Financial Markets’ Weekly Recap, April 3-7

Nonfarm Payrolls increased by 236,000 in March, according to statistics released on Friday by the US Bureau of Labor Statistics (BLS). This result follows February’s print of 326,000 and came in slightly below the market consensus of 240,000. (revised from 311,000).

Global financial markets ended last week with mixed performance reflecting strong price actions as well as moves of risk appetite after an eventful week, both in terms of oil market developments and recession fears and in terms of the latest data releases.

Risk-linked assets in global financial markets have been heavily pressured to the downside due to global oil price hikes that came as a result of sudden decisions by a number of OPEC+ alliance to voluntarily reduce their oil production.

The trading of the week ending on the seventh of April passed through a couple of remarkable points, most notably those that witnessed the control of recession fears on the price action after the sharp rise in oil prices.

The second and final point was in the opposite direction, which comes amid expectations of continued positivity in the markets following the release of US employment data that highlighted the deterioration in the US labour market in line with the direction that the Fed prefers to take regarding the US jobs and wage growth during the ongoing battle against inflation.

Gold

At the end of last week, gold managed to make big gains, which took it to levels above $2,000 an ounce after the US dollar came under severe pressure due to the sharp oil rallies and rising expectations that the Fed will stop raising interest rates in the coming period.

Gold futures rose to $ 2007 an ounce at the close of trading in the week ending on the seventh of April, compared to the last week’s close, which recorded $ 1968 an ounce.

Oil Was Winner

Oil futures ended last week in the bullish trend with a boost from two key factors: the surprise decisions by a number of OPEC members to voluntarily cut production, as well as the improved risk appetite that has dominated the markets since the decline in US employment data in March against the previous month’s readings.

US oil futures concluded the week ended on the seventh of April at $ 80.42 a barrel against the last week’s close, which recorded $ 75.65 a barrel. US crude recorded its lowest level in the week ended on April 7 at $ 79.0 against the highest levels in the same period at $ 81.57.

Brent crude futures ended last week at $84.73 a barrel versus last week’s close of $79.73 a barrel. British crude hit its lowest level in the week ended April 7 at $83.55 against the highest levels in the same period at $86.00.

Global oil prices rose sharply at the beginning of the new week after OPEC members announced production cuts in the coming period, which came contrary to market expectations.

Risk assets, most notably US equities, may continue to be pressured if the oil rally continues and OPEC+ continues its position in favor of further production cuts, due to fears that oil spikes may escalate, which is undoubtedly one of the most important factors adding to inflationary pressures in the markets.

The total output cuts by the nine members who decided to cut on Sunday were 1.66 million barrels per day, raising expectations of rallies in oil futures.

The negative data that appeared on the last day of trading last week added to the positive markets after it led to an improvement in risk appetite in the markets as it caused rising expectations that the Fed may stop raising interest rates starting next May.

Dollar, Treasury Yields

The dollar index, which measures the US dollar’s performance against a basket of major currencies, ended in a downtrend after suffering significant losses due to oil sharp rallies and mounting expectations that the Fed will stop raising interest rates in the coming period.

The dollar index fell to 102.10 points in the week ended April 7, compared to the last week’s close, which recorded 102.72 points. The index rose to a high of 102.80 points in the last trading week against a low of 101.50 points.

The US currency was affected by rising expectations that the Fed will stop raising interest rates starting from the May meeting, which came as a result of a decline in US employment data.

The US dollar suffered from sharp rises in global oil prices, as well as rising expectations that the Fed’s rate hike will stop in May, prompting speculation of a decline in the US dollar and Treasury yields as well as related assets.

US Treasury yields also fell for the same reasons that led to the decline in the US dollar, with ten-year US Treasury yields falling to 3.381% versus the previous week’s close of 3.539%. Yields on benchmark US bonds rose to a last week’s high of 3.510% versus a low of 3.279%.

Yields have been pressured by sharp rises in global oil prices, as well as rising expectations that the Fed’s rate hike will stop in May. There is a positive correlation between the Fed and ten-year US bond yields, which pushed the latter to the downward trend last week after expectations of a rate hike fell and investors in the financial markets were excluded for this to happen in the coming period.

The Week Ahead

Next week is expected to be very important for the price movement in the markets in the coming period, as the earnings season begins with Wall Street’s financial sector earnings reports.

The earnings reports of banks and major financial institutions for the first quarter of 2023 in the aftermath of the recent banking crisis, which began with the collapse of Silicon Valley, has surfaced, adding even more importance to the earnings reports that await markets next week.

Earnings Awaited

JPMorgan and Wells Fargo as well as Citigroup will lead next week amid anticipation of their financial performance in the final month of the first quarter of the new year, a month that has seen the fallout from the banking crisis.

Important batches of data have a strong impact on price movement in the markets, most notably readings of US consumer price inflation and US retail sales. These indicators determine the state of prices and consumer spending levels in the United States, providing further light on the future trajectory of inflation.

In the Eurozone, next week’s economic calendar carries readings for retail sales, industrial production, and German consumer price indices. The diary also contains British data, most notably indicators of industrial, manufacturing and service activities and trade and growth data in the United Kingdom.

Markets are also expected to see strong moves in reaction to China’s inflation and trade data, highlighting the state of the world’s second-largest economy and one of the main drivers of global growth.