The Federal Reserve’s (FED) comments confirm that rate cuts are off the agenda for now. The market is adjusting to the current rhetoric, and talk suggests we will see some relief in rates in November. The FED has reduced quantitative tightening (QT) to help preserve its dovish tone and placate businesses suffering from the high cost of money; however, this doesn’t seem to be affecting those companies in the S+P 500 where earnings so far this quarter for 80% who have reported, are 77% higher than expected.  Further, the reduced QT seems justified as Friday's April non-farm payrolls of 175,000 were short of expectations of 243,000 and fell way short of the upwardly revised 315,000 jobs added in March. Further, employment costs in the US showed a much larger increase than expected, and ISM data across the board were all weaker than expected, complicating the FED’s picture. In China, the second biggest economy, NBS and Caixin PMI for Manufacturing data were all soft again, presenting a weaker economy and the need for the PBoC to step up with more stimulus. In the Middle East, Israel and Hamas are in negotiations to progress prisoner and hostage swaps, hopefully. This has helped to reduce the risk premium that oil has had for the last few weeks. It is currently US10.00 weaker at WTI US83.30. 

 But first, let's take a deeper dive into the current US Q1 earnings in the US. At this stage of the Q1 earnings season, S&P 500 companies continue to report results that are higher than expectations. Traders are seeing a slowdown, which is not reflected in the earnings. The percentage of S&P 500 companies reporting positive earnings has surprised many traders, and the magnitude of earnings is above their 10-year averages. As a result, on a year-over-year basis, the S&P 500 is reporting its highest earnings growth rate since Q2 2022. 

Overall, 80% of the companies in the S&P 500 have reported actual results for Q1 2024 to date. Of these companies, 77% have reported actual EPS above estimates, equal to the 5-year average of 77% but above the 10-year average of 74%. In aggregate, companies have reported earnings that are 7.5% above estimates but below the 5-year average of 8.5% but above the 10-year average of 6.7%.  Company earnings are one factor that helps guide the Fed. Having companies reporting earnings above average enables them to keep monetary policy tight for longer to help reduce inflation to within their acceptable band. The S+P is gingerly trading around 5100 and has been in a range for the last few sessions; if sentiment turns negative due to consumer confidence data due out this week, this may have a knock-on effect on confidence if traders are future-focused. Similarly, if economic numbers in China are weak, then a negative bias will remain.

The latest data from both the National Bureau of Statistics (NBS) and the Caixin Purchasing Managers' Index (PMI) for Manufacturing in China indicate ongoing softness, highlighting more challenges within the world's second-largest economy. Here's a deeper look at the implications and potential responses.The softness in manufacturing PMI, down by 0.7% for the General PMI, suggests that China's industrial sector is facing headwinds, potentially due to factors such as weakening domestic demand, supply chain disruptions, or global economic uncertainties. A sustained decline in manufacturing activity can ripple through the broader economy, impacting employment, investment, and consumer confidence.

The persistent softness in manufacturing data may prompt calls for policy intervention from the People's Bank of China (PBoC). As the central bank responsible for monetary policy, the PBoC may consider deploying stimulus measures to support economic growth and stabilize the manufacturing sector. These measures could include interest rate cuts, liquidity injections, or targeted lending programs to stimulate investment and consumption. Like the Fed, it remains a balancing act for the PBoC, which further faces challenges as the property sector is still reeling against Evergrande and Country Gardens' failures. Given China's significant role in the global economy, developments in its manufacturing sector have implications beyond its borders. Weaker-than-expected economic performance in China could dampen global trade activity, affect commodity prices, and impact the outlook for multinational companies with exposure to the Chinese market. 

In the Middle East, Israel and Hamas are in negotiations for a hostage/prisoner exchange, which hopefully may lead to some sort of settlement. Hamas wants a complete end to the hostilities. However, Israel’s Netanyahu is under intense pressure from his coalition members to continue the operations, especially in Rafah. The IDF has repeatedly said that this is the next operation in Gaza.  The oil market has come under pressure due to the proposed ceasefire and is trading at the lower end of the range, which will provide some relief from an energy inflation perspective.

This week will be relatively quiet, with only the Michigan consumer confidence index and Fed officials' speeches worth any attention in the States. The big-cap earnings season is poised to conclude with releases from Vertex Pharmaceuticals, Walt Disney, BP, Toyota, Uber, Airbnb, and Shopify. In Australia, the RBA will announce its interest rate decisions on Tuesday, with prospects that rates will remain at 4.35%. We will look for signs as to when rates will be moving higher. The Consumer Price Index (CPI) data for the first quarter of 2024 revealed that yearly inflation is now at 3.6 per cent, which is still well above the RBA's 2-3 per cent target. The hard work of reducing inflation is starting to pay off, though, as the 3.6 per cent annual CPI rate in the 12 months to March is lower than the 4.1 annual rate seen up to the December 2023 quarter and far smaller than the peak 7.8 per cent rate in the December 2022 quarter.    As such, we expect mortgage holders may be in for more pain.  

On the position front, we remain … in the S+P (…, …), so the positions are still in the money. We are … at … in the ASX and are happy to add to this position. We are still … USD/JPY at … and a new position at ... In the other currencies, we are still … , both the AUD/USD (US…) and AUS/CHF (…), which are now profitable. We have just entered new positions in Gold (… ) and Silver (US…).

Trade Focus:

Fundamentals:

Gold and Silver: We have been sidelined on both precious metals for some time. However, decided to weigh in on some …

Technical Analysis:

Gold is trading at USD2310 and Silver at USD26.90. The technical picture looks the same for both. However, we continue to support Silver …

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