidental hit, it was a well-planned attack by Russia, targeting this shopping center," Zelensky said in a video speech at night. He said earlier that there were more than 1,000 people in the shopping center at the time.

Russia has not commented on Ukraine's accusations. Russia's deputy ambassador to the United Nations, Dmitry Polyanskiy, accused Ukraine of using the incident to gain Western sympathy ahead of the upcoming NATO summit.

"People should wait for what our Department of Defense has to say, but there are already too many claims that are seriously inconsistent with the facts," he tweeted.

A senior U.S. defense official said on condition of anonymity that Russia launched about 60 attacks on Ukraine over the weekend.

In a speech to G7 leaders, Zelensky repeated his demands for more weapons, U.S. and European officials said. He asked leaders to help Ukraine export food and demanded more sanctions on Russia.

The G7 pledged to further squeeze Russia’s finances, with U.S. officials saying it was “close” to an agreement on a cap on Russian oil prices, and the group pledged another $29.5 billion worth of aid for Ukraine.

"We will continue to provide financial, humanitarian, military and diplomatic support, and we will stand with Ukraine as long as it is needed," the G7 said in a statement.

Bullish 4: International sanctions cut off payment channels, Russia suffered a historic default

Russia has defaulted on international bonds for the first time in more than a century, the White House and ratings agency Moody's said, as sweeping sanctions have effectively cut the country off from the global financial system, leaving its assets out of reach.

Sitting on huge oil and gas revenues, the Kremlin actually has enough money to pay; it denies debt defaults and blames the West for putting it into artificial default.

Some bondholders earlier said they did not receive overdue interest on Monday after a key payment deadline came due on Sunday.

Moody's said late Monday that missed coupon payments constituted a default. "Further coupon payment defaults may occur".

Russia has struggled to maintain payments related to $40 billion in outstanding bonds since it invaded Ukraine on February 24.

"This morning's news about Russia's first default in more than a century shows how forceful the U.S. action with allies and partners has been, and the impact it has had on Russia's economy," a U.S. official said on the sidelines of the G7 summit in Germany. "

Russia's efforts to avoid its first major international bond default in more than 100 years hit an insurmountable hurdle after the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) effectively blocked Moscow payments in late May

While a formal default is largely symbolic, as Russia is currently unable to borrow in international markets and has no need for it due to its rich oil and gas revenues, the bad reputation of ever defaulting may raise the issue of future borrowing costs for the country.

The payments involved were two tranches of US$100 million in interest on bonds denominated in US dollars and euros, which were due by Russia on May 27. The payments have a 30-day grace period and expired on Sunday.

"Russia's default was set last month when it failed to pay interest, and that has largely been priced in, with bond prices stuck in the 10%-20% of face area for a long time," Algebris Global Credit said Gabriele Foa, portfolio manager at the Opportunity Fund. "I don't expect creditors to organize and hold restructuring talks anytime soon, which may not be possible in an environment of political tension."

Russia's finance ministry said it had paid its onshore National Settlement Depository (NSD) in euros and dollars, adding that it had complied with its obligations.

Kremlin spokesman Dmitry Peskov said in a call with reporters that the blocking of payments by clearing house Euroclear due to Western sanctions on Russia "is not our problem and there is absolutely no reason to call such a situation a default. ".

Bullish 5: NATO plans to make the most significant adjustment to its defense plan in decades, expand the high-alert force to 300,000

The North Atlantic Treaty Organization (NATO) plans to expand the size of the high-alert force to 300,000 people, effectively increasing its number nearly sevenfold, calling it one of the biggest changes to its defense plans in decades.

The leaders of NATO's 30 member nations, meeting in Madrid this week, will approve major changes to NATO's long-term defense plan to better deter threats from Russia following its invasion of Ukraine.

Under the so-called new force model, NATO will pre-position more equipment, boost air defenses, and designate specialized units to guard specific allies and maintain specific alert levels for those units. For example, Germany and other countries have announced some details of their plans in Lithuania, while the United States and the United Kingdom will disclose their plans at the summit.

“Overall, this constitutes the most significant reform of our collective deterrence and defense since the Cold War,” NATO Secretary General Stoltenberg told reporters at a briefing on Monday.

NATO's current response force has about 40,000 troops on alert for less than 15 days, with a large reserve force. A NATO official said the new force model will effectively transform the response force with new elements such as pre-assigned forces, with more than 300,000 soldiers on high alert by the time the transition is complete in 2023.

Some allies will draw inspiration from recent German plans in Lithuania, which include increasing ground forces, pre-positioning equipment and identifying domestic routine training forces that could soon be deployed to Lithuania.

Bullish 6: Goldman Sachs: U.S. interest rate market underestimates recession risk

Goldman Sachs' rates strategists believe U.S. markets are underestimating the risk of a recession in 2024, joining a recent popular bet on a dovish Fed policy.

While expectations for the Fed's policy rate have fallen to limited downside in early 2023 over the past few weeks, investors are still pricing in recession risks for the 2024 federal funds rate, strategist Praveen Korapaty said in a June 24 report. Elevated inflation risks complicate the impact of recession fears on the slope of the yield curve.

To profit from this mispricing in the market, Goldman Sachs recommends betting on a flattening of the March 2023 and March 2024 Eurodollar contract curves, selling a bullish position in the March 2023 futures contract and going long March 2024 futures contract.

"We believe this structure should perform well in the onset of a recession, with risks from an immediate recession or a very long rate hike cycle," they wrote.

Michael Burry, founder of Scion Asset Management and the protagonist of the movie "The Big Short", said that the "long whip effect" in the retail industry may lead to the Fed reversing interest rate hikes and quantitative tightening (QT) policies. He also referred to a report in which retailers were considering letting customers keep returned items instead of returning them to avoid adding to inventory pressure.

Bullish 7: Hedge funds' U.S. Treasury position deployment highlights recession fears

Hedge funds trimming short positions in five-year U.S. Treasuries could bode ill for the world's largest economy.

Leveraged funds trimmed their net short positions on the five-year Treasury note for the third week in a row to the lowest level since May 2021, the latest CFTC data showed. While the trend may be driven in part by arbitrage strategies such as basis trading, the move by leveraged funds may also have deeper implications given growing fears of a U.S. recession.

News stories and social media posts about the "recession" have surged in the past two weeks. Short-end forward yield spreads — a measure devised by Fed researchers to gauge market expectations of recession risk — have also been narrowing since peaking in April.

At present, the Fed is raising policy interest rates while reducing the size of its balance sheet, and the 5-year U.S. Treasury bond is sensitive to the sentiment of bond investors. With U.S. economic data continuing to disappoint, recession fears could drive the outperformance in this maturity.

Outlook

On this trading day, European Central Bank President Christine Lagarde, ECB Chief Economist Len and many other officials will speak, investors need to pay attention; in addition, Richmond Fed President Barkin and San Francisco Fed President Daly There will be separate speeches on the U.S. economic outlook, and investors will also need to pay attention.

In addition, major central bankers including the European Central Bank or Lagarde and Federal Reserve Chairman Powell will attend the European Central Bank's annual forum in Sintra, Portugal on Wednesday (June 28), and investors need to pay attention to changes in market expectations.

It should be reminded that although the fundamentals are currently on the high side, the short-term bearish signal on the technical side is slightly stronger than on Monday, focusing on the support near 1810, the lower rail of the Bollinger Band. The risk of falling sharply, further support is around the 1800 integer mark and the 1786.70 sharp drop in May.

Risk Warning: The above content is for reference only, and does not represent the writer's opinion or investment recommendation. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

#gold#