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Don’t get me wrong. I would love to see the US Federal Reserve, generally referred to as The Fed, cut the American interest rate next month. Trump wants it, traders want it, and Australian traders especially want it, because it looks like we mightn’t get a Santa Rally without it.
Just don’t bring up the fact the Federal Reserve has been flying blind when it comes to economic data, particularly jobs data, thanks to Trump’s US government shutdown (or the Democrats’ shutdown, depending on what side of the fence you’re on. Truth be told, both are equally culpable.)
That’s something I discussed this week with my Editor Isaac McIntyre on the HotCopper Wire podcast, which you can listen to on Spotify, Apple or on the HotCopper website. Find the link below.
Listen to the HotCopper podcast for in-depth discussions and insights on all the biggest headlines from throughout the week. On Spotify, Apple, and more.
Why do I think the lack of data is important? Well, two things. When we got US September jobs data last week, and that showed the economy added over 110,000 jobs, that appeared to be the trigger for a Wall Street sell-off that then spooked AI investors, causing tech to sell-off too, which then led to a wider panic. So, the market still cares about economic data. That’s point one; that it remains important.
From that you can infer the market remains highly susceptible, or malleable perhaps, to a shock jobs read. Whether that shock would (or could) be upward or downward in nature, who knows.
A week later, and all of those aforementioned losses have been recovered, true.
But that reaction to September data suggests, to me at least, myriad reports about a ‘weak US labour market’ mightn’t resonate on a vibes-based analysis with how the average American citizen feels, and perhaps mightn’t align with what Wall Street traders and investors are truly thinking in their heart of hearts.
(Consider also that as I write this, gold appears to be flirting with a return to US$4,200/oz.)
So what’s up with gold, if we’re about to get a Fed Cut?
It’s hard to tell, really, what the gold price is telling us in response to the upcoming Fed cut. A rate cut would likely decrease the USD, making gold cheaper for overseas buyers. So, if gold is going up because the market expects a cut, that makes sense, assuming those buyers are awaiting further gold price upside once it becomes cheaper in a forex sense.
But that ignores its status as a safe haven, and I feel part of gold’s rise this week is, for many investors, something of a hedge against US uncertainty. (That’s not including ongoing purchases from world central banks, particularly China, who maybe feel the relatively recent trade talks between Trump and Xi didn’t really change the lay of the land. That’s not even getting into India, who I may take a closer look at next week.)
So looking back at investors buying gold in the face of US economic uncertainty, that uncertainty could include if the Fed pauses instead, and equities dip; but it could also indicate that traders might be snatching up gold just incase the Fed does cut before realising it made the wrong move – think hotter than expected jobs, hotter than expected CPI.
And then we come to this consideration: November jobs data isn’t actually going to be considered by the Fed, on paper, until after the December rate cut decision is made. Which I feel is the kind of thing Jerome Powell probably doesn’t feel to fondly of, based on his interactions with Trump a few months ago at the Federal Reserve renovations worksite.
Anyway, even if Jerome Powell might decide to err on a cut and hold instead, well, we can talk about that then. Surely we’ve both had enough of the United States.
So what about the ASX, heading into the last month of the year? There’s a few other upside catalysts for the local bourse out there.
Lithium prices are on the way back up (relative to YoY averages); the European Union is reportedly soon to announce a raft of Australian critical minerals projects it’s decided to invest in, and, Wall Street analysts at least see US ETF inflows as supportive of a Santa Rally for our North American overlord-cousins.
A higher gold price implies good stead for the Materials sector into EOY and, of course, you never know what can happen with geopolitical macro. If there really is a peace plan struck upon between Ukraine and Russia, you can expect crude prices to fall – and, more likely than not, the major defence stocks both at home and abroad.
Finally, here’s a chart I’ve been looking at lot lately.
Here I have compiled the charts for Commonwealth, BHP, the ASX200 (XJO), and the two leading leveraged Betashares ETFs that track overall Australian sentiment – the BBOZ Bear ETF and the GEAR Geared Australian Equities ETF.
I just think it’s neat. And the longer you look at it, the more correlations you can spot. Make of that what you will.
Until next week!
