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Stock futures focus on US GDP data, oil and gold trade lower

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By Naeem Aslam  

US and European futures are trading modestly lower, while investors are on the watch for the most important piece of economic data for this week, which is the US GDP q/q number.

The number is expected to perform a little better compared to the previous reading (previous 1.3% and forecast 1.4%). A strong number will lift sentiment, as traders have been concerned about the hawkish commentary from the Fed Chairman, who has warned markets a few times already that more rate hikes are still on the table.

However, the time has come when the Fed will talk more and do less, as the general direction of inflation is right, and in the coming months we will see a further improvement in this number.

In addition, traders are also looking at the stellar performance of the US stock market YTD as the second quarter and the first half come to an end. This means that there is a strong chance that on Thursday and in the coming days we may see traders booking some profit and that portfolio balancing will also take place, which is likely to bring higher volatility to the market.

Overall, traders feel comfortable with their approach of backing riskier assets, and the bottom line is that the US economy is likely to avert a strong recession, if any. This means that the beginning of the third quarter and the second half could be as positive as the first half of the year has been.

Gold eyes support at $1900

The yellow metal seems to remain out of sight as the Federal Reserve continues its jawboning.

Jerome Powell has a difficult task on hand, which is to tame inflation, and he has made it clear that he is willing to take any chance to make sure that inflation comes close to its target level. This means that any weakness in the dollar index continues to serve as an opportunity for dollar bulls, which has an adverse influence on the gold price.

All eyes continue to remain on the key support level of $1,900, as traders are hoping that the price will gain some strength.

With the fact that the Fed chairman is hawkish and we have the US GDP economic number due Thursday, the chances are more skewed for a further correction in the price of gold. Our base case for the gold price remains intact, and the price is likely to weaken more. The immediate support level for gold continues to remain near the $1,850 price mark.

Oil pressured by weak demand

Black gold is also out of luck, as the crude oil inventory data confirmed Wednesday that traders are concerned about weak demand, which is resulting in higher oil supply.

The focus remains on China and its economic growth, which is not displaying strong signs of growth in terms of economic numbers. But this doesn’t mean that oil prices are going to experience any significant selloff.

However, it is highly likely that the days may be over for the crude oil price to trade back in the 80-dollar price range.

The new range for crude prices is now more likely to be below the $70 price mark. It is possible that on the back of strong US GDP data and a possible improvement in Chinese economic numbers, we may see prices rising to the $75 price mark, but anything above that is unlikely under the current scenario.

 

Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.