Wednesday, December 7

UK raises new tax to save economy

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Fundamental outlook

 

UK’s inflation rose to 41-year record high at 11.1 per cent in October as food and energy prices have been surging tremendously. On Friday, Chancellor of the Exchequer Jeremy Hunt announced a new tax rise worth 25 billion pound, including a five-year income freeze on civil services. It is estimated that six million people will be dragged into paying for higher tax.

US producer prices rose 0.2 per cent in October, lower than the estimated 0.4 per cent. On a yearly basis, US producer prices rose eight per cent compared to 8.4 per cent in September. Dow climbed as traders perceived the inflation is slowing down and there won’t be another rate hike.

US retail sale rose 1.3 per cent in October, surpassing consensus’ expectations. Excluding automobile sales, core retail sale gained 1.3 per cent, the highest in nine months.

Japan’s core inflation rose 3.6 per cent in November on an annual basis, reaching a 40-year high. Despite the stoking inflation, Bank of Japan is still keeping the benchmark rate at minus 0.10 per cent to maintain a low yen exchange rate.

 

Technical forecast

 

US dollar/Japanese yen consolidated in small range from 138 to 140.50 last week. We foresee the trend might move in either direction depending on fundamental factors. Observe the aforementioned range as the boundary limit on both sides might lead to a new trend.

Euro/US dollar has been resilient at 1.04 for many days. We expect the trend to be prone to a downward move as dollar might make a small recovery. The range is expected to move from 1.02 to 1.045. Beware of moving beyond this range as it could lead a new market momentum.

British pound/US dollar slowed down its ascension but stayed resisted at 1.20. We reckoned the trend will likely swing sideways as the investors are still waiting to see a clearer policy from the new government.

We target the initial range from 1.1750 to 1.20 and probably trade within this range for a while. Traders are reminded to be prudent.

WTI Crude prices fell last week due to the fear of a recession. Some supports have been identified at US$80 per barrel before the weekend. We predict the range will move from US$80 to US$90 per barrel in mixed sentiment.

Traders are still adopting a cautious stance in the crude’s direction as many uncertainties loom in the Ukraine war crisis.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives broke beneath RM4,000 per metric tonne due to weakening demand and recovering ringgit against dollar. February 2022 Futures contract closed at RM3,845 per metric tonne on Friday. We reckoned the trend will likely dip further and stay within RM3,600 to RM4,000 per metric tonne. Demand will likely stay low for a while as recession looms in the market.

Gold prices might have temporary hit US$1,790 per ounce last week. The market will continue to make a correction in softer sentiment. The range is expected to be contained from US$1,720 to US$1,770 per ounce in mixed trading. Profit-taking will emerge if the market couldn’t cross above US$1,770 per ounce after mid-week.

Silver prices topped US$22 per ounce last week and has begun to correct. We forecast the range will be tight from US$21.50 to US$22.50 per ounce initially. Sideways trend is likely to emerge as traders adjust their positions. Observe the new direction in case there is a breakaway from the aforementioned range.

 

Dar Wong has more than 30 years of trading and hedging experiences in global financial markets. The opinion is solely his own. He can be reached at dar@alaa.sg