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Hello everyone, today XM Forex will bring you "[XM Group]: Powell is letting go? The balance sheet reduction is about to end, and the market is betting on unconventional interest rate cuts!". Hope this helps you! The original content is as follows:
With Trump's remarks on Friday easing anxiety about trade tensions and a rebound in regional bank stocks, Wall Street finally saw a red finish to the stock market after an uneasy week. Bonds, gold and silver fell in response.
On Friday, the two-year U.S. Treasury yield rebounded from its lowest point in 2022 to 3.464%, helping the dollar recover during the session. The dollar ended its worst week since August little changed, with the index down 0.7% for the week, its biggest drop since July. Precious metals overall retreated after sharp gains this week, as concerns about U.S. credit quality and trade frictions eased, denting safe-haven demand for gold and silver.
Spot silver hit a new historical high this week, approaching US$54.50 per ounce on Friday, and then plummeted in a seemingly too-fast rise. It fell more than 6% during the session, once falling below US$51 per ounce. Spot gold fell below US$4,200 per ounce during the session, once falling by nearly US$130, a drop of 3%. However, spot gold has achieved its ninth consecutive week of gains, which is an extremely rare phenomenon.
Foreign exchange market: The U.S. dollar index weakened overall this week. It briefly returned above the 99 mark at the beginning of the week, and then continued to fall, closing at 98.53 on Friday, down 0.31%. U.S. bond yields fell overall, with the 10-year yield falling below 4%. Market expectations for the Federal Reserve to cut interest rates within the year have increased significantly, and safe-haven funds have flowed into the gold and bond markets. In terms of non-U.S. currencies, boosted by the weak U.S. dollar, the euro, pound, and yen all recorded gains against the U.S. dollar this week. Affected by the non-performing loan problems of two U.S. banks, global demand for safe havens surged, and the dollar-yen exchange rate fell from an eight-month high. It once fell below the 150 mark on Friday and ended the week at 150.6.
Gold market: Precious metals continue to explode. Spot gold has set new historical records for five consecutive days, reaching a maximum of nearly $4,380 per ounce; silver has surged simultaneously, once exceeding $54 per ounce, setting another record high. The driving factors zgykf.cne from rising global risk aversion, U.S. credit risk events and heightened expectations for interest rate cuts. On Friday, both spot gold and silver experienced sharp declines, but the overall prices this week still rose by nearly 6% and 3.5% respectively, and finally closed at US$4,247/ounce and US$51.73/ounce respectively, both rising for the ninth consecutive week.
Crude oil market: International oil prices have shown a unilateral downward trend as a whole, and are expected to fall for the third consecutive week this week. The IEA warned that there will be a serious global supply glut in 2026, and the clouds of trade friction have not cleared up, causing oil prices to continue to fall. Even if the situation in the Middle East is temporarily stable, it will be difficult for the oil market to find sustained support.
Review of Weekly News
1. Interest rate cut expectations strengthen: The market is betting on unconventional easing, and liquidity risks are looming
Traders continue to increase their bets that the Federal Reserve will cut interest rates by at least 50 basis points before the end of the year, and SOFR options activity shows that expectations for unconventional interest rate cuts are rising. Although the government shutdown delayed the release of key data, the market still expected the data wave to support the logic of interest rate cuts, and trade tensions also provided impetus for hedging interest rate cuts.
Powell reiterated in the early morning of Wednesday that the downside risks to the job market have increased. Although layoffs and hiring are still at low levels, the vitality of the labor market has weakened and non-agricultural growth has slowed. Core PCE in August was 2.9% year-on-year, slightly higher than at the beginning of the year. He emphasized that rising zgykf.cnmodity prices mainly reflected the impact of tariffs rather than widespread inflationary pressures. Short-term inflation expectations have increased, but long-term expectations are still anchored at the 2% target. The policy path will depend on the economic outlook and risk balance rather than a preset path. He revealed that the balance sheet reduction may be zgykf.cnpleted within a few months to protect liquidity and avoid currency market fluctuations, and pointed out that the balance sheet can be used more flexibly.
This week, the use of the Fed's SRF tool surged to $6.75 billion, the highest non-quarter-end level since the epidemic. Bank reserves fell below $3 trillion, reverse repurchase usage hit a four-year low, and liquidity gaps were exposed. Goldman Sachs and Barclays lowered their expectations for the end of the balance sheet reduction, and the market speculated that the Federal Reserve may restart liquidity injections ahead of schedule. In terms of officials, Collins and Bowman support continuing to cut interest rates during the year. The former believes that the labor market needs to be further supported but interest rates may be kept stable in the future; Paulson supports two 25 basis point interest rate cuts and advocates ignoring the impact of tariffs on consumer prices; Waller advocates gradual interest rate cuts, first cutting by 25 basis points and observing before clarifying the path. path, believing that the neutral interest rate is 100-125 basis points lower than the current level, and the shutdown has exacerbated policy uncertainty; Milan called for a 50 basis point interest rate cut but expected an actual reduction of 25 basis points, emphasizing that policy needs to be guided by forecasts rather than data. The current policy is too tight and can easily impact the economy. It should return to a neutral stance as soon as possible and stop shrinking the balance sheet.
Treasury Secretary Bessent plans to submit 3-4 candidates for the chair of the Federal Reserve to Trump after Thanksgiving, emphasizing "an open mind" as a key condition and Trump will make decisions based on the opinions of multiple parties.
2. Record-breaking government shutdown: Economic impact and politicsGame
The U.S. federal government shutdown has entered its third week and will be the second longest in history. The Senate's 10th temporary appropriation bill failed to pass the vote, and the release of key data such as the September CPI and non-agricultural reports was delayed, affecting the decision-making of the Federal Reserve and other institutions. Powell warned that if the shutdown continues, the lack of data will exacerbate policy challenges. Bessant pointed out that the shutdown is costing about US$15 billion per week, and the White House has frozen nearly US$28 billion in infrastructure funds. If it continues until the end of this week, Trump may intensify his actions.
Political differences intensified: Schumer accused Republicans of refusing to negotiate, and Thune criticized Democrats for "losing their temper" and causing salary delays. A federal judge issued a temporary injunction preventing Trump from firing federal employees during the shutdown, calling it "illegal." After two unions sued over the layoff plan, the judge emphasized that the government cannot arbitrarily change the structure due to the shutdown.
3. Regional bank turmoil: loan fraud caused hundreds of billions of market value to evaporate
On October 16, the KBW Regional Bank Index fell 3.6%, the largest single-day decline since May. The market value of the 74 largest banks evaporated by more than US$100 billion in a single day. Zion Bank and Western Union Bank reveal zgykf.cnmercial mortgage fraud with potential losses of tens of millions of dollars. Qiong Bank's stock price plummeted 15% during the session, and its subsidiary had made impairment provisions of approximately US$50 million on more than US$60 million of revolving credit underwritten by its subsidiaries. Western Union Bank also confirmed that it was involved and filed a lawsuit.
JPMorgan Chase CEO Dimon warned that more credit problems may emerge, but provisions for the third quarter were divided: JPMorgan Chase increased to US$3.4 billion, while the zgykf.cnbined provisions of the five major zgykf.cnpetitors hit a two-year low.
4. Gold market risk warning: exchanges and banks speak out
The Shanghai Gold Exchange issued a risk warning on October 16, pointing out that international precious metals have been violently volatile recently, calling on members to increase their awareness of risk prevention, improve emergency plans, maintain the smooth operation of the market, and recommend that investors reasonably control their positions and invest rationally.
Many banks such as Industrial and zgykf.cnmercial Bank of China and China Construction Bank simultaneously warned of risks, emphasizing that investors need to invest rationally based on their own financial conditions and risk tolerance, and rationally arrange the scale of precious metal assets. Many banks have raised the accumulation threshold: Bank of China has adjusted the minimum purchase amount from 850 yuan to 950 yuan (additional increases are still multiples of 200 yuan); ICBC has raised the minimum investment amount for Ruyi Gold accumulation from 850 yuan to 1,000 yuan; Bank of Ningbo has adjusted the minimum purchase amount from 900 yuan to 1,000 yuan.
5. Phone call between US and Russian leaders: Tomahawk missiles and Budapest meeting
Putin and Trump had a two-and-a-half-hour phone call on Thursday, focusing on the Russia-Ukraine conflict and bilateral relations. Putin emphasized that the "Tomahawk" missile will not change the battlefield situation, but will harm Russia-US relations and crisis mediation, and said that the Russian military has the strategic initiative along the entire line of contact. Trump proposed that ending the conflict would open up prospects for U.S.-Russian economic cooperation and proposed a meeting in Budapest. Putin supported it and the two sides would prepare for the meeting and zgykf.cnmunicate the date. Hungarian Prime Minister Orban confirmed the plan and said Hungary was ready.
Trump said after the call"Productive" and "remarkable progress", he expressed optimism that the Budapest summit could lead to a ceasefire, and said that Putin's opinions would be taken into consideration when meeting with Zelensky on the 17th.
6. Automobile tariff policy adjustment: extension and new tariffs
The White House plans to introduce an extension policy for tariff reduction and exemption on imported auto parts to provide car zgykf.cnpanies with five years of breathing space, which stems from months of lobbying by Ford, General Motors and others. The original policy allowed manufacturers to partially offset the 25% tariff on imported parts. The 3.75% deduction ratio of the value of U.S.-made vehicles was originally scheduled to be reduced to approximately 2.5% after one year and canceled the following year. This extension will maintain the deduction amount.
Trump imposed a 25% tariff on finished vehicles earlier this year and exempted vehicles from Canada and Mexico that meet the local content requirements of the North American Trade Agreement. On Friday, he signed an executive order to impose a new tariff of 25% on imported medium and heavy-duty trucks and parts starting from November 1, and a 10% tariff on imported passenger cars.
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