Introduction: Gold at all-time high on rate cut hopes
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Gold has climbed to a record high for the second session in a row, as investors flock to the traditional safe haven asset amid hopes of interest rate cuts in the months ahead.
The gold price has hit $2,111.39 per ounce, taking it over the record set on Friday night and further above the previous record set in August 2020.
Gold has strengthened amid hopes that the cycle of interest rate increases over the last couple of years has now ended, and that central banks will turn their attention to cutting borrowing costs in 2024.
That has led to a weaker US dollar, which pushes up the gold price (as it’s priced in dollars).
As this chart shows, gold has climbed pretty steadily since the start of October, when it was changing hands at $1,820 per ounce.
Crypto assets are also on a charge, with bitcoin hitting $40,000 for the first time this year today, with some traders betting the US Federal Reserve could start cutting US interest rates next spring.
Kyle Rodda, senior financial market analyst at Capital.com, explains:
Markets are piling in on bets of Fed rate cuts next year, possibly as soon as March. That pushed gold and Bitcoin to critical levels, with the former busting to record highs and the latter hitting $US40,000 for the first time since May 2022.
Gold’s move boasted all the hallmarks of a technical melt-up, as the break of previous all-time highs set off stops and buy orders.
A lower interest rate environment would favour gold, which doesn’t generate a yield (unlike bonds, equities or current cash savings accounts).
Also coming up today
The UK economy will be under the microscope, as the Resolution Foundation thinktank holds an all-day event examining a better economic strategy for the country.
Its work has shown that British workers are missing out on £10,700 a year after more than a decade of weak economic growth and high inequality.
Resolution will hear from Labour leader Sir Keir Starmer, who is expected to warn that he would not “turn on the spending taps” if he wins the next election
The Guardian reports this morning that Starmer will say:
“Anyone who expects an incoming Labour government to quickly turn on the spending taps is going to be disappointed … It’s already clear that the decisions the government are taking, not to mention their record over the past 13 years, will constrain what a future Labour government can do.”
“This parliament is on track to be the first in modern history where living standards in this country have actually contracted. Household income growth is down by 3.1% and Britain is worse off.
“This isn’t living standards rising too slowly or unequal concentrations of wealth and opportunity. This is Britain going backwards. This is worse than the 1970s, worse than the recessions of the 1980s and 1990s, and worse even than the great crash of 2008.”
The agenda
-
7am GMT: German trade balane statistics for October
-
9.30am GMT: Resolution Foundation holds event examining UK economy in 2030
-
2pm GMT: ECB president Christine Lagarde gives a speech at the Académie des Sciences Morales et Politique’s conference in Paris
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3pm GMT: US factory orders for October
Key events
Spotify to cut headcount by 17%
Many “smart, talented and hard-working people” are to lose their jobs at Spotify, as the music streaming company cuts its workforce for the third time this year.
CEO and founder Daniel Ek has decided to slash Spotify’s total headcount by 17%, as he takes “a substantial action” to bring down costs.
Ek told staff this morning that Spotify is not immune to the impact of slowing economic growth and more expensive capital.
So as part of Spotify’s push to drive profitability and growth, one in six staff will lose their jobs as Ek tries to become “right-sized for the challenges ahead”.
He told staff this morning:
I recognize this will impact a number of individuals who have made valuable contributions. To be blunt, many smart, talented and hard-working people will be departing us.
Spotify also announced 600 job cuts back in January, when it admitted it had expanded too quickly during the Covid-19 pandemic and been too slow to cut cost.
In June, it cut 200 jobs from its podcast unit, as Spotify restructured its business after years of heavy investment.
Today, Ek insists that Spotify’s cost structure is still too big.
He told staff that he understands the job cuts announced today will be “incredibly painful for our team”, before reminding them of how the company expanded when capital was much cheaper in the pandemic:
To understand this decision, I think it is important to assess Spotify with a clear, objective lens. In 2020 and 2021, we took advantage of the opportunity presented by lower-cost capital and invested significantly in team expansion, content enhancement, marketing, and new verticals.
These investments generally worked, contributing to Spotify’s increased output and the platform’s robust growth this past year.
However, we now find ourselves in a very different environment.
In the eurozone economy, Germany’s trade performance has deteriorated again.
German exports fell by 0.2% in October compared with the previous month, dashing hopes of a 1.1% rise.
Geeman imports contracted too, down 1.2% compared with September.
On an annual basis, statistics office Destatis estimates that exports decreased by 8.1% and imports fell by 16.3% compared with October 2022.
Investors don’t appear to be listening to the warnings coming from central bankers that it’s too early to cut interest rates. Or they don’t believe them.
As well as the weakening US dollar, we’ve seen bond prices rally over the six weeks or so, pushing down bond yields.
The market is pricing in earlier and more aggressive cuts from the central banks and inflation appears set on a path lower, says Mohit Kumar, chief economist europe at investment bank Jefferies.
That’s despite efforts on both sides of the Atlantic to push back against this narrative.
Las Friday, Federal Reserve chairman Jerome Powell insisted it would be “premature to conclude with confidence” that interest rates have now peaked, or to speculate on when they might be cut.
Some analysts are predicting that gold could continue to push higher, adding to the record high of $2,111/ounce set this morning
UOB’s Head of Markets Strategy, Global Economics and Markets Research, Heng Koon How, told CNBC:
“The anticipated retreat in both the USD and interest rates across 2024 are key positive drivers for gold,”
He estimated that gold prices could reach up to $2,200 by the end of 2024.
Everett Millman, chief market analyst at Gainesville Coins, also sees more short-term gains, saying:
“Gold has had a Santa Claus rally and I expect that to continue until the end of this year.
Full story: Bitcoin over $40,000
Although bitcoin isn’t yet at a record high, today’s surge takes it to the highest level since April 2022.
Bitcoin has broken above $40,000 for the first time this year as it – like gold – rides a wave of enthusiasm about U.S. interest rate cuts.
The world’s biggest cryptocurrency is currently trading at $41,455, up almost 7% since Friday night, as the crypto market continues to emerge from the downturn that began last summer.
A 50% rally since mid-October has “seemed to mark a decisive shift away from the bearishness of 2022 and early 2023,” said Justin d’Anethan – head of business development for Asia-Pacific at Keyrock, a digital assets market making firm.
He said evidence of institutional buying through November showed a new leg of interest and that although reversals ahead are not inconceivable, lows hit around $16,000 a year ago “probably marked the bottom”.
Some traders are also anticipating the imminent approval of U.S.-stockmarket traded bitcoin funds, Reuters adds:
A spot bitcoin ETF could allow previously wary investors access to crypto via the stock market, ushering a new wave of capital into the sector.
Introduction: Gold at all-time high on rate cut hopes
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Gold has climbed to a record high for the second session in a row, as investors flock to the traditional safe haven asset amid hopes of interest rate cuts in the months ahead.
The gold price has hit $2,111.39 per ounce, taking it over the record set on Friday night and further above the previous record set in August 2020.
Gold has strengthened amid hopes that the cycle of interest rate increases over the last couple of years has now ended, and that central banks will turn their attention to cutting borrowing costs in 2024.
That has led to a weaker US dollar, which pushes up the gold price (as it’s priced in dollars).
As this chart shows, gold has climbed pretty steadily since the start of October, when it was changing hands at $1,820 per ounce.
Crypto assets are also on a charge, with bitcoin hitting $40,000 for the first time this year today, with some traders betting the US Federal Reserve could start cutting US interest rates next spring.
Kyle Rodda, senior financial market analyst at Capital.com, explains:
Markets are piling in on bets of Fed rate cuts next year, possibly as soon as March. That pushed gold and Bitcoin to critical levels, with the former busting to record highs and the latter hitting $US40,000 for the first time since May 2022.
Gold’s move boasted all the hallmarks of a technical melt-up, as the break of previous all-time highs set off stops and buy orders.
A lower interest rate environment would favour gold, which doesn’t generate a yield (unlike bonds, equities or current cash savings accounts).
Also coming up today
The UK economy will be under the microscope, as the Resolution Foundation thinktank holds an all-day event examining a better economic strategy for the country.
Its work has shown that British workers are missing out on £10,700 a year after more than a decade of weak economic growth and high inequality.
Resolution will hear from Labour leader Sir Keir Starmer, who is expected to warn that he would not “turn on the spending taps” if he wins the next election
The Guardian reports this morning that Starmer will say:
“Anyone who expects an incoming Labour government to quickly turn on the spending taps is going to be disappointed … It’s already clear that the decisions the government are taking, not to mention their record over the past 13 years, will constrain what a future Labour government can do.”
“This parliament is on track to be the first in modern history where living standards in this country have actually contracted. Household income growth is down by 3.1% and Britain is worse off.
“This isn’t living standards rising too slowly or unequal concentrations of wealth and opportunity. This is Britain going backwards. This is worse than the 1970s, worse than the recessions of the 1980s and 1990s, and worse even than the great crash of 2008.”
The agenda
-
7am GMT: German trade balane statistics for October
-
9.30am GMT: Resolution Foundation holds event examining UK economy in 2030
-
2pm GMT: ECB president Christine Lagarde gives a speech at the Académie des Sciences Morales et Politique’s conference in Paris
-
3pm GMT: US factory orders for October
