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Risk Assets Fall on Increased Recession Fears

Mahmoud Alkudsi Mahmoud Alkudsi 07/12/2022
Risk Assets Fall on Increased Recession Fears Risk Assets Fall on Increased Recession Fears
Risk Assets Fall on Increased Recession Fears Mahmoud Alkudsi
Economic Data Releases
 
The Australian GDP (Q3) released earlier today at 5.9% came in lower than the expected 6.2%. while the Swiss unemployment level (Nov) of 2% came in higher than the previous of 1.9%. On the other hand, the Eurozone GDP (Q3) read of 2.3% has come in higher than expected of 2.1%.
 
Looking Ahead
 
Investors expect the Bank of Canada rate decision today at 7:00 pm UAE time. The central bank is likely to hike interest rates by 50 basis points from 3.75% to 4.25%, as the tight labor market with a demand exceeding the supply capacity may keep feeding inflation pressures.
It should be noted that markets have already priced in hiking rates by nearly 30 bp. Therefore, a 50 pb hike would be supportive of the Canadian dollar price in the short term.
 
Indices and Bonds Yields
 
The US equity futures with the European indices retreated on increased fears of economic recession next year, caused by the current central banks’ monetary policies which aim to tame high inflation levels, combined with soft Chinese economic data.
 
The US two years yields at 4.35% remained higher than the 10 years treasury yields at 3.53 %. A negative spread in favor of the shorter bonds yield reflects a yield curve inversion and highlights that the US economy is heading into a recession.
 
Major FX Currencies
 
The US dollar price rallied on a weaker risk appetite, and while investors favor the recession scenario, the greenback price could benefit from the current tight monetary policy of the Fed. However, a lower-than-expected US Producer Price Index (Nov) due on Friday could weigh on the upcoming US Consumer Price Index numbers (inflation levels) due next week and opens the door to a slower rate hike in the coming Fed meetings
Technically, the US dollar index closed above 105.42 eying a test of 108.11. Although, any daily close below 105.42 may embolden traders to press toward 103.83.
 
The EUR/USD traders await Fed and the ECB meeting next week (December 14th and 15th). The Fed is expected to publish its economic forecasts (growth, inflation, and unemployment) with the FOMC dot plot showing where the Fed members see interest rates heading in the coming years. It is highly likely to see both central banks hiking interest rates by 50bp in December and maintaining their hawkish tone of keeping a tight monetary policy until inflation levels are brought down to the 2% target.
 
Technically, the EUR/USD price could be on the way to 1.0415 then 1.0334 while below 1.0559. On the other hand, a daily close above 1.0559 could entice traders to rally the price even higher towards 1.0658 and 1.0730 respectively.
 
 
Commodities
 
The Gold price declined this week on a stronger US dollar due to higher-than-expected data in the services sector. Investors believed that good data reflects the US economy’s resilience and allows further rate hikes by the Fed
 
The oil price hit a multi-month low as WTI and Brent broke below the $80 threshold on increased concerns of a global recession that could affect the demand outlook. Investors await the US inventory data release at 7:30 PM UAE time.
 
Technically, the WTI price could be on the way for a test of 68.08 while below 74.97. On the other hand, a daily close above 74.97 could send the price even higher toward 79.82.
 
Chart of the Day- Gold Daily Price Chart
 
ThinkTrader chart source

On December 5, the gold price rallied to a multi-month high at $1810/oz. However, the price retreated later as some traders exited the market.
 
Currently, the price is moving within the trading zone between 1765 -1807. Therefore, a daily close below the low end of this zone could encourage traders to press toward 1685. However, the support levels located at 1747 and 1720 should be considered. On the other hand, a daily close above the high end of the zone signals a possible rally toward 1848 although, the resistance level residing in 1831 should be kept in focus.

 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Carl Capolingua
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Carl Capolingua
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Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

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Lesego Mthombothi
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Mahmoud Alkudsi
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Mahmoud is a market analyst, with over a decade of experience in financial markets. He follows main market movers and tracks their effect on the price chart. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and with his wide experience in providing educational and guidance materials to all levels of traders, he helps them in making informed trading decisions. Before joining ThinkMarkets, Mahmoud was head of market research departments in different reputed financial companies, where he provided market analysis for a variety of asset classes, including FX, equities, indices, and commodity futures. As an experienced market commentator, he was hosted by too many print and broadcast media, including not limited to Sky News Arabia, France 24, Alarabyia, Alsharq-Bloomberg, and CNBC Alarabyia to discuss key risk events their clear impact on the price action. Mahmoud holds a Master of Business Administration (MBA) from Cardiff Metropolitan University of Wales, UK, and speaks Arabic, English, and Spanish.

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Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Lesego
Lesego Mthombothi
Lesego Mthombothi is an experienced market research analyst and investment professional who proudly holds an honours degree in investment management and completed her CFA level 1.
Mahmoud Alkudsi
Mahmoud Alkudsi
Mahmoud is a market analyst with over a decade of experience in financial markets. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and has experience in providing guidance to all levels of traders.
Shawn
Shawn Lee
Shawn Lee has over eight years of experience in the financial market as a market analyst. Shawn provides market key insights and trade ideas through the market and technical analysis. He also held trader roles and guided traders in maximising one’s trading success.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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