Gold suddenly exploded.

Gold and silver prices soared, spurred by the ECB's announcement of interest rate cuts and expectations that the Federal Reserve would cut interest rates. On Thursday evening, spot gold rose more than 2,560 US dollars/ounce during the intraday period, reaching a record high. Affected by this, US gold stocks strengthened across the board.$Coeur Mining (CDE.US)$It surged more than 19%,$Hecla Mining (HL.US)$It surged nearly 9%, $Newmont (NEM.US)$ , $Barrick Gold (GOLD.US)$ Qi Qi rose by more than 4%.

According to the news, the ECB announced its latest interest rate decision, cutting interest rates on key deposits by 25 basis points, while interest rates on major refinancing and marginal loans were cut by 60 basis points. In addition, the US PPI data for August and the number of people applying for unemployment benefits for the first time in the week of September 7 have also been released. The market generally expects the Federal Reserve to cut interest rates by 25 basis points at next week's meeting. The total rate cut by the Federal Reserve is expected to be 100 basis points in 2024.

On the eve of the Federal Reserve's interest rate cut cycle, Wall Street's outlook for the US stock market is becoming more and more optimistic. Some Wall Street analysts believe that US stocks may enter a period of major rebound. According to Bespoke Investment Group, October has always been the month where the stock market soared the most.

Gold soared

On the evening of September 12, spot gold continued to rise, reaching an intraday record high of 256.0.12 US dollars/ounce. By the close, spot gold rose 1.88% to 2558.485 US dollars/ounce, breaking the record closing high. Spot silver rose 4.15% to $29.857 per ounce. COMEX gold futures rose 1.85% to 2587.2 US dollars/ounce, breaking the record closing high. COMEX silver futures rose 4.17% to $30.215 per ounce.

According to the news, the ECB announced its latest interest rate decision, cutting interest rates on key deposits by 25 basis points, while interest rates on major refinancing and marginal loans were cut by 60 basis points.

In addition, the US PPI data for August and the number of people applying for unemployment benefits for the first time in the week of September 7 were released one after another, and expectations for the Fed to cut interest rates are further heating up.

On the evening of September 12, Beijing time, data released by the US Department of Labor showed that US PPI increased 1.7% year on year in August, the lowest since February; 0.2% month-on-month increase, higher than expected 0.1%; August core PPI increased 2.4% year on year, in line with expectations, in line with previous values; increased 0.3% month-on-month, higher than expected; final demand service prices rose 0.4% in August and fell 0.3% in July.

Also, according to data released by the US Department of Labor, the number of people applying for unemployment benefits in the US for the first time in the week of September 7 was 0.23 million, and the previous value was 0.227 million. This is the first recovery in three weeks, in line with the gradual slowdown in recruitment.

Furthermore, the number of renewed jobless claims in the US for the week ending August 31 was 1.85 million, a slight increase of 0.005 million. The number of people renewing unemployment benefits surged to the level since the end of 2021 in July, then mostly showed a downward trend in August. This decline is in line with last month's decline in unemployment.

The four-week moving average rose to 230750, the first increase in five weeks. The number of unemployment claims has been sluggish in recent weeks. Economists have been watching for signs of a declining labor market.

It should be pointed out that last week's data included the US Labor Day holiday, and the number of initial jobless claims often fluctuates around public holidays.

As demand for labor slows, the market generally expects the Federal Reserve to cut interest rates by 25 basis points at next week's meeting. The total rate cut by the Federal Reserve is expected to be 100 basis points in 2024.

After the data was published,$USD (USDindex.FX)$It rose in the short term, with the three major indices diverging, and gold stocks collectively rising.

Adam Hamilton (Adam Hamilton), founder of financial consulting firm Zeal Intelligence, said that the price of gold has reached an unprecedented level, rising 38.7% in less than 11 months, and continues to reach record highs. As US investors switch from traditional stocks to gold, and the artificial intelligence (AI) bubble bursts, the price of gold may rise further.

Lauren Goodwin, chief market strategist at New York Life Investments, said: “Our latest inflation report confirms a trend we have recognized over the past few months, that is, the Federal Reserve is now less concerned about inflation and more on economic growth, which completely changes the market's reaction.”

On September 11, local time, Goldman Sachs Group CEO David Solomon pointed out that due to signs of weakness in the US job market, the Federal Reserve has reason to propose a 50 basis point interest rate cut instead of the standard 25 basis points. “I think this possibility is around 30%.”

Solomon said that his most optimistic guess is that the Federal Reserve may cut interest rates by 25 basis points in September, may cut interest rates two to three times before the end of the year, and anticipates a soft landing for the US economy.

Optimistic expectations

On the eve of the Federal Reserve's interest rate cut cycle, Wall Street's outlook for the US stock market is becoming more and more optimistic. Some Wall Street analysts believe that after experiencing the “curse” in September, US stocks may usher in a period of major rebound.

According to Bespoke Investment Group, October has always been the month where the stock market soared the most. Ned Davis Research said that US stocks are likely to “continue to rise”, which will be supported by seasonal trends in the fourth quarter. In other words, October-December is generally a strong 3 months of the year.

Jay Hatfield, CEO of Infrastructure Capital Advisors, said in a report released recently that the latest employment report is still consistent with the growing economy and has verified his S&P 500 target of 6,000 points, which means 11% room for growth.

Michael Hartnett, chief investment strategist at Bank of America, pointed out in a recently released report that the probability of a “hard landing” in the US is generally underestimated. Even if the Fed only cuts interest rates by 25 basis points when it first cuts interest rates, it will still cut interest rates sharply thereafter. He believes that the most beneficial operation now is to “sell and cut interest rates for the first time” and wait for a better time for risk assets to enter the market.

According to J.P. Morgan analysts' model, as of last Wednesday, the stock and investment-grade credit markets expected the probability of a recession in the US economy to be only 9%, while the commodity and bond markets were priced at a higher probability of a recession of 62% and 70%, respectively.

UBS Group CEO Sergio Hermotti believes that the long-awaited soft landing for the US economy can still be achieved, adding that other economic data still seem to point to this situation.

However, there are also quite a few institutions that suggest the risk of a pullback in US stocks. Among them, Morgan Stanley strategist Michael Wilson believes that if the Federal Reserve cuts interest rates sharply this month, the US stock market may face the risk of further liquidation of Japanese yen arbitrage transactions.

Priya Misra, portfolio manager at J.P. Morgan Asset Management, warned: “I don't think any market actually prices a reasonable probability of a recession, but all the data indicates that the risk of a recession is increasing. Although the Federal Reserve cut interest rates by 25 basis points or 50 basis points in September is still debated, if a recession actually hits, all markets will be affected. Interest rate cuts will take some time to penetrate the economy.”

The strategist at RBC Capital Markets said that due to seasonal factors, market sentiment, and risks brought about by factors such as presidential elections, the US stock market may continue to fluctuate and fall further in the short term. They warned that if concerns about a hard landing escalate, the risk of the stock market falling to the 14%-20% range due to growth fears will definitely rise.

edit/emily