The USD looks heavy helping precious metals higher. Gold continues its record run, and Silver gained 4.98% on the week which is up 21.8% for the year.  US Employment Data last Friday points to speculation that the Federal Reserve (FED) will reduce rates in June. This continues to support equity markets where the Nasdaq and S+P 500 during last week etched out record highs. Although they closed slightly lower on Friday, the market is convinced that actions by the Fed potentially in June will support profits and keep the markets rallying. We remain skeptical as the manufacturing sector continues to weaken and factory orders remain weak. While in China, we had a mixed inflation report. The CPI was higher than expected, up +1%, showing that stimulus measures may be starting to support the economy, whilst the PPI data pointed to the continued malaise in prices showing a -2.7% decline.  The National Congress came and went. China will aim for economic growth of about 5 per cent this year as it works to transform its development model, curb industrial overcapacity, defuse property sector risks and cut wasteful spending by local governments. 

But first, once again, let’s look at the precious metal markets. The recent performance of precious metals, particularly gold and silver, has been nothing short of remarkable. The USD's apparent weakness has provided a tailwind, propelling gold to continue its record-breaking run, while silver saw a notable gain of 4.98% in the past week, marking a 21.8% increase for the year. This surge in precious metals comes amidst speculation that the Federal Reserve (FED) will reduce interest rates in June, based on US Employment Data released last Friday. Lowering interest rates hurts the value of USD which is positive for gold and silver. The weakening of the USD has emerged as a significant driver for Gold, as investors seek refuge from the currency’s depreciation. Similarly, silver has experienced a notable uptick, buoyed by its dual role as both a precious metal and an industrial commodity.

The anticipation of rate cuts by the Fed has continued to bolster equity markets, with both the Nasdaq and S&P 500 notching record highs during the last week. Although they experienced a slight dip in Friday's trading, the prevailing market sentiment suggests confidence that potential actions by the Fed in June will support corporate profits and sustain the market rally. However, amidst this optimism, we maintain a degree of skepticism, given the ongoing weaknesses in the manufacturing sector employment which was down and persistently soft factory orders down -3.6% MoM against the previous read of -0.3%. Despite the buoyancy of equity markets, the manufacturing sector continues to exhibit signs of sluggishness, with factory orders also remaining lackluster. These indicators suggest that the economic recovery may be losing momentum, raising questions about the sustainability of the market rally.

While domestic economic indicators may fuel speculation about the Fed's monetary policy decisions, developments in China also warrant attention. A mixed inflation report from China revealed contrasting trends: while the Consumer Price Index (CPI) surpassed expectations, rising by 1%, indicating possible support from stimulus measures, the Producer Price Index (PPI) signaled continued deflationary pressures with a decline of 2.7%. It was the 17th straight month of contraction in factory gate prices, underscoring that the economy continued to grapple with numerous headwinds as various support measures from Beijing to speed up recovery since last year apparently has had little effect. Against this backdrop, China's National Congress emphasized the nation's commitment to achieving economic growth of approximately 5% this year, as it navigates structural reforms to address industrial overcapacity, mitigate risks in the property sector, and curtail wasteful spending by local governments.

This week in the US, financial markets will have their eyes on the US inflation rate alongside retail sales, producer inflation, the Michigan consumer sentiment index, and industrial production. It’s a big week. From China, the focus will be on monetary indicators including new yuan loans, car sales, and the house price index. In Australia, the NAB business confidence index will provide further indicators of global economic conditions.

On the position front, we added to our … USD/JPY position at … whilst holding on to the …in the Dow (38 576). In the other currencies, we are still …, both the AUD/USD (US0.6770) and AUS/CHF (0.5707). In the bullion market, we are happy to remain … in both Silver (US23.19) and Gold (US2046) and will look to add during the week.

Trade Focus:

Fundamentals:

USDJPY: We continue to like this trade, and it…

Technical Analysis:

As can be seen by the chart below the Yen looks…

Support              …

Resistance         …

Momentum        …