Gold trading alert: U.S. manufacturing contracted gold prices four consecutive positive, wary of employment data to suppress

By    6 Jan,2023

Traders' bets on a Fed rate hike changed little after the minutes were released and still expect a possible rate cut in the second half of the year

Traders in futures linked to the Fed's policy rate continued to bet Wednesday that the Fed will raise rates by another 50 basis points in the coming months and then pause at a level slightly below 5 percent.

The federal funds rate cargo fell only slightly after the minutes of the Fed's most recent policy meeting were released, still digesting the possibility of a rate cut later this year. The minutes show that no Fed policymakers believe there will be a rate cut in the second half of the year. The current target range for the federal funds rate is 4.25%-4.5%.

[U.S. manufacturing contracted for the second consecutive month, falling to the lowest level since May 2020].

The Institute for Supply Management (ISM) survey on Wednesday showed that its measure of manufacturers' input prices fell sharply in December to its lowest level since February 2016, in addition to a plunge in April 2020 due to the new crown epidemic.

ISM said its sub-index measuring prices paid by manufacturers fell to 39.4 from 43.0 in November. in addition to the April 2020 plunge, this was the lowest since February 2016 and marked the ninth consecutive monthly decline in the index, reflecting weaker demand for goods, which are typically purchased through loans.

The ISM survey's forward-looking new orders sub-index fell to 45.2 from 47.2 in November, the lowest reading since May 2020 and the fourth straight month the indicator was in contractionary territory.

Its measure of supplier deliveries fell to 45.1 from 47.2 in Nov. The indicator fell below the 50 threshold in October for the first time since Feb. 2016. A reading below 50 indicates a faster pace of deliveries to factories.

Manufacturing contracted for a second straight month in December as demand slumped. the ISM's manufacturing PMI fell to 48.4 from 49.0 in November. this is the lowest level since May 2020, when the economy was hit by the first wave of the new crown epidemic. The index is slightly below the 48.7 level that ISM says is consistent with a broader recession.

The ISM survey, which measures factory employment, rebounded to 51.4 from 48.4 in November. this index fluctuates up and down and is not a good predictor of manufacturing employment in the much-anticipated government jobs report.

[Dollar Weakens Slightly on Wednesday

The dollar index fell 0.4% to close at 104.26 on Wednesday after the minutes of the Federal Reserve's December meeting provided no surprises or new information on the size of the expected rate hike in February. Job openings data provided support to the dollar, but ISM manufacturing PMI data weighed on the dollar's performance.

"I don't think the minutes provided significant new information," said Brian Daingerfield, head of G10 FX strategy at NatWest Markets, adding that the Fed's hawkish outlook was reflected in an upward revision to the median interest rate estimate for 2023 at the December meeting and "was well reflected in the press releases, forecasts and statements at the time."

Daingerfield said, "I would say there was no clear hint that the Fed was inclined to slow further or inclined to retain this new margin of 50 basis points that they did in December. I think that's the core reason we haven't seen a big reaction."

[U.S. bond yields move lower after Fed minutes release, longest decline in more than five months]