IMF warns leading economies

The main event of the speech by ECB Chief Economist Lane, with emphasis being placed on the recent warnings by the IMF.

MORNING OVERVIEW

France gears up for another round of protests, as the IMF reduces its growth forecasts for the country. In the Mid-East, Saudi’s airports remain closed as tensions with the Houthi Rebels escalate and in Australia, the RBA’s minutes showcase a willingness to raise rates further.

MARKET SNAPSHOT

KEY MARKET THEMES

01 — France’s political woes continue

According to Bloomberg, “French high school students are set to protest on Tuesday, extending their movement into a third week with no clear response from policymakers to their demands”, which comes as the IMF published a report in which France is one of two G7 countries that have seen their GDP growth forecast reduced for 2026 and 2027. In turn the continued issues faced by France could possibly spill over into the EUR.

Market implication (EUR): Bearish

02 — IMF urges leading economies to rebuild their public finances

The world’s leading economies need to take “urgent” measures in order to rebuild their public finances, according to the IMF. In particular, the IMF has published forecasts showing that they may be heading for their biggest budget deficits since covid. Specifically, the IMF predicted that deficits in China and the US will exceed 8% of GDP in 2026. However, the IMF has raised or held growth forecasts for most G7 economies with the exception of France, which could alleviate market worries for now. Overall, the warnings by the IMF may be of concern as debt continues to grow, in the event of an economic downturn, it may be a prevailing issue that may aid gold’s price.

Market implication (XAU): Bullish

03 — RBA minutes showcases rate hike willingness

The RBA released their last meeting minutes earlier on today. In the bank’s statement it was noted that “Members agreed that financial conditions were restrictive but that some indicators could imply that the extent of restriction was only modest” and that “The strongest argument for raising the cash rate target at this meeting was that several of the upside risks identified in August had since materialised or were building”. Our takeaway from the minutes is that the upside risks were building, implying that their continuation could force the bank to continue on their restrictive monetary policy path moving forward. In turn, this could provide support for the AUD.

Market implication (AUD) : Bullish

WHAT MATTERS TOMORROW

ECB Chief Economist Lane speaks

Time GMT+2): 20:30

Expected: N/A
Previous: N/A

Potential market reaction:
N/A

ASSET FOCUS

[Gold / Commodities]

XAU/USD appears to be moving in a sideways fashion. We opt for a sideways bias for the bullion. For our sideways to be maintained, we would require gold’s price to remain confined between our 4080 (S1) support level and our 4200 (R1) resistance line. On the other hand, for a bearish outlook we would require a break below our 4080 (S1) support level, with the next possible target for the bears being our 3945 (S2) support line. Lastly, for a bullish outlook, we would require a clear break above our 4200 (R1) resistance line, with the next possible target for the bulls being our 4350 (R2) resistance level. Lastly, for a sideways bias, we would require gold’s price to remain confined between our 4080 (S1) support level and our 4200 (R1) resistance line.

KEY LEVELS

• Resistance (R1): 4200
• Resistance (R2): 4350
• Support (S1): 4080
• Support (S2): 3945

Technical View: Bearish

CROSS-ASSET VIEW

TRADING SPHERE VIEW

Bearish for the EUR

Our base case:
Continued political uncertainty in France as the protests continue, whilst the IMF raises growth forecast concerns could weigh on the EUR.

What would change our view:
Measures being taken by the French Government to reduce debt or increase economic growth.

RISKS TO THE VIEW

Snap elections being called

Snap elections being called in France and Germany.

TODAY’S WATCHLIST

01 ECB Chief Economist Lane’s speech

DISCLAIMER: This content is for general informational and educational purposes only and should not be considered investment advice or investment recommendation.