29/04/2024

General Comment

The topic of interest rate cuts in the USA remains the most heated issue for the markets currently, and last week’s economic indicators suggest that the prospects for such cuts this summer are diminishing. Recent data reveals persistent inflation coupled with strong consumer demand, presenting a complex scenario for policymakers.

In terms of economic performance, the preliminary GDP figures for Q1 showed a slowdown in growth to an annualized rate of 1.6%, accompanied by a significant rise in the core Personal Consumption Expenditures price index—a key measure of inflation. Despite high interest rates and ongoing inflationary pressures, consumer behavior has remained resilient. Both Q1 personal consumption expenditures and personal spending for March exceeded expectations, underscoring the robustness of consumer activity. This continued strength in consumption indicates that the Federal Reserve may need to adopt a cautious stance in adjusting monetary policy, potentially delaying any rate cuts.

Markets last week, also put the focus on the SP500 companies’ earnings reports. So far, SP500 companies are outperforming expectations. A higher percentage of these companies are reporting positive earnings surprises, and the scale of these surprises exceeds the 10-year average. Approximately 78% of these reports have surpassed analysts’ earnings expectations. Tesla’s stock surged by 12% after announcements of increased production and more affordable models counterbalanced its weaker quarterly performance. However, not all reports this season have been favorable. A gloomy forecast from Meta Platforms earlier this week dampened some of the overall earnings optimism. Additionally, Intel’s shares fell following a pessimistic forecast released on Thursday. Looking ahead, the upcoming week will feature earnings reports from major players including Amazon and Apple.

In the rest of the world, things look mixed and complicated. In the Eurozone, as inflation declines, policymakers at the European Central Bank are hinting at a possible rate cut in June. This message was reinforced on Thursday when key ECB officials emphasized that the central bank is prepared to reduce rates at the upcoming June meeting. This week’s April PMI data for the Eurozone highlighted the ongoing divergences between sluggish manufacturing and robust service sector activity. Nonetheless, the data remain generally encouraging, aligning with expectations for modest growth recoveries in the economy this year.

In the rest of the world, last week, the Bank of Japan held its monetary policy steady, maintaining interest rates at 0%. The Band of Japan did not offer clearer indications regarding the timing of the next rate hike. It was a mini surprise for the markets as the expectation was for a rise of 0.1%. After an early Friday meeting with US Secretary of State Antony Blinken, China’s Foreign Minister Wang Yi stated that while the China-US relationship has stabilized, negative factors are accumulating. He emphasized that a conflict with the US would result in mutual losses and called on the US to avoid involvement in China’s internal matters.

To recap the above, most major equity indices in Europe and the United States performed a bullish reaction last week. The picture was mixed in the commodity market as oil and copper gained but gold came under corrective pressure. Bond yields moved up, with the yield on the US 10-year yield closing the week at just above 4.66%, having completed 4 consecutive weeks of growth. The US dollar was stabilizing, while the euro and sterling were on the rise. Impressive was the fall for the Japanese yen. Finally, Bitcoin and most cryptocurrencies were on a correction trend last week.

The week that has just started is considered quite important for markets with a possibility that we will see increased volatility. In focus is the Fed’s meeting on interest rates and monetary policy in the United States on Wednesday. The likelihood of a rate cut is very small, but markets will pay attention to the press conference and other information that may emerge. Also important is the announcement of the labor market in the United States on Friday (NFPs). The labor market will be an important piece of information for the Fed’s next moves. On Tuesday the Eurozone announces inflation and GDP so there will be a better picture for Europe’s economy as well. PMI indicators, notably for the United States, China, the Eurozone, and Germany, will also give a sense of the state of their economies.

SP500

The US SP500 index was bullish last week as it closed at 5,099.95 points and profits of 2.67%. It was a strong bullish recovery and a deep breath for SP500, after three consecutive weeks of losses and a total drawdown close to 7%. Three major factors were the source of the trend and volatility of SP500 during the last week. The first factor has to do with the Fed and the future plans regarding the expected interest rate cuts. The Federal Reserve seems set on maintaining its current policy, with no plans for immediate rate reductions. According to the CME FedWatch tool, September is currently viewed as the most probable time for a cut. The second factor is the economic data released for the US economy last week. In the first quarter of 2024, the U.S. economy grew at a slower pace than anticipated, registering a significant decrease from the previous quarter’s growth rate. This economic slowdown has been attributed to factors such as inflation and high interest rates, though the economy still demonstrated some resilience. The price index for gross domestic purchases and the Personal Consumption Expenditures Price Index both experienced increases, particularly when food and energy are excluded from the latter, indicating a rise in core prices. It means that the inflation issue is still hot. Finally, markets had their eyes on the companies’ earnings results released last week. So far, companies in the SP500 are surpassing expected earnings. The current week promises to be eventful with earnings announcements expected from major companies like Amazon and Apple and with important announcements like interest rates & monetary policy on Wednesday and NFPs on Friday. Maybe the corrective pressures return as many factors that had caused them have not disappeared so we prefer short positions this week.

DAX40

The German DAX40 index was bullish last week, closing at 18,161.01 points, with profits of 2.39%. DAX40 obviously followed the improved market sentiment of the US markets and it had a similar performance. The ECB monetary policy is in the spotlight of the European markets in this period. The expectation is that the ECB will start cutting interest rates in June and this fact causes optimism that the days of high money cost are about to end and surprisingly, earlier than the USA. Surprisingly means that the inflation issue was more difficult in the Eurozone but inflation has dropped drastically compared to the US inflation which in a rise the first three months of 2024. Moreover, the German economic results were decent last week. Composite & Services PMI indicators were above 50 and markets’ expectations and only the Manufacturing PMI still implies a contraction. Business climate, current assessment, and consumer confidence had improved results in April. Today, Germany will announce the inflation for April as it is expressed by the Harmonized Index of Consumer Prices. Tomorrow, announcements of GDP and the unemployment rate will take place while on Thursday the PMIs for the German economy will be released. We may try long positions for one more week.

FTSE100

The British FTSE100 index moved heavily upward last week, closing at 8,163.90 points, earning about 2.79%. The FTSE100 index had remarkable profits driven by robust earnings from U.S. tech companies which lifted investor sentiment. Additionally, the cybersecurity company Darktrace experienced a surge following news of a buyout by the private equity firm Thoma Bravo. Of course, the week contained some negative developments as well. Anglo American has declined BHP Group’s takeover proposal, valued at 31.1 billion pounds stating that the offer significantly undervalued its worth and future potential. In total, FTSE100 performed its largest gains in the last seven months on a weekly basis. Regarding the future moves from the Bank of England, some statements were hawkish enough but the general climate did not change. The PMIs for the UK economy announced last week had a mixed sign as the Services sector had a very good performance but the Manufacturing did not meet the markets’ expectations. However, in April, the UK consumer sentiment reached its highest level in two years, at -19 from -21 in March. In the current week, only the PMIs are important announcements for the UK economy so the markets will put their eyes on the Bank of England and the news from the USA. The uptrend momentum is strong so we will prefer long positions for one more week.

Gold

The previous week was bearish for gold, with the next month’s futures closing at $2,347.2 and losses of 2.76%. Gold prices had an important correction influenced by a de-escalation in tensions between Iran and Israel. With the immediate threat of conflict diminishing, investors moved their attention from safe-haven assets like gold to riskier investments, leading to a drop in gold prices. Also, the U.S. bond yields increased, signaling a renewed interest in riskier assets after the deterioration of investment sentiment. This change in sentiment is part of a wider market adjustment, which also saw the dollar breaking its strength after the strong inflationary pressures that seem to persist. Bond yields are a competitive asset class to gold with a negative correlation between them usually. Back to the inflation issues, the latest U.S. PCE results indicate ongoing inflation pressures, prompting market participants to revise their expectations towards the Fed keeping interest rates higher for an extended period. This fact generally diminishes the attractiveness of gold. Markets will pay attention during the current week, mostly to the data from the USA (Fed interest rates decision/press conference and NFPs) and to the inflation/GDP announcements in the Eurozone. Last week was the first bearish week after four-in-a-row bullish weeks and since the uptrend is still active, we may try long positions this week.

US Oil

Last week was bullish for oil with the next month’s futures closing at $83.95, with profits of 1.98%. During the first days of the week, the dominant factor for oil prices was the eased tensions in the Middle East after the de-escalation of the conflict between Israel and Iran. As per the demand, the U.S. GDP data for the first quarter of 2025 was announced at 1.6%, well below the anticipated 2.4%. This weaker-than-expected growth sparked concerns about a possible economic slowdown, which could negatively impact future oil demand. Additionally, a stronger U.S. dollar, which makes dollar-denominated oil more expensive for holders of other currencies, further fuelled bearish sentiment. All these are negative developments for the oil demand but some good news came from the oil stocks reports. According to the Energy Information Administration report released on Wednesday, the weekly measure of oil stockpiles in the USA decreased by 6,368 million barrels last week. On Tuesday, a similar announcement from the API’s Weekly Statistical Bulletin which provides data on U.S. and regional refinery operations and the production of the main petroleum products, showed that there was a reduction in oil stocks last week by 3,23 million barrels. As per the macros, last week’s U.S. PCE had an increase of 2.7% in March which confirms the persistence of the inflation. The high inflation rates dampened expectations that the Fed might cut interest rates soon, maintaining economic pressure that lowers the expectation for higher demand. The expected slower growth after higher interest rates for a longer period and the easing in the Middle East tensions may push the oil prices lower so we may try short positions this week. 

EURUSD (Euro – US Dollar)
Last week was bullish for EURUSD as it opened at 1.0645 and closed at 1.0692. The U.S. dollar had some consolidations during the week after conflicting data. On the one hand, the GDP was reported below expectations, creating some concerns about the U.S. economy. On the other hand, increased personal consumption expenditures have shown that inflationary pressures remain, so it will not be easy for the Fed to cut interest rates soon enough. As far as the Eurozone is concerned, the dominant rate cut scenario remains June as expressed by several European Central Bank officials. The PMI indicators announced for the Eurozone indicated that there is strong growth in the services sector, but the manufacturing sector remains under pressure. The current week is dominated by the Fed’s interest rate and monetary policy decisions & announcements as well as the labor market announcement (NFPs) in the United States. Eurozone announcements on inflation and GDP will also be important. The expected divergence in rate cuts between the Fed and the European Central Bank could cause bearish trends for the EURUSD so we may try sell positions this week.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was the last week for GBPUSD, as it opened at 1.2367 and closed at 1.2492. The U.S. dollar, while high in volatility, did not make a notable change closing the week more or less in the same price levels. The U.S. GDP was well below expectations for the first quarter of the year, but on the other hand, inflationary pressures appear to persist, and this is a support for the dollar. Statements by officials from the Bank of England were mixed last week as they included both hawkish and dovish content. The PMI services indicator in the UK exceeded market expectations but the manufacturing indicator was below 50, suggesting a contraction. Consumer confidence improved significantly last month though. Given that the UK economy has no major economic announcements this week, the markets’ eyes will fall on the United States and the dollar. The exchange rate recovery has been strong, but this does not mean that the trend has changed and therefore we will choose sell positions this week.

USDJPY (US Dollar – Japanese Yen)

USDJPY was strongly bullish last week, opening at 154.53 and closing at 158.35. Although the U.S. dollar has slowed its upward momentum, the exchange rate continues to break decades-old records of high prices. The Bank of Japan decided on Friday to leave interest rates unchanged at 0%, a mini surprise for markets that were expecting a 0.1% rise. Governor Kazuo Ueda outlined the reasons for this decision during the post-policy meeting press conference on Friday. He mentioned that the Bank of Japan would modify the extent of monetary easing if the underlying inflation rate increases. Additionally, he noted that fluctuations in foreign exchange rates influencing underlying inflation could factor into future monetary policy decisions. Ueda also indicated that the probability of reaching the 2% inflation target is slowly increasing. Those statements that gave no clear signals of the Bank of Japan’s future intentions to raise interest rates pressured the yen even further. Earlier, it had been announced inflation in Japan was de-escalating to 1.8% from 2.6% the previous month. Early, this week the USDJPY has a very increased volatility as the JPY saw significant gains, amid speculation of intervention. Japan’s chief currency diplomat, Masato Kanda, refused to comment regarding whether Tokyo authorities had stepped into the currency market to support the yen. In such a volatile environment it is prudent for us to stay out this week.

EURJPY (Euro – Japanese Yen)
Heavily bullish was last week for EURJPY which opened at 164.68 and closed at 169.29. The euro showed signs of recovery last week due to some encouraging economic results. There was a divergence between the performance of PMI indicators in services and manufacturing, but the result was considered encouraging. Unlike in Japan, the Bank of Japan’s decision to hold interest rates unchanged weakened sharply the Japanese currency. It was not only this decision itself but at the press conference that followed, no details or further information were given regarding the Bank of Japan’s future moves. Earlier today, the Japanese yen experienced significant volatility amid rumours of intervention. Japan’s top currency diplomat, Masato Kanda, declined to comment on whether Tokyo authorities had intervened in the currency market. Given this uncertainty, we’d better stay out this week.

EURGBP (Euro – Great Britain Pound)

Last week was bearish for the EURGBP, as it opened at 0.8599 and closed at 0.8558. Both the euro and sterling last week performed bullish reactions, as a reverse reaction to the consolidative trend of the US dollar. But while the baseline scenario for the European Central Bank envisages a decline in interest rates in June, last week there was a slight shift compared to similar moves by the Bank of England. Bank of England officials stated that while the passage of time and a lack of negative inflation news have made interest rate cuts more imminent, they are still some distance away. This is mainly what boosted sterling more than the euro. It also turns out technically that for several weeks the exchange rate has tended to return to its balance point which is between 0.85 and 0.86. We prefer sell positions this week.

USDCAD (US Dollar – Canadian Dollar)

Bearish was the last week for USDCAD, as it opened at 1.3736 and closed at 1.3669. The Canadian dollar took advantage of the temporary weakness and the slowing of the rise of the U.S. dollar and thus the exchange rate had its second consecutive falling week. The rise in oil prices, which most often favors Canada’s currency, has contributed to this move. As regards Canada’s macroeconomic results, the sign was mixed. Industrial production rose by 0.8% in March, but retail sales fell by 0.1% in February. This week in addition to major announcements of the United States economy on interest rates, monetary policy, and the Non-Farm Payrolls, markets will also give importance to the GDP announcement for Canada’s economy. Sell positions is our selection for the current week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF was bullish last week as the opening price was at 0.9082 and the closing price was at 0.9145. The U.S. dollar has had stabilizing trends in the past week and Switzerland’s economy has had no serious and critical economic announcements. However, Switzerland’s currency has come under pressure, mainly due to the expected reduction of interest rates by the Swiss National Bank in the coming period. The Swiss National Bank took the lead among major central banks by reducing interest rates in March, with plans for further cuts in June and September. However, in a cautious tone expressed during his recent speech, the head of SNB Thomas Jordan emphasized the uncertainty surrounding the global economic climate. Markets have taken these statements as dovish, believing that Jordan’s concerns are not a source of serious change in the central bank’s monetary policy and so the Swiss franc is under pressure.  It is not impossible that this situation will continue and therefore we will choose buy positions for one more week.

AUDUSD (Australian Dollar – US Dollar)

Heavily bullish was the last week for AUDUSD, which opened at 0.6412 and closed at 0.6532. The exchange rate has been on an upward trend throughout the week, but it has accelerated following the announcement of inflation in Australia on Wednesday. In the first quarter, inflation marginally slowed to 3.6% from 4.1% in the fourth quarter of 2023 but still, it was above market expectations of 3.4%. Additionally, March inflation figures, included in the quarterly data, showed an acceleration in inflation at the quarter’s end, moving to 3.5% from 3.4% in February. These results reinforce the view that the Reserve Bank of Australia will delay the reductions in interest rates, most likely from the autumn onwards as high inflation leaves no room for other thoughts. It is this view that strengthens the Australian dollar to such an extent. As for China’s economy, which is closely tied to the Australian dollar, there were no major changes and no important news. The People’s Bank of China left interest rates unchanged at 3.45%, which was widely expected. Australia is due to announce its trade balance and retail sales within the week, but the markets’ focus should fall on US announcements. We may try buy positions for one more week.

Bitcoin

Last week, Bitcoin was bearish and closed at $63,098 with losses of 2.85%. The crypto markets are in a decline over the last four weeks even if the halving event that took place a few days ago is usually a factor that causes a rise in the Bitcoin price. This time it seems that the halving happened under different circumstances. In past halvings, only individual investors participated, but now institutions are also entering the cryptocurrency market, particularly through the recently approved spot Bitcoin ETFs. Additionally, a pre-existing supply shortage drove the cryptocurrency to an all-time high before this halving. During the last few days, there are also some complications between the SEC and some cryptocurrency communities. U.S. issuers and some analysts anticipate that the SEC will reject their applications to launch ETFs linked to the price of Ethereum, following discouraging meetings with the agency in recent weeks. Furthermore, Reuters reports that Consensys has taken legal action against the SEC concerning the regulation of the Ethereum blockchain, the company confirmed on Thursday. This move comes amid ongoing disagreements within the industry, as major players like Coinbase Global contend that the SEC does not have regulatory authority over crypto tokens, asserting that they do not qualify as securities. In addition to the above, the high inflation in the USA, the growth slowdown as it was expressed by the US GDP Q1 2024, and the expectation of high interest rates for a longer period, have gradually worsened the sentiment and the risk appetite for risky assets such as the cryptos. We may try short positions for one more 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.