The March FOMC meeting has come and gone, with the net result being that the Fed Chairman Jerome Powell by and large told the market what it wanted to hear, which is that three rate cuts are still in the pipeline for 2024. This despite the hotter CPI and PPI prints from last week, which had raised concerns that the timing and extent of rate cuts this year could be altered with inflation edging higher again. This may still prove to be the case, but for the time being at least the Fed is ‘staying the course’ regarding expected rate cuts in 2024 even though inflation has been bubbling higher in patches.
Risk assets were pleased with the messaging from the Fed,and as such equities resumed their winning ways with the major US indices posting notable gains in the aftermath of the central bank meeting. With rate cuts remaining on the radar, stocks rallied on anticipation that easier monetary conditions will bode well for economic growth prospects.
With Powell keeping three potential rate cuts in play this year, bond yields and the USD dipped which opened a pathway higher for the gold price. Spot gold didn’t waste any time in lifting off from support around $2150to trade at $2186, with the precious metal becoming more appealing to investors in anticipation of a lower interest rate environment. Following the post-FOMC meeting shift higher, gold is again on the cusp of having a crack at the $2200level in the near term. Any further dips in from the USD and bond yields would likely assist such a move in the yellow metal.
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In FX, the yen regained some ground against the USD but overall, the Japanese currency is still feeling the effects from the BOJ decision on Tuesday to end the negative interest rate policy setting. While a decision to raise interest rates would generally be supportive of a currency, the yen depreciated as much of the move away from negative interest rates had already been priced in on anticipation that the BOJ would either pull the trigger this month or next.
Also, the BOJ appeared to be ‘managing expectations’ when it comes to further rate hikes, with investors expecting that further tightening of monetary policy will be slow and steady rather than swift in nature, which is adding to the woes of the yen. The USDJPY rate was seen trading at 151.10during early Asian trading hours on Wednesday. The yen has fallen over 7%verses the greenback in 2024 so far.
Crude oil took a step back mostly in response to over bought conditions, given the recent run higher on supply concerns. Attacks on Russian oil refineries in the past week have added further uncertainty to the state of oil supply moving ahead. The energy market is unsure whether there will be further production disruptions to come, and this uncertainty is serving to elevate the oil price. With both the Brent and WTI oil contracts trading above$80 per barrel, there is likely some concern among central bankers around the world that any extended stay higher for the oil price will have repercussions for inflation levels.
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Looking ahead for the remainder of the week, investors will be monitoring upcoming manufacturing and services PMI readings from Europe and the US to assess growth and activity levels in major economies.
