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What to expect from the September FOMC Meeting, and how might gold respond – Kitco NEWS

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The Federal Reserve will conclude its September FOMC meeting and release a written statement at 2 PM EDT tomorrow. This will be followed by Chairman Powell’s press conference a half-hour later. It is widely anticipated that the Federal Reserve will raise the “Fed funds rate” by 75 basis points. The CME’s FedWatch tool is forecasting that there is an 84% probability of a 75-basis point hike, and a 16% probability that the Fed will raise rates by a full percentage point.

In the unlikely event that the Federal Reserve raises its benchmark interest rate by 1%, it would most certainly pressure gold to lower pricing. According to MarketWatch, “economists at the brokerage Nomura Securities … became the first on Wall Street to predict a full-percentage-point increase in the Fed’s benchmark short-term rate.”

However, if the Fed raises rates by 75 basis points as expected market participants could see some short-covering activity amid a relief rally. As of 5:05 PM EDT gold futures basis, the most active December contract is trading five dollars lower and is fixed at $1673.20.

The hard truth is that after four consecutive rate hikes beginning in March inflation remains extremely elevated and persistent. The latest data revealed that the CPI index had a slight decline from July’s 8.5% to 8.3% in August. While the headline CPI had a fractional decline the core CPI which strips out food and energy costs increased 0.6% more than double the prior month’s increase. This means that the core inflation rate climbed to 6.3% from 5.9% in August.

Because the August core inflation rate is three times the 2% target the Federal Reserve wants to achieve members of the Federal Reserve will continue the exceedingly hawkish tone expressed at the Jackson Hole economic symposium.

Based on the hot and persistent core inflation participants can expect to see interest rates continue to rise during the remaining three FOMC meetings in September, November, and December. The CME’s FedWatch tool is forecasting that there is a 38.9% probability that the Fed will raise rates to between 400 and 425 basis points and a 44.8% probability that rates will be between 425 and 450 basis points by December 2022.

Interest rate hikes that began in March were the primary fundamental events that resulted in a major price decline in gold. After four consecutive interest rate hikes gold has declined by approximately 19% or $400 per ounce.

In his speech last month Jerome Powell acknowledged the severe fallout of reducing inflation. “The Fed’s drive to curb inflation by aggressively raising interest rates would bring some pain.”

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Canadian economy sputters into lower gear as rising interest rates bite – BNN Bloomberg

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Canadian economic activity came in a bit stronger than expected in July, but remained weak through the summer in a clear sign growth has begun to sharply slow down.

Gross domestic product increased in July by 0.1 per cent, beating estimates for a 0.1 per cent drop, Statistics Canada reported Thursday in Ottawa. Preliminary data show GDP was unchanged in August.

Even with the surprise upside in July, the data are consistent with an economy gearing down from a strong start to the year, as a reopening boom loses steam. Since April, growth has averaged just 0.1 per cent on a monthly basis.

The weakness shows the extent to which Canada’s resource-heavy economy — which had benefitted from the recent boom in energy prices — remains vulnerable to global economic headwinds and higher borrowing costs that threaten to stall expansions in most major advanced economies.

While the slowdown won’t be enough to stop the Bank of Canada from delivering another interest rate hike next month, policymakers will be closely monitoring the extent of softness in the economy to see how high they need to go to rein in inflation to the 2 per cent target.

JOB VACANCIES FALL

Governor Tiff Macklem has already increased the Bank of Canada’s overnight interest rate by 3 percentage points since March, and is expected to continue hiking through the rest of this year. Markets are pricing another 50 basis-point increase at the central bank’s next policy decision on Oct. 26.

The Canadian economy grew 3.1 per cent in the first quarter and 3.3 per cent in the following three months. Economists anticipate Canada’s growth rate will fall to 1 per cent annualized in both the third and fourth quarters of this year.

In July, the manufacturing and construction sectors contracted, wholesale trade pulled back, retail activity shrank, and higher inflation and interest rates continued to slow real estate activities.

In a separate report on Thursday, Statistics Canada said job vacancies also declined in July by 56,400, or 5.5 per cent — another sign of a slowdown. Total vacancies, however, remain elevated at just under 1 million.

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Stock market news live updates: Stocks resume losses after relief rally falters – Yahoo Canada Finance

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U.S. stocks cascaded Thursday morning as recession jitters returned to Wall Street after a fleeting relief bounce in the previous session spurred by the Bank of England’s bond-buying move.

The S&P 500 plummeted 1% early into the session, while the Dow Jones Industrial erased more than 200 points, or around 0.8%. The technology-focused Nasdaq Composite sank 1.4%.

On the economic data front, initial jobless claims slid to 193,000, the lowest since April, in the week ended Sept. 24 from a downwardly revised 213,000 the prior week, the Labor Department said Thursday. Economists called for 215,000 claims, according to consensus estimates compiled by Bloomberg.

Elsewhere, a third reading from the Commerce Department on gross domestic product (GDP) showed U.S. economic activity contracted at an annualized 0.6%.

In corporate news, CarMax (KMX) shares tumbled 14% after the vehicle buyer reported second quarter earnings that missed Wall Street estimates, citing “affordability challenges” that weighed on sales.

Bed Bath & Beyond (BBBY) fell on Thursday after the company posted a wider quarterly loss as persistent merchandising and inventory snafus and inflationary pressures hit the home goods retailer. Shares fell about 2%.

The renewed risk-off mood places all three major averages on pace to give up gains that came after England’s central bank said Wednesday it would resume bond purchases to help stabilize financial and currency markets. Investors celebrated the shift away from aggressive policy tightening by officials in recent months. The S&P 500, Dow, and Nasdaq each rallied roughly 2%.

EY Parthenon Chief Economist Gregory Daco said in a note that “the absence of proper policy coordination along with the speed and synchronization of rate hikes” risks an “excessive and disorderly tightening of financial conditions.”

“In the UK, the economic outlook has recently taken a turn for the worse with the release of Prime Minister Liz Truss’ budget leading to a market rout, with treasury yields surging to their highest since 2010 and the British pound plunging to its lowest level in 37 years,” Daco said.

Following the Bank of England’s intervention Wednesday – the purchase of around 65 billion pounds, or roughly $69 million, of long-dated gilts – British 30-year bond yields tumbled 100 basis points after touching a two-decade high.

A man stands outside the Bank of England in London, Britain, September 28, 2022. REUTERS/Hannah McKayA man stands outside the Bank of England in London, Britain, September 28, 2022. REUTERS/Hannah McKay

A man stands outside the Bank of England in London, Britain, September 28, 2022. REUTERS/Hannah McKay

Meanwhile in the U.S. on Thursday, Treasury yields nudged higher after rising – and then falling – at the fastest pace in decades. On Wednesday, the benchmark 10-year Treasury note — a crucial economic benchmark — briefly hit 4%, hitting an important milestone amid the worst bond sell-off since 1949.

Atlanta Fed President Raphael Bostic said on Wednesday that the decision by his central bank peers across the Atlantic to return to bond buying did not change his views on U.S. Federal Reserve policy or stoke fears England’s economic faults could pour over.

“I would expect growth to be below trend, we would start to see demand for a wider range of products start to soften, and we would start to see labor markets start to be more rationalized,” Bostic said, adding that if job openings fall substantially, officials may contemplate stopping and holding at that level.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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Enbridge sells minority stake in seven pipelines to Indigenous communities

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Enbridge Inc. has signed a deal to sell a minority stake in seven pipelines in the Athabasca region of northern Alberta to a group of 23 First Nation and Métis communities for $1.12 billion.

Alberta premier Jason Kenney called the purchase a “historic, game-changing deal” at a press conference Wednesday with multiple stakeholders present, including Enbridge executives and members of some of the communities involved in the purchase.

“This is a big deal,” he said. “This is the single largest Indigenous transaction in the natural resource sector in the history of North America.”

Athabasca Indigenous Investments (Aii), a limited partnership of 23 Treaty 6 and Treaty 8 First Nations and Métis communities, will manage the investment which includes an 11.57 per cent non-operating interest in the pipelines.

Aii said the deal is expected to bring in more than $10 million annually to the communities represented in the partnership.

The Alberta Indigenous Opportunities Corp., a provincial Crown corporation, said it provided a loan guarantee that enabled the communities to borrow the $250 million for their equity stake in the assets instead of contributing their own capital.

“These communities may not otherwise (have) been able to access the kind of capital required to facilitate equity share ownership in projects of this size and magnitude,”said AIOC CEO Chana Martineau.

The rest of the financing comes from a private placement completed earlier in the week, said Enbridge chief executive Al Monaco.

The AIOC was created in 2019 to help Indigenous communities get ownership stakes in the Alberta energy sector.

Monaco called the deal one of Enbridge’s proudest moments.

The pipelines included in the agreement are the Athabasca, Wood Buffalo/Athabasca Twin and associated tanks, Norlite Diluent, Waupisoo, Wood Buffalo, Woodland and the Woodland extension.

Aii president Justin Bourque said in the release Wednesday that the assets will “help enhance quality of life in our communities for many years to come.”

Chief Greg Desjarlais of Frog Lake First Nation said in the statement that the investment supports economic sovereignty for the Athabasca region communities.

At the conference, Desjarlais called the deal “a new path for our people.” He thanked AIOC for its role in the financing, and said the funds from the investment will help support such areas as healthcare, education and housing in the Athabasca region.

Richard Masson, an executive fellow at the University of Calgary School of Public Policy and chair of the World Petroleum Council, said energy companies are increasingly seeking ways to bring Indigenous ownership into the sector, giving as an example Suncor Energy selling 49 per cent of its East Tank Farm Development facility to two First Nations in 2017.

AIOC’s role in guaranteeing the loan is key to making this kind of large-scale deal work, said Masson, noting that having 23 communities in on one deal is unprecedented.

This deal will help lay the path for future investments, he said.

It’s also a “show of confidence” from Indigenous communities that the energy sector can and will move toward its environmental goals, said Masson.

This kind of investment model will likely play a role in renewable energy projects too, he said.

“Indigenous groups see the future in the energy transition, they want to be part of it.”

Enbridge said the assets are underpinned by long-life resources and long-term contracts, which provide highly predictable cash flows.

The deal is expected to close within the next month.

In March 2022, 16 Indigenous communities along the Coastal GasLink pipeline route signed option agreements for an equity stake in the project.

— With files from Amanda Stephenson

This report by The Canadian Press was first published Sept. 28, 2022.

Companies in this story: (TSX:ENB)

 

Rosa Saba, The Canadian Press

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