20/05/2024

General Comment

Several new pieces of information were contained in the previous week in relation to macroeconomic aggregates that were announced mainly in the United States. These developments may play a decisive role in the decisions of central banks and especially the Fed in the next months. In April, the US Consumer Price Index (CPI) increased by 0.3% month-over-month, slightly less than the expected 0.4%. On an annual basis, prices climbed by 3.4%, just below the 3.5% rise recorded in March. The Core CPI, which excludes food and energy costs, also saw a 0.3% monthly increase and a 3.6% annual rise, reflecting ongoing inflationary pressures. Inflation continues to exceed the Federal Reserve’s 2% target. Producer prices, which often foreshadow consumer inflation, went up by 0.5% in April, driven by higher final demand for services and goods.

While consumer inflation met expectations, retail sales remained flat, and other economic indicators showed mixed results, including initial jobless claims, import/export prices, housing starts, building permits, and industrial production. The Fed remains cautious, with officials urging careful deliberation before any potential rate cuts. Several Fed officials ‘ speeches in the week have moved within this framework. This prudence reflects the Fed’s ongoing evaluation of economic conditions and inflation trends, as they aim to balance growth and stability amid an uncertain economic landscape.

In the Eurozone, the Q1 GDP growth was announced at a 0.3% increase quarter-over-quarter, while the final April Harmonized Index of Consumer Prices showed a 2.4% year-over-year rise, consistent with the market consensus. The economic recovery in the Eurozone has created a climate of optimism that is heightened by the belief that the European Central Bank will start cutting interest rates in June.

As far as China’s economy is concerned, it has also had some economic results that were rather neutral. China’s industrial production rose impressively in April by 6.7% but both retail sales and fixed asset investments failed to follow market expectations. On Friday, May 17, China announced strong measures to stabilize its crisis-hit property sector. The People Bank of China is facilitating an additional 1 trillion yuan in funding, easing mortgage rules, and enabling local governments to purchase apartments. Early this week, the People’s Bank of China left the interest rates unchanged at 3.45%.

With some minor exceptions, in Europe and the United States, the rally in stock indices continued. Bond yields saw a slight downturn, with the yield on the 10-year U.S. Treasury bond closing the week near 4.42%. Commodity markets were mostly bullish, with gold and oil making significant gains but also copper’s gains moving at impressive levels. The US dollar had losses last week, while other currencies such as the euro, sterling, and the Australian dollar performed significant gains. Impressive finally were the gains for Bitcoin and most cryptocurrencies.

The current week features multiple speeches from Fed officials (Powell, Kugler, Bostic, Barr, Waller, Jefferson, Williams, Collins, Mester), and on Wednesday, the Federal Open Market Committee (FOMC) will release the minutes from its latest meeting. Also important will be the announcements of PMI indicators for the world’s major economies, the announcement of inflation in the United Kingdom, Japan, and Canada, while in the United States markets will pay attention to announcements of durable goods orders, the Michigan Consumer Sentiment Index and new & existing home sales.

SP500

The US SP500 index was bullish last week as it closed at 5,303.26 points and profits of 1.54%. SP500 managed to recover after the correction we saw in April and to perform a new all-time high price. Renewed optimism among investors suggests that the economy is on track for a soft landing, accompanied by forecasts of strong earnings. The latest inflation results helped a lot in this direction. In April, the US Consumer Price Index rose by 0.3% month-over-month, which was slightly below the anticipated 0.4%. Annually, prices increased by 3.4%, just shy of the 3.5% rise seen in March. The Core CPI, excluding food and energy costs, also experienced a 0.3% monthly increase and a 3.6% annual rise. Additionally, producer prices, which often predict consumer inflation, increased by 0.5% in April. Inflation remains above the Fed’s 2% target but now markets have more optimism that the interest rate cuts may start soon enough. According to the CME FedWatch tool, the probability of a rate cut in June is 9.1%, the total probability for a rate cut until July is 26.7% and September is the most likely case with a probability of 63.9% for at least one rate cut. Fed speakers remain cautious but, in any case, there are no voices anymore that bring on the table rate increases. Many Fed officials will also speak throughout the whole week and along with the FOMC meeting minutes release, will be the key events. Some announcements, including durable goods orders, the Michigan consumer sentiment index, and new & existing home sales will also have a big role. We may try long positions for one more week.

DAX40

The German DAX40 index was slightly bearish last week, closing at 18,704.42 points, with losses of 0.36%. This bearish reaction does not seem preposterous as the week before we saw a sharp uptrend with heavy profits. Things in the Eurozone economy are getting better since markets believe that the ECB will start reducing interest rates from June and it may apply more rate cuts within the year. It means that the scenario of a recession is not very possible anymore. Furthermore, the economic data in the Eurozone are quite improved. It also happens in Germany with the Harmonized Index of Consumer Prices (inflation metric) was announced at 2.4% in April which is pretty close to the main target of 2%. The current situation and the economic sentiment metrics were both announced above market expectations. However, by the end of the week, we saw the pressures on DAX40 and it has to do with some announcements that came from China. China is one of the biggest importers of German industrial production and the Chinese retail sales missed the target that markets estimated so the German stock markets were affected. Besides the announcements in the Eurozone and Germany (GDP on Friday, PMIs on Thursday), the European markets are correlated with the US ones so the Fed speakers and the FOMC meeting minutes may affect the DAX40. The factors and the background seem positive so we may try long positions this week.

FTSE100

The British FTSE100 index moved mildly upward last week, closing at 8,431.1 points, earning about 0.10%. Even if the uptrend momentum was weaker, it was still another profitable week for FTSE100, the fourth in a row. The economy of the UK has clearly a better outlook compared with the previous months. The markets interpreted statements from Bank of England officials as dovish. Megan Greene, a member of the Bank of England’s Monetary Policy Committee, noted on Thursday that the recent decline in inflation has been substantial. Meanwhile, BoE’s Chief Economist Huw Pill suggested that a rate cut might be on the table for the summer. According to many analysts & traders, there’s a good chance that the Bank of England will start reducing interest rates in June. The anticipation of falling rates provided a boost to many UK equities, including housing and real estate investment trusts which will straightly benefit. The current week is very critical as on Wednesday the consumer price index and the producer price index will be released for the UK economy in April and it will be the main source of information regarding the decisions from the Bank of England. The uptrend seems undeniable for the moment and even if we cannot exclude some correction, we prefer long positions for one more week.

Gold

The previous week was bullish for gold, with the next month’s futures closing at $2,417.4 and profits of 1.79%. In the United States, April’s inflation data in some cases fell short of expectations and in some other cases matched the expectations but in no case didn’t exceed the expectations. This data bolstered market speculation that the Fed might begin cutting rates as early as September, favoring the safe haven asset class and especially the non-yielding assets such as gold. According to many analysts, gold reacts to the belief that US inflation is under control, implying that concerns about a prolonged period of high interest rates will be alleviated. The London Bullion Market Association reported that London’s gold price benchmark ended the week at a record high of $2402.60 per troy ounce. Also, extra optimism was created by some newest developments from China which is at the top of the list of major gold-consuming countries. The People’s Bank of China is providing an additional 1 trillion yuan in funding, relaxing mortgage rules, and allowing local governments to purchase apartments. Analysts considered these measures to support the property sector as positive and since the gold is deep in the Chinese culture according to ancient traditions and more, the regrowth of the real estate industry may favor the gold prices significantly. Three consecutive weeks of rising seems a good case for many traders to take the profit and this fact if it’s combined with a dollar recovery may cause corrective trends in gold prices. We may try short positions this week.

US Oil

Last week was bullish for oil with the next month’s futures closing at $79.58, with profits of 1.69%. The latest news regarding the US inflation which seems to de-escalate, the Fed speakers, and the high probability of interest rate cuts by the Fed in September has revitalized the perception of a higher demand for oil because all these may help the recovery of the global economy. This positive approach regarding the oil demand was confirmed last week by the oil stocks metrics. According to the American Petroleum Institute (API), the oil stocks in the USA reduced last week by 3.1 million barrels. Also, according to the US Energy Information Administration, oil stocks were reduced by 2.51 million barrels. Both announcements helped the recovery of oil prices. As per the world’s second-largest oil consumer which is China, the economic data were mixed: positive for industrial production and relatively negative for internal consumption as it is expressed by the retail sales.  Turning to oil supply, a negative factor for oil prices is the concern that some OPEC members aim to increase their oil production levels, potentially leading to infighting within the group at their June 1 meeting. Bloomberg reported on Tuesday that the UAE, Iraq, Algeria, and Kazakhstan want to raise their production quotas. In contrast, Saudi Arabia has resisted boosting output and urged OPEC to be cautious about adding more barrels to the market. According to the CME OPEC Watch Tool, the probabilities currently are 80.6% for no change in production, 16.3% for additional cuts, and 3.1% for ease of cuts. Early this week, oil prices rose due to political uncertainty following the death of Iran’s president in a helicopter. Very soon though, the price returned below $80 which means that concerns are easing. Since the news shows strong demand and there’s no serious evidence for a lower supply, we may try long positions this week.

EURUSD (Euro – US Dollar)
Last week was bullish for EURUSD as it opened at 1.0768 and closed at 1.0868. The U.S. dollar has had strong losses throughout the week, especially on Tuesday and Wednesday after the indicators of inflation in the United States were announced. There has been a mild decline in inflation which, combined with the negative economic results that the country has been showing lately, makes markets believe there will eventually be interest rate cuts this year by the Fed. On the other hand, interest rate cuts are expected earlier by the European Central Bank, with a most likely scenario in June. However, some results that point to a recovery in the European economy strengthen the euro in the short term. Eurozone GDP strengthened by 0.3% in Q1, and industrial production in March by 0.6%, and inflation for April was announced at 2.3%, quite close to the 2% target. The United States will be at spotlight level again this week, due to several speeches by Fed officials and the announcement of the FOMC’s meeting minutes on Wednesday. If the Fed speakers and the minutes show a cautious and hawkish stance, perhaps the U.S. dollar will strengthen again and for that reason, we may try sell positions this week.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was the last week for GBPUSD, as it opened at 1.2509 and closed at 1.2701. The rise in the exchange rate was strong and was mainly based on losses in the US dollar. The macroeconomic results for the UK were not particularly positive last week as the unemployment rate rose marginally last month to 4.3% from 4.2% E. However, statements by Bank of England officials were interpreted as dovish by the markets. BoE’s Chief Economist, Huw Pill, mentioned that a rate cut might be considered during the summer. On Thursday, Megan Greene, a member of the Bank of England’s Monetary Policy Committee (MPC), pointed out that the fall in inflation that has taken place lately is quite significant. This, of course, remains to be confirmed as the consumer price index and the producer price index for the United Kingdom are announced this week. Together with the announcements for the United States seen above, they will be the most decisive factors for the GBPUSD. There has been a strong upward trend for about a month which is not excluded to continue and based on this logic we will choose buy positions this week.

USDJPY (US Dollar – Japanese Yen)

USDJPY was practically neutral last week, opening and closing around 155.60 – 155.65. The exchange rate continues to be at particularly high levels, near several-decade highs, even though the U.S. dollar weakened significantly last week. The Japanese currency continues to be under heavy pressure as markets estimate that the Bank of Japan will continue its very loose monetary policy. Markets had the perception that the Bank of Japan might reduce bond buying at its June policy meeting, but it maintained its bond-buying amounts from the previous operation. The economic outlook for Japan was also negative last week. The main announcement was the country’s GDP for the first quarter of the year, which shrank by 0.5%. The producer price index rose about 0.9% last month, while there was a big drop in machine tools orders of 11.6%. The only sign of a rebound was industrial production, which rose by 4.4% in March. Along with the United States ‘ announcements, the announcement of inflation in Japan on Friday will play an important role in shaping the trend and volatility of the exchange rate. We may try sell positions for one more week.

EURJPY (Euro – Japanese Yen)
Bullish was last week for EURJPY which opened at 167.69 and closed at 169.16. For the second week in a row, the exchange rate rose significantly. Japan’s currency continues to weaken as the interest rate spread between the Bank of Japan and the European Central Bank persists. Markets believe there is no determination on Japan’s part to raise interest rates bravely in the coming period, even though some officials say there may be some increases within the year. Interest rate cuts are expected by the European Central Bank, but the Eurozone’s robust economic picture has been strengthening the European currency. However, as we get closer to June, which is considered the most likely start date for a rate cut in the Eurozone, we may see the euro under pressure and therefore we prefer sell positions this week.

EURGBP (Euro – Great Britain Pound)

Last week was bearish for the EURGBP, as it opened at 0.8599 and closed at 0.8557. For some months, the rate cannot escape a narrow range in which it moves, above 0.85 and below 0.8650. This balance is maintained because markets expect interest rates to be cut by both the Bank of England and the European Central Bank in the coming months. In addition, both economies (the UK and the Eurozone) have been showing signs of recovery in recent times. Thus, most weekly movements converge towards the average of this range mentioned above, and mostly just above 0.85 which occurs with a higher frequency. Based on this logic, we will choose sell positions this week.

USDCAD (US Dollar – Canadian Dollar)

Bearish was the last week for USDCAD, as it opened at 1.3663 and closed at 1.3611. The announcements about Canada’s economy were few and not so important, so they did not play a meaningful role in the downward movement of the exchange rate. Thus, its decisive role was played by the weakening of the U.S. dollar and the rise in oil prices. Oil is the main export commodity of Canada’s economy and therefore has a strong correlation with the country’s currency. Several speeches from Fed officials and the release of the FOMC meeting minutes will be at the center of the markets this week for the USDCAD trend and volatility. Canada’s inflation announcement on Tuesday and retail sales on Friday will also play an important role. Buy 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 0.9049 and the closing price was at 0.9090. The dominant role of this rise has to do with the weakening of the U.S. dollar, following the inflation announcements in the United States that point to a de-escalation. This de-escalation of inflation boosts the likelihood of the Fed starting a rate cut sooner, and that weakens the dollar. Last month’s producer price index in Switzerland fell by 1.8%, while in the first quarter of the year, there was a significant drop in industrial production by 3.1%. It seems that currently, the exchange rate has managed to stabilize above the milestone price of 0.90 and it is ruled out that its upward trend will continue for this week so we’re keen to try buy positions.

AUDUSD (Australian Dollar – US Dollar)

Bullish was the last week for AUDUSD, which opened at 0.6599 and closed at 0.6693. The U.S. dollar and its weakening had the largest share of participation in this strong upward move for the exchange rate. Australia has had economic announcements with conflicting and neutral results. Although the new jobs balance was positive by 38,500 positions, the unemployment rate in Australia rose from 3.9% to 4.1%. The wage price index increased in the first quarter of the year by 4.1%. The Federal Government must address the immediate challenge of assisting Australians affected by rising living costs without worrying about inflation. Simultaneously, there is a pressing need to enhance economic productivity to achieve sustainable growth in real incomes. Also from China’s side, the news was neutral, as industrial production increased significantly but retail sales missed expectations. According to the latest developments though, the People’s Bank of China is providing an additional 1 trillion yuan in funding, enabling local governments to purchase apartments and this fact may help the AUD. We may try buy positions this week.

Bitcoin

Last week, Bitcoin was strongly bullish and closed at $66,275 with profits of 7.83%. The improved market sentiment after the encouraging inflation data in the USA helped the risky asset classes such as the cryptos to recover. The most profitable day for Bitcoin last week was Wednesday (total profits of 7.64%) which was the day that the consumer price index was announced in the USA. Media reported on Friday that the 90-day correlation coefficient between Bitcoin and the tech-dominated NASDAQ100 surged to 0.46 this week, its highest point since late August last year. Investors consider more and more Bitcoin as an asset similar to tech stocks. The big issue for the crypto community in the last weeks is the possible approval of the Ethereum ETFs by the SEC. The fate of the Ethereum ETFs could be determined this week by a single vote from Gary Gensler, the chair of the United States Securities and Exchange Commission. Historically, Gensler’s vote has been pivotal. Five SEC Commissioners are set to vote on May 23 to either approve or deny VanEck’s spot Ether ETF. Of course, VanEck isn’t the only ETF seeking approval. The deadline for ARK Investment Management’s ETF approval is May 24, just one day after VanEck’s. The SEC decisions will be pivotal for the crypto asset class and not for Ethereum only but many analysts aren’t very positive about it.  Ric Edelman, head of the Digital Asset Council of Financial Professionals, recently told CNBC that he “would be astonished if the SEC said yes at this point“.  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.