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 Gold Continuous Contract (GC.F) & BMO China Equity Index ETF (ZCH.TO)

It has been another volatile week for world markets with large intraday swings in both directions as investors worked through inflation and interest announcements. Worse than expected producer price inflation and better than expected consumer price inflation reports sparked significant knee jerk reactions which were quickly reversed, suggesting that neither bulls nor bears have been able to maintain control for very long.

Tomorrow is Quadruple Witching Day with numerous futures and options contracts expiring which may be adding to the volatility. Tax loss selling may also be a significant factor for the first time since 2018 as investors consider the impact of this year’s market performance on their portfolios.

Yesterday afternoon, US indices, which had been up over the last week, turned southward after the Fed slowed the pace of interest rate hikes to 0.50% to 4.50% as expected, but issued hawkish comments on the need to continue fighting inflation. Fed member forecasts for the Fed Funds rate for the end of 2023 increased by 0.50% to 5.1%, with 17 of 19 respondents looking at a terminal rate between 5.00% and 5.75%. Fed members also cut their 2023 GDP forecast while raising their inflation forecast, a sign of continuing stagflation.

The US Dollar has continued to drift downward which has eased pressure on some commodity prices. Energy markets have been particularly active with Crude Oil benefitting from China making steps toward reopening its economy while Natural Gas has been particularly volatile with the arrival of big winter storms. Currencies including the Euro, Canadian Dollar and Gold have also benefitted from an easing US Dollar headwind.

Central bank decisions and statements continue to roll out over the next few days with the focus on Europe today with the European Central Bank, Bank of England and Swiss National Bank holding meetings. On Tuesday the spotlight shifts to Asia Pacific banks with the Bank of Japan and the Peoples Bank of China holding meetings. These meetings should provide additional insight into which and how much central banks remain committed to tightening monetary policy and fighting inflation heading into 2023.

The next ten days also appear to be cleanup time for business news ahead of the holidays with a number of announcements that usually come out right at month end scheduled for later in the week. On the earnings side, Nike and FedEx report on Tuesday. Highlights of the economic calendar include Flash PMI reports from around the world tomorrow, Canada retail sales Tuesday, housing numbers through the week, and US core PCE inflation and consumer inflation estimates next Friday.

In this edition of the Equity Leaders Weekly, we look at the impact of the weakening US Dollar on Gold and at a rebound in Chinese equity markets as the country’s COVID policy changes.

Gold Continuous Contract (GC.F)

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