The US equity markets closed last Friday on a mixed note, despite posting a weekly gain. The Dow's proximity to the 40,000 mark amidst ongoing uncertainty underscores the complex dynamics at play. Investors remain cautious about the delay in interest rate reductions following the recent FOMC meeting, which conveyed a softer, dovish tone and hinted at the possibility of three rate reductions proposed by the Federal Reserve (FED) this year. However, the timing of these rate cuts remains a key concern. Additionally, gold reached record highs, but questions linger about the sustainability of its recent rally amid a rally in the USD driven by weak sentiment surrounding other central banks' actions. Recent developments, including unexpected rate cuts by the Swiss National Bank and policy changes by the Bank of Japan, further contribute to the uncertainty in global monetary policy. Against this backdrop, iron ore's gain on the back of better-than-expected Industrial Production signals potential green shoots of recovery in the world's second-largest economy.
But first, the mixed Friday close of the US equity markets reflects the prevailing uncertainty and caution among investors. Despite registering a weekly gain, concerns about the delay in interest rate reductions persist, shaping market sentiment. The recent FOMC meeting conveyed a softer, dovish tone, indicating the possibility of three rate reductions proposed by the Federal Reserve (FED) this year. Interest rate projections one year out stood at 3.9% from the previous indication of 4.6%. The current rate stands at 5.5%. However, the lack of clarity on the timing of these rate cuts remains a significant risk factor for investors. When is the only wavering factor? We understand that this is all data-driven; hence, we think it will be delayed. However, the discussion is keeping the market on its toes and certainly helping to support equity prices. Being data-dependent and seeing equity markets rally on the prospects leaves it open for a correction if the data fails to perform. Recent monthly core inflation and producer price data in the US both showed increases, resulting in a divergence of themes. MoM inflation data is up, and prospects for rate cuts are egging the market which we feel will be delayed. For the FED to act, the data needs to show a print of 2% in inflation, the core rate stands at 3.8%. It’s a long way to go.
Recent developments in global monetary policy have added to the complexity of the market environment. The unexpected rate cut by the Swiss National Bank, citing concerns about the strength of the Swiss franc, underscores the challenges faced by central banks in managing currency valuations amidst global economic uncertainty. Similarly, the Bank of Japan's decision to end its policy of negative interest rates and yield curve control policies reflects efforts to adapt to changing economic conditions, including rising wages and higher inflation. The yield curve control policies, which involved targeting specific yields on government bonds across various maturities, aimed to stabilize long-term interest rates and support economic activity. While initially effective in maintaining favorable financing conditions, these policies faced challenges in a low-interest-rate environment, particularly as inflationary pressures began to rise. As the adjustments go through the market the YEN remains weak.
Its fortunes may have reversed as gold surged to a recent record high. Several factors may have contributed to the conclusion of golds rally. One prominent catalyst is the resurgence of the US dollar, which has recently gained strength amidst renewed confidence in the American economy. Improving economic indicators and robust corporate earnings have bolstered the risk appetite among investors, diverting funds away from traditional safe-haven assets like gold towards higher-yielding assets such as equities. Finally, the easing of geopolitical tensions and the resolution of longstanding trade disputes have diminished the need for safe-haven assets, reducing the urgency for investors to hold positions in gold.
Moreover, technical factors have played a role in gold's reversal. The precious metal encountered resistance at key price levels and faces selling pressure from profit-taking investors eager to lock in gains accumulated during its rally. The recent record high was US2222.
This week, investors will be watching US economic data, namely Durable Goods orders, GDP growth, and the PCE Price Index to find a lead for the next move in equities or the USD. Durable Goods orders are due out on Tuesday. The previous print MoM was -6.1%, and we are expected to see a reversal and hopeful gain of 1.7%. US GDP is out Thursday; the previous quarterly number was 4.9%, and the forecast is 3.2%. PCE prices are also due out the same day and are expected to be marginally higher at 2.1%. The quarterly number has been weak of late, but the latest quarterly read showed an uptick. The FED will keenly watch this.
On the position front, we added to our … USD/JPY position at 147.75 and were ... We are still … in the Dow (39 348) for a small loss and still … S+P (5303). In the other currencies, we are still …, both the AUD/USD (US0.6770) and AUS/CHF (0.5707). In the bullion market, we … our positions for a profit in silver (US24.84) and gold (US2149).
Trade Focus:
Fundamentals:
Gold: Has the bull market finally run its course? We …
Technical Analysis:
The high at US2222 on the 21st of March looks ominous as it rejected this level very quickly…
Support …
Resistance …
Momentum …
