It seems like last week was a roller coaster, especially with the US economic data that didn’t quite meet expectations. The CPI report, although a slight miss, prompted a strong market reaction. Now, there’s a significant shift in expectations: Fed rate hikes aren’t factored in anymore, and people are eyeing potential rate cuts in 2024.
Market Recap:
The US Dollar struggled throughout the week, ending with the DXY index dropping by nearly 2%, settling at 103.815. Meanwhile, the EURUSD closed 2.1% higher, crossing the 1.09 mark.
The Eurozone didn’t experience much movement, except for the EURUSD pair’s notable shift.
The Pound had a relatively quiet time, but it’s noteworthy that UK wage growth exceeded expectations while inflation remained lower.
Currency Movement:
Commodity currencies finally saw some vigor with lower yields and a weaker Dollar providing a dual thrust. The CAD gained 0.5%, the NZD rose by 1.7%, and the real winners were the AUD and NOK with a substantial 2.5% gain. Additionally, other currencies surged against the USD: 1.3% for the JPY, 1.8% for the CHF, and 2.5% for the MXN.
Oil attempted to halt its recent decline but ultimately couldn’t hold its ground, ending the week with WTI falling by 1.6% to $76.05.
Precious metals were set for a rally given the dip in yields and the Dollar. Gold soared by 2.2% to close at $1,981, edging closer to its all-time highs. Silver, with a significant 6.6% jump to $23.72, showed signs of potential but hasn’t seen a clear technical breakout yet.
Market Outlook:
Equities seemed to benefit from falling yields, but caution is necessary. Although there’s a current rally, the underlying economic landscape indicates signs of significant deterioration. The S&P500 gained 2.4%, reaching 4511 points, while the DAX surged by 3.9% to 15919 points.
Bonds continued their robust performance, with positioning still leaning towards the short side. This suggests the path of least resistance remains upwards. The 10y UST yield fell by 19bps to 4.44%, approaching substantial support around the 4.30% mark. Meanwhile, the 10y Bund rallied by 1% to close at 130.998 points.
Cryptocurrencies remained volatile amid uncertain ETF developments. Bitcoin experienced a 1.4% decline, reaching $36,500, while Ethereum dropped over 5% to $1,940.
Looking Ahead:
The focus for the upcoming week will likely revolve around yields and the Dollar, given their significant impact across markets. Are the Fed’s rate hikes paused indefinitely? That seems probable. However, how long they’ll remain on hold is the burning question. While data releases might be quieter, GDP reports from Germany, Norway, and Mexico, along with several PMI releases, are on the schedule. Stay vigilant and trade wisely!
