Weekly Digest: Gold Dips, ECB Eyes Cuts

Gold prices linger near five-week lows, ECB considering rate cuts in mid-2024, generative AI takes center stage at Davos, France remints 27 million coins after a design error. And more.

Quote of the week

“Very little that happens this year will matter as much for markets as the U.S. election. Indeed, it’s just possible that the campaign and its result could move markets even more than what the Federal Reserve might do.”??- John Authers, Bloomberg columnist

Investment news

??Gold dips amid rate-cut skepticism. Gold prices hovered near five-week lows, influenced by expectations of fewer and later U.S. interest rate cuts this year. Spot gold slightly increased by 0.1% to $2,008.13 per ounce at around 06:45 CET on Thursday, rebounding from its drop to $2,001.72 the previous day, which was its lowest level since December 13. This sentiment is fueled by recent U.S. retail sales data, suggesting a robust economy, and comments from Fed officials advocating a cautious approach to rate cuts.

??European stocks rally. European markets saw a rebound on Thursday, amid keen investor interest in remarks from the World Economic Forum in Davos. Central bank officials at Davos struck a hawkish tone on interest rate cuts, suggesting markets may be overly optimistic about early spring reductions. The Stoxx 600 index rose 0.52%, recovering from three consecutive days of losses, with travel stocks leading the charge with a 4.85% gain. (CNBC)

??ECB eyes summer rate cuts. The European Central Bank is increasingly open to reducing interest rates around mid-2024, with President Christine Lagarde indicating June as a probable timeframe for the cuts. Despite market expectations for earlier rate reductions, ECB officials are awaiting more comprehensive data on inflation, wages, and the economy's overall state. “I would say it’s likely too,” Lagarde said. “But I have to be reserved, because we are also saying that we are data dependent, and that there is still a level of uncertainty and some indicators that are not anchored at the level where we would like to see them.” (Bloomberg)

???? Wage rises challenge ECB's inflation fight. European workers anticipate significant wage increases this year, aiming to offset the impact of soaring prices, but this could complicate the European Central Bank's (ECB) mission to rein in inflation. The ECB is wary of wage growth, projecting a 4.6% increase across the eurozone, potentially impacting future interest rate decisions. While there's no evidence yet of a wage-price spiral, the ECB and economists are closely monitoring the situation. This emerging dynamic suggests a shift in the balance of economic power, potentially leading to prolonged higher inflation and interest rates. (Reuters)

??Dollar surge sparks global intervention fears. The strengthening of the U.S. dollar is leading to increased speculation about potential interventions from Asian central banks to stabilize their currencies. Taiwan, South Korea, and China have already shown signs of taking steps to support their currencies amid the dollar's rise. Analysts from Capital.com and Barclays expect more interventions if the dollar continues its upward trajectory. The yen and the won are particularly under scrutiny, with the yen nearing intervention levels and the won experiencing significant volatility. (Bloomberg)

???? Chip curbs intensify for China. Analysts predict more stringent export controls on China's semiconductor industry, following recent restrictions by the U.S. and the Netherlands. The U.S. tightened controls on advanced semiconductors and chipmaking tools in 2022, concerned about China's potential military and AI applications, with the Netherlands blocking key exports from ASML to China. Now, the U.S. government has signaled that they’re planning to roll out new export controls that do close loopholes on a regular basis. (CNBC)

?? AI dominates Davos. Generative AI took center stage at the World Economic Forum in Davos, with tech leaders emphasizing the need for higher accuracy. The financial industry will use AI to update old code to modernize aging systems, improving automated workflows, which can save employees hours each day, said Nasdaq CEO Adena Friedman: “It came onto the scene a little over a year ago. We did some experimentation. We started to kind of understand the potential of it. This year will be the year of activations for us and everyone.” (CNBC)

Image of the week

Opinion

????Dimon signals economic caution. JPMorgan CEO Jamie Dimon warned of significant challenges for the U.S. economy in 2024 and 2025, pointing to geopolitical tensions and financial uncertainties. Despite a strong stock market, Dimon advised caution, noting the economy's reliance on fiscal and monetary stimulus: “I think it’s a mistake to assume that everything’s hunky-dory,” Dimon said. “When stock markets are up, it’s kind of like this little drug we all feel like it’s just great. But remember, we’ve had so much fiscal monetary stimulation, so I’m a little more on the cautious side.” (CNBC)

What else?is happening

?????Continuing Red Sea turmoil. The U.S. has intensified its military strikes against Houthi targets in Yemen, responding to the group's attacks on shipping routes in the Red Sea that are crucial for global trade. Despite these efforts, Houthi missiles continue to disrupt shipping, compelling companies like Volvo Cars to face production delays due to rerouted deliveries. The U.S. Navy also intercepted Iranian-made weapons bound for Yemen, indicating the broader geopolitical implications of the conflict. (FT)

???? ??????China's military flexes near Taiwan. Taiwan's defense ministry reported significant Chinese military activity around the island, including 18 air force planes and naval operations, marking the first large-scale maneuvers since Taiwan's recent presidential election. This escalation follows the election of Lai Ching-te of the Democratic Progressive Party, whom Beijing criticizes as a separatist. The Chinese aircraft, including Su-30 fighters, crossed the median line of the Taiwan Strait, a move indicating China's dismissal of this unofficial boundary. Taiwan responded by deploying its own forces for monitoring, highlighting the ongoing tensions in the region. (Reuters)

????Davos hot topic. Donald Trump's potential re-election as U.S. President is a major topic of discussion at the World Economic Forum in Davos, despite his absence from the event. Trump's recent win in the Iowa caucuses has positioned him as a leading candidate in the Republican primary, sparking speculation about another showdown with Joe Biden. (CNBC)

??????Ukraine’s statehood at risk. Russian President Vladimir Putin warned of a potential "irreparable blow" to Ukraine's statehood if the current war trajectory persists. His comments come after Switzerland agreed to host a global summit at Ukraine's request. Putin said talk of negotiation was "an attempt to motivate us to abandon the gains that we have realized over the past year and a half. But this is impossible. Everyone understands that this is impossible.” (Reuters)

????Top German CEOs sound alarm. Leading executives from major German companies like Infineon and Evonik have voiced concerns about the far-right Alternative for Germany (AfD) party, fearing its rise could harm Europe's largest economy. The recent outrage over an AfD meeting discussing mass deportations has intensified worries about Germany's appeal as an investment destination and its labor market stability. (Reuters)

And Finally...

??Oops! France had to destroy and remint 27 million coins due to non-compliance with EU design standards, specifically regarding the depiction of EU flag stars. The Monnaie de Paris proceeded with coin production without formal EU approval, later receiving an informal warning from the Commission about the design breach. The 27 million coins represent 4% of the annual production of the Monnaie de Paris, which is, incidentally, the oldest continuously-running minting institution in the world, having been founded in the year 864. (Politico)

See you next week!

Your GOLD AVENUE Team