UK raises new tax to save economy

A basic idea

UK inflation rose to a 41-year record high of 11.1 percent in October as food and energy prices rose sharply. On Friday, Chancellor of the Exchequer Jeremy Hunt announced new tax increases worth £25 billion, including a five-year tax freeze on public services. It is estimated that six million people will be drawn into paying higher taxes.

US producer prices rose 0.2 percent in October, down from 0.4 percent. Annually, US producer prices rose 8 percent compared to 8.4 percent in September. The Dow rose as traders saw that inflation was slowing and would not accelerate again.

US retail sales rose 1.3 percent in October, beating consensus expectations. Excluding auto sales, core retail sales gained 1.3 percent, the highest in nine months.

Inflation in Japan rose 3.6 percent in November year-on-year, to a 40-year high. Despite the eye-popping inflation, the Bank of Japan kept the benchmark rate at minus 0.10 per cent to keep the yen rate low.

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Technical estimates

The US dollar/Japanese yen has traded in a small range from 138 to 140.50 in the past week. We foresee that the trend could go in either direction depending on the factors that matter. Note the list mentioned above as the borderline on both sides can lead to a new direction.

Euro/US dollar has strengthened to 1.04 for several days. We expect the trend to be bearish as the dollar may make a small recovery. The range is expected to go from 1.02 to 1.045. Be careful not to go beyond this list as it may lead to a new ad.

The British pound / American dollar slowed its rise but remained resistant at 1.20. We think this trend will be washed away as investors are still waiting to see a clear policy from the new government.

We are targeting the initial range from 1.1750 to 1.20 and probably trading within this range for some time. Traders are reminded to be cautious.

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WTI Crude prices fell last week on fears of a recession. Other supports have been identified at US $ 80 per barrel before the weekend. We estimate that the range will go from US$80 to US$90 per barrel due to mixed sentiments.

Traders are taking a cautious stance on crude as more uncertainty threatens the war in Ukraine.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives broke below RM4,000 per metric tonne due to weaker demand and the ringgit’s gains against the dollar. The February 2022 Futures contract closed at R3,845 per metric tonne on Friday. We think that the situation is likely to increase further and remain within the range of RM3,600 to RM4,000 per metric ton. Demand will remain low for some time as the recession grows in the market.

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Gold prices may have temporarily hit US$1,790 per ounce last week. The market will continue to make corrections to soft sentiment. The range is expected to range from US$1,720 to US$1,770 per ounce in mixed trade. Profit taking will emerge if the market fails to cross above US$1,770 per ounce after midweek.

Silver prices peaked at US$22 per ounce last week and have begun to correct. We estimate that the range will tighten from US $ 21.50 to US $ 22.50 per ounce at first. Sideways trend is likely to appear as traders adjust their positions. Consider a new index in case there is a discrepancy in the list mentioned above.

Dar Wong has over 30 years of trading and hedging experience in global financial markets. The opinion is his alone. He can be reached at [email protected]


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