01/05/2023

General Comment

The past week has probably been a week of markets waiting for the decisions of central banks. Some announcements on the United States side lifted volatility as well as the results of many companies for the first quarter of 2023 gave a tone of the financial situation.

More specifically, a mini surprise was the announcement of the US GDP for the first quarter of 2023, which was announced to grow by 1.1% but well below market expectations of 2%. But positive was the announcement of durable goods orders that increased in March by 3.2%, well surpassing the estimates. Inflation through personal consumption expenditures has had a rebound but it is not something that has worried the markets significantly.

The same was the picture in Europe, with Eurozone GDP growing by 1.3% in the first quarter, just below the 1.4% that markets had estimated. Thus, there is a comprehensive picture of the conditions of economies and inflation rates before the critical decisions of central banks on interest rates and monetary policy. The Fed first announces interest rates next Wednesday, with the scenario of a 0.25% increase gathering the most chance of confirmation. It follows the European Central Bank on Thursday with the scenario of a 0.25% rise in interest rates also being the prevailing one. In both cases, this will be followed by a press conference where we will learn more about the plans of the two central banks.

Of course, the importance of the week does not end there. Of great importance is the announcement of the labor market in the United States on Friday (Non-Farm Payrolls – NFPs). Unemployment is perhaps the most important macroeconomic parameter that central banks consider in determining their monetary policy. Also important is the announcement of inflation in the Eurozone on Tuesday.

Many U.S. companies announced their results this week and while the sentiment for stock indices was negative until Wednesday, Thursday, and Friday there was a significant rally after some positive results were announced as we will see in detail below. Most stock indices in US and Europe closed with gains on the week. There was a mixed picture in the commodity market with gold performing some gains while oil had some losses. There was a de-escalation in the bond market with the U.S. 10-year closing the week well below 3.50%, at 3.43%. Finally, it was a good week for the cryptocurrency market, which returned to an upward trend.

The decisions of the central banks combined with the picture of the labor market in the United States and the information to be given at the press conference are expected to significantly increase volatility and perhaps determine the picture of the markets for the coming period.

SP500

With bullish trends, the US SP500 index closed last week, at 4,169 points and profits of 0.90%. The week is divided into two phases: until Wednesday there were significant pressures on the equity market and the index but from Thursday onwards a rally began which covered all losses and allowed the index to perform profits. Banking concerns have come to the fore since the beginning of the week due to a big drop in First Republic Bank’s shares, which announced a large outflow of deposits. Concerns about a domino’s banking remain in the spotlight with U.S. regulators urging big banks to bid to rescue First Republic Bank. But the mood changed on Thursday when the results of other companies were announced, especially Meta, which reported profits of more than $ 28 billion and exceeded market expectations to create an atmosphere of excitement. This week also contains a lot of companies’ results that may affect the SP500. Of course, the eyes are still on the Fed and Wednesday’s decision on interest rates, but if the positive sentiment continues and we see an upward breakout above 4,200 points, then maybe the uptrend will be confirmed for that we may try long positions this week.

DAX30

The German DAX40 index was mildly bullish last week, closing at 15,922 points, with profits approaching 0.25%. The index had a similar path to U.S. indices: a downward pressure until Wednesday but a strong upward reaction from Thursday onwards. The positive results of U.S. companies have helped sentiment improve globally and reignited hopes that the one potential recession in the second half of the year can be avoided or will be mild. Thus, the results announced for the German economy which was not at all positive were put on the back burner. There was a slight burden on the labor market even though unemployment remained unchanged at 5.6%. German GDP was also reported unchanged for the first quarter of the year while markets estimated it would have grown by 0.2%. Finally, inflation showed a slight downturn but remains at very high levels with the harmonized consumer price index at 7.6% in April. The DAX40 has slowly but steadily reached 16,000 points and is close to all-time highs. Considering this positive climate, we may try long positions this week.

FTSE100

The British FTSE100 index moved downward last week, closing at 7,871 points, dropping more than 0.50%. The UK had no major economic announcements or developments in the week that passed by. The index moved based on the markets ‘ estimates of the results of the next week. Next week the Bank of England decides on interest rates and the most likely scenario is a 0.25% rise. Inflation, according to the latest data, persists at very high levels and double digits, so it probably needs to be dealt with more vigorously. The belief in higher interest rates increases the likelihood of an economic contraction in the UK and that’s why there were specific pressures in the equity market. Another reason we may see corrections is the liquidation of many investors ‘ profits as the FTSE100 performed best among the main indices for 2022. We would therefore prefer short positions this week.

Gold

The previous week was slightly bullish for gold, with the next month’s futures closing at $1,998 and profits close to 0.25%. Gold volatility has been kept very low because the U.S. dollar has fluctuated slightly and because markets are in a wait-and-see mode for central bank decisions on interest rates and monetary policy to take place this week. The stabilization of gold prices was also helped by the stabilization of inflation announced in the eurozone and the United States towards the end of the week through personal consumption expenditures. Technically speaking, the $ 2,000 split is an indication of a further decline in gold and if the Fed is in the same tone, then we may see further price pressures, and for that, short positions is our selection for the current week.

US Oil

Last week was bullish for oil with the next month’s futures closing at $76.65, with losses approaching 1.60%. Oil prices fell sharply until Wednesday when there was general concern in markets about a widespread banking crisis. Since Thursday, with the improvement of the climate, there has been a recovery which, however, has not been able to prevent the negative sign for the week. In addition to fears about banks, markets are worried about an imminent recession, especially after the negative economic results of the United States. There was also a drop in U.S. production for February, to 12.5 million barrels per day, which is the lowest rate in the past three months. Oil in the last three weeks has taken back all the rise it made after OPEC decided to cut production, and below the $73.93 support, we may see a further decline. Our pick for the current week is short positions.

EURUSD (Euro vs US Dollar)
Last week was bullish for EURUSD as it opened at 1.0988 and closed at 1.1016. During the week, the exchange rate even reached 1.11, which is the highest price since March of last year but has not been able to hold at this level due to the temporary strengthening of the dollar towards the end of the week. Markets are assessing the central bank decisions expected in the current week. The Fed and the European Central Bank have a 0.25% or a 0.50% rate hike as their most likely scenario. In the press conference that will follow, we will learn more about what plans are in place for the future and whether these increases will be the last or if more will follow. This week will close with the announcement of the NFPs in the US where we will have a better picture of the labor market in the country. Given that the problem of inflation is more severe in the Eurozone than in the US, due to the latest announcements of the inflationary rates, perhaps the perception of the markets will strengthen the euro against the dollar and therefore we will prefer buy positions this week,

GBPUSD (Great Britain Pound – US Dollar)

Bullish was the last week for GBPUSD, which opened at 1.2428 and closed at 1.2566. The UK has not had any significant developments in the past week, nor will it have in the current week. Therefore, the exchange rate movements were mainly influenced by the dollar and developments in the United States, but also by the perception that markets are getting in relation to the Bank of England’s interest rate decision later in May. Bank of England (BoE) Deputy Governor, Ben Broadbent, said on Tuesday that monetary policy is probably delayed because the tightening should have started at least 6 months earlier. These statements did not, however, help markets gain a better understanding of the Bank’s future moves. Volatility is all too likely to increase this week because of interest rate announcements in the US and the labor market. The GBPUSD has developed an upward trend since early March and has already broken out of the significant resistance of 1.2550. It is therefore not excluded that it will continue upward and on the basis of this, we will choose buy positions this week.

USDJPY (US Dollar – Japanese Yen)

USDJPY moved upward last week, opening at 133.99 and closing at 136.30. The dollar had stabilized and thus did not seriously affect the exchange rate but developments from Japan weakened the yen noticeably. The rise in the exchange rate came on Friday when the Bank of Japan announced interest rates and monetary policy following a press conference. Interest rates stayed once again unchanged at -0.1% while the BoJ’s newly elected head Kazuo Ueda said in the press conference that the loose monetary policy would continue until inflation reaches 2% with a corresponding increase in wages. He also said he would not hesitate to ease monetary policy further if necessary. These statements were a catalyst for the yen to suffer strong losses throughout the day. Volatility is very likely to increase due to the announcements from the United States that we have seen above but the upward trend is difficult to change. If there is also a breakout of the resistance of 137.90, perhaps an even more amplified uptrend will occur and therefore we choose to open buy positions this week too.

EURJPY (Euro – Japanese Yen)
Strongly bullish was last week for EURJPY which opened at 147.22 and closed at 150.06. The pair has managed to surpass the all-important price of 150 for the first time since October 2008 and this fact alone shows that there is extreme behavior. The euro has strengthened in recent times due to previous interest rate hikes and the upcoming 0.25% or 0.50% increase that markets expect next Thursday. On the contrary, the yen continues to fall as interest rates remain unchanged at a negative price and the Bank of Japan notes that loose monetary policy will continue. Everything converges in a strong upward trend but certainly, at multi-year highs, there are many cases where corrections arise and so we will choose sell positions this week.

EURGBP (Euro – Great Britain Pound)

Last week was bearish for EURGBP, which opened at 0.8833 and closed at 0.8765. The euro and sterling are both strong recently because high inflationary pressures lead markets to believe that central banks will make new interest rate hikes. But inflation in the UK persists in very high and double figures, and so the sterling has gained more points in this informal battle. Given that there is a decision on interest rates by the European Central Bank this week perhaps the euro will regain some of its strength, and that is why we are choosing buy positions this week.

USDCAD (US Dollar – Canadian Dollar)

Slightly bullish was the last week for USDCAD, which opened at 1.3526 and closed at 1.3544. The U.S. dollar had a neutral stance this week, but the Canadian dollar could not benefit and strengthen for two main reasons. The first reason is the fall in oil prices. There is a strong correlation between oil prices and the Canadian dollar as we have mentioned several times. The second reason is the announcement of Canada’s GDP in February, which grew by 0.1% but that figure is down sharply from 0.6% the previous month. The Bank of Canada at the summit of deliberations announced that it intends to keep interest rates on fire for some time even into 2024. We may try buy positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF had an upward course last week as the opening price was at 0.8921 and the closing price at 0.8942. It was the first bullish reaction for the pair after five consecutive falling weeks. This is not mainly due to the recovery of the US dollar as much as to some negative news that has emerged from the Swiss economy. Retail sales fell in March by 1.9% while the KOF indicator fell to 96.4 from 99.2 the previous month. The ZEW survey on the expectations of the Swiss economy also had a negative performance. Since the exchange rate has been moving at low prices for more than two years, it is not excluded that this upward reaction will have a continuation and so we will prefer buy positions this week.

AUDUSD (Australian Dollar – US Dollar)

Bearish was the last week for AUDUSD, which opened at 0.6692 and closed at 0.6615. Since the US dollar was practically unchanged in the past week, this downward move is mainly due to the weakening of the Australian dollar. Inflation in Australia de-escalated sharply in the first quarter of this year and was reported at 7% versus 7.8% in the previous quarter. The producer price index has declined significantly over the same period. Markets have therefore formed the view that in the Bank of Australia’s decision expected this week, interest rates will remain unchanged. Such a development weakens the Australian dollar. This week though is full of US announcements and in case of a strengthening of the US dollar, we may see a bullish reaction for the pair so we may try buy positions this week.

Bitcoin

Last week, Bitcoin closed at $29,235 with important profits close to 6%. Bitcoin had an explosive rise until Thursday that drove it above $30,000 for the first time since April 19. The main reason is that concerns about the classic traditional banking system due to the collapse of first republic Bank’s stock have favored cryptocurrencies which are considered an alternative way to pay and store wealth. It turns out, therefore, that such an inverse correlation has developed between the banking industry and the cryptocurrency world which becomes obvious. Since the situation began to normalize on Friday, Bitcoin has come under pressure which also continues at the beginning of the current week where Bitcoin is heading towards $28,500. If the climate improves more in the global economy and the banking sector, we will probably see a further decline and therefore we may try short positions this week.

IMPORTANT DISCLAIMER

The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.