Gold price (XAU/USD) witnessed an intraday pullback from over a one-week high touched on Monday and finally settled in the red, snapping a two-day winning streak amid broad-based US Dollar (USD) strength. Investors have priced out the possibility of another oversized interest rate cut by the Federal Reserve (Fed) in November. This kept the US Treasury bond yields elevated, which pushed the buck to over a two-month top and drove flows away from the non-yielding yellow metal.

Adding to this,  geopolitical risks stemming from the ongoing conflicts in the Middle East assisted the safe-haven precious metal to stall its intraday slide and hold steady above the $2,640 level during the Asian session on Tuesday. 

Daily Digest Market Movers: Gold price draws support from geopolitical risks, smaller Fed rate cut bets to cap gains

The US Dollar shot to its highest level since August 8 on Monday amid growing acceptance of a less aggressive policy easing by the Federal Reserve and bets for a regular 25 basis points interest rate cut in November. 

Minneapolis Fed President Neel Kashkari said on Monday that the monetary policy is still restrictive and suggested that further modest interest rate cuts could be appropriate as the job market remains strong.

Fed Governor Christopher Waller noted that the economy is on solid footing, may not be slowing as much as desired, and that the central bank should proceed with more caution on rate cuts than at the September meeting.

The lack of numerical details for China's fiscal stimulus, along with signs of economic softness in the biggest bullion consumer, prompted some intraday selling around the Gold price on the first day of a new week. 

Israel vowed a forceful response to Hezbollah’s drone attack on its army base on Sunday, which killed four soldiers and severely wounded seven others, raising the risk of a further escalation of geopolitical tensions. 

This comes amid growing concern that Israel may mount an offensive against Iranian assets and a broader regional conflict in the Middle East, which offers some support to the safe-haven precious metal. 

Traders now look to the release of the Empire State Manufacturing Index, which, along with Fedspeak, should produce short-term trading opportunities around the XAU/USD later during the North American session. 

Technical Outlook: Gold price could aim to surpass the all-time peak touched in September and conquer the $2,700 mark

From a technical perspective, the overnight swing high, around the $2,666-2,667 region, now seems to act as an immediate hurdle. A sustained strength beyond has the potential to lift the Gold price back towards the all-time peak, around the $2,685-2,686 region touched in September. This is closely followed by the $2,700 round-figure mark, which if cleared decisively will set the stage for an extension of a well-established multi-month-old uptrend.

On the flip side, weakness below the $2,632-2,630 immediate support is likely to attract some buyers and remain limited near the $2,600 round-figure mark. Failure to defend the said handle will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to accelerate the fall towards the next relevant support near the $2,560 zone. The corrective slide could extend further towards the $2,535-2,530 region en route to the $2,500 psychological mark.

Source: FXSTREET

Germany is suffering a mild recession and output across the whole of 2024 will be flat, according to a Bloomberg survey — underscoring the malaise in Europe’s largest economy.

Analysts in the poll see gross domestic product shrinking 0.1% in the third quarter, following a surprise contraction of that magnitude in the second. A month ago, they still forecast stagnation between July and September.

Their full-year projection also marks a downward revision from the 0.1% expansion previously envisioned. But it’s a tad more optimistic than the government, which last week slashed its forecast to a contraction of 0.2%.

Germany’s struggles are once again in the spotlight, with retrenchment by some of its top industrial firms adding to the gloom. The weakness is largely down to the cutoff of Russian energy supplies, disappointing export demand from China, problems among carmakers and a dearth of skilled workers.

A contraction in 2024 would be only the second time GDP declined in consecutive years since West and East Germany were reunified in 1990. In 2023, Germany was the only Group of Seven economy to shrink, by 0.3%.

“Industry remains the Achilles heel,” said Erik-Jan van Harn, an analyst at Rabobank. “There’s no clear catalyst for a turnaround. A bottoming out is the best case scenario for now.”

For 2025, analysts expect 0.8% growth compared with 1% before. The government’s new forecasts envisage 1.1%.

Germany’s “economic weakness likely continued in the second half of 2024, before growth momentum gradually increases again next year,” the Economy Ministry said Monday in a report, adding that a “technical recession” probably occurred in the second and third quarters.

Source: The edge markets

British Prime Minister Keir Starmer promised on Monday to scrap regulation that holds back economic growth as he hosted some of the world's biggest businesses at a conference designed to woo international investors.

Starmer's Labour Party came to power in July, pledging to end years of political instability and win back the faith of private investors to reinvigorate the UK's run-down infrastructure and public services.

But many investors remain cautious about Britain, complaining that it takes too long to build anything.

The new government, which has had a rocky start, told investors it would streamline planning to accelerate building, overhaul regulation to promote innovation and deliver cheap, clean energy.

In an attempt to outshine rival governments competing for investment, it will later host executives from the world's biggest banks, investment groups and insurers at St Paul's Cathedral with King Charles and a performance by Elton John.

"We are determined to lead the way on growth," Starmer told the summit at London's Guildhall. "Determined to get Britain building. Determined to get our economy moving."

Britain had been one of the most popular destinations for international investment until the 2016 vote to leave the European Union triggered uncertainty over its future trading rules, and a lengthy period of political instability.

According to Reuters calculations, the value of foreign direct investment inflows as a percentage of Britain's economy hit a nine-year low of 2.7% in the second quarter of 2024.

The government, bound by fiscal rules that limit its capacity to borrow, is now hoping to use the summit to attract tens of billions of pounds of investment and show it can once again become a top destination for private capital.

It defended early moves to improve workers' rights, saying more secure employment would create a more sustainable economy, and it laid out its plans for an industrial strategy that would encompass skills, R&D, energy supply, planning and funding.

Many companies had previously criticised Britain's lack of an overarching plan.

Britain also announced plans to ease bank ring-fencing rules and remove redundant reporting requirements for firms.

Regulatory review

Regulators, including the Competition and Markets Authority (CMA), would be reviewed, it said.

"We will make sure that every regulator in this country takes growth as seriously as this room does," Starmer said.

The anti-trust regulator, which gained greater prominence when Britain left the EU in 2020, made headlines last year when it blocked Microsoft's US$69 billion (RM296.33 billion) acquisition of "Call of Duty" maker Activision Blizzard.

Following a backlash from the two companies, it tore up its own rule book to reopen and then approve the case after Microsoft came back with changes.

David Ricks, head of pharmaceutical giant Eli Lilly, which announced a £279 million (RM1.56 billion)investment, welcomed the new regulatory approach, telling BBC Radio that with Britain outside the EU it needed "to be quite different to make it interesting".

But regulation is not investors' only concern.

Markets are retreating from bullish bets on Britain as concerns grow about the debt-laden public finances and possible tax hikes in an Oct 30 budget.

After announcing it had inherited a £22 billion black hole in the public finances, Labour's first budget — and who it will target to raise money — will be crucial to the mood.

Business minister Jonathan Reynolds appeared to suggest on Sunday the government could raise national insurance contributions for employers.

Starmer said the budget would have the "tough love of prudence".

Source: The edge markets

Waller's Speech

West Texas Intermediate (WTI) Oil price continues its decline for the third successive session, trading around $71.10 per barrel during Tuesday’s Asian hours. Crude Oil prices are facing downward pressure following a media report suggesting that Israel is willing to refrain from targeting Iranian oil facilities, easing concerns about potential supply disruptions.

The Washington Post reported on Monday that Israeli Prime Minister Benjamin Netanyahu informed the United States (US) that Israel plans to focus on Iranian military targets rather than nuclear or Oil infrastructure. Last week, Oil prices had gained support as investors feared supply risks after Israel indicated plans to retaliate against a missile attack from Iran.

On Monday, Crude Oil prices dropped nearly 5% following the release of the OPEC Monthly Market Report, which revised its global Oil demand growth outlook for 2024 and 2025. OPEC also cut its forecast for China's crude oil demand growth for the third consecutive month in October, citing the growing adoption of electric vehicles and sluggish economic growth as key factors.

The Monthly Oil Market Report (MOMR) by the Organization of the Petroleum Exporting Countries (OPEC) suggests China's crude Oil demand will expand by 580,000 barrels per day (bpd) in 2024. This estimate is down from the 650,000 bpd gain forecast in September and is also 180,000 bpd below the rise of 760,000 bpd OPEC was predicting in July for the world's biggest oil importer.

Saudi Arabia could ramp up production amid declining cohesion among OPEC+ members. Despite voluntary production cuts, OPEC+ producers have been overproducing by as much as 800,000 barrels per day. The Saudi oil minister cautioned that prices could fall to $50 per barrel if member countries do not adhere to the agreed-upon cuts.

Source: FXSTREET

New Zealand’s government is keeping the pressure on the Reserve Bank of New Zealand (RBNZ) to use its regulatory powers to encourage more banking competition.

Finance Minister Nicola Willis reiterated on Tuesday that she is prepared to consider legislative change if a planned rewrite of the RBNZ’s financial policy remit doesn’t achieve what she wants.

The new remit will make it clear that the RBNZ “needs to not only sustain competition but actually promote more competition and to effect that through its prudential and regulatory settings,” Willis told the INFINZ conference in Auckland.

“I’ve been consistent in saying [that] if changing the financial policy remit is not sufficient, then we would be prepared to make amendments to both the Deposit Takers Act and the Reserve Bank Act,” she said.

Willis is responding to a report that said the four largest lenders in New Zealand — all Australian-owned banks — are too dominant and profitable, and the lack of competition was hurting consumers. She wants the RBNZ to do more in its regulatory role, and is also assessing how to inject more capital into state-owned Kiwibank — the fifth biggest lender — to allow it to be a more effective rival.

She said the government is seeking a balance that allows for competition and new entrants, and that doesn’t overly advantage incumbents with significant market share.

Speaking later at the conference, RBNZ deputy governor Christian Hawkesby said the central bank has been making steps in that direction.

There is a growing appreciation internally that banking system resilience is only part of the picture and more needs to be done around competition, innovation, efficiency and inclusion, he said.

“There’ll be some things that we don’t have direct control over, but we can be part of that conversation,” Hawkesby said. “We can have the ability to draw the industry together, when there are other players who really need to take a lead in these areas as well.”

The RBNZ is looking at ways it can tailor regulations to smaller players, and is consulting on ways to make it easier for new entrants, for example by adopting lower minimum capital requirements to become a bank and by reviewing who is entitled to use the word ‘bank’.

While there are inevitably economies of scale that give large banks advantages, Hawkesby said the move to open banking will encourage those big players to compete more with each other. Open banking allows customers to share their financial data with other providers, making switching easier.

Hawkesby said the existing legislative structure the RBNZ works under has only recently been adopted, and needs time to bed in. He welcomed that Willis is initially using her powers under the remit to outline her expectations.

“It’s great that she’s not going straight to legislative change,” he said. “It gives us a chance to illustrate that we can take into account competition, efficiency and inclusion, and that it can be done under the legislative framework that we have at the moment.”

Source: The edge markets