US-China Uncertainty Gold, Fed’s Repos Actions, UK Elections

Nikolas Stylianou

10 December 2019

US-China Uncertainty and Gold

The US-China trade deal remains as one of the most significant factor that may affect the future price of dollar especially in comparing with euro and gold. As white house economic adviser Larry Kudlow announced the December 15 deadline is ahead for a new round of US tariffs on Chinese goods, however United States and China keep negotiating on daily basis in order to reach an interim deal. China has demanded from US to remove some of the existing tariffs for its imports. Although that during these political uncertainties gold take the opportunity to reach new highs as an alternative investment for investors, its price dropped sharply after the US new jobs released last week, which indicated that US economy still be out of danger. Gold investors awaiting for the Federal Reserve economic projections on Wednesday and they expect that the Fed will keep up the interest rates on the same level after three consecutive cutting rates this year. Gold price is traded in sideways for the last four months taking breathing before reach new high levels as many futures gold traders believe for the upcoming year.

 Federal Reserve Repos Actions

The Fed Bank operations intents to create inflow into the financial system over the end of this year in a way attract participants for funding. Around 43 billion dollar have been submitted from the participants for twenty-eight days term repo offers operations with a maturity day at January 6. This is a factor that could be used as evidence that US dollar may be threatened from economic future predictions such as US-China deal which causes uncertainty. This was the last of the three operations that was schedule to provide funding for the end of the year. The upcoming releases for additional term repos operations will take place on Thursday. There are several key dates that participants will be on alert for the Fed’s operations when the market faces pressure from the Treasury settlements and corporate tax payments. Since September 2019 Fed liquidated repo market and as a consequence the overnight rate rise up to 10% from 2% for purchasing back the short term repos. In addition Fed has also buying Treasury bills to add reserves to the system.

UK Parliament Elections

The Financial Times noted that the final week found Mr. Boris Johnson with a 10 point lead on the general election campaign on his opponent Jeremy Corbyn the leader of the Labour Party according to the latest polls. In the case that the Conservative Party known as Tories keep the majority by their side, this would be advantage for help ease political uncertainty prevailing in the United Kingdom. Boris Johnson and Jeremy Corbyn have presented different proposals regarding Brexit. The election operation involve 650 constituencies across UK who will elect members of Parliament and a party is needed to win 326 votes to secure a majority in the house of Commons and to be asked to form a government by the monarch. The latest polls showed that the Conservatives Party got 42.9% against the opposite party of Jeremy Corbyn at 33%. The Liberal are seen with 12.6% of the votes and the Green party are seen around 3%. Note that Boris Johnson promised to implement Brexit by the end of January and simultaneously no rises in income tax, national insurance contributions or Vat and no introduction of a points based on immigration system. From technical point of view pound broke above 1.30 last 3 days and found support at 1.314. Investors believe pound has temporary rise up before drop down and the majority preferred to get exposures from options instead of spot market with the premise to cover themselves against the risk.