Financial Markets Weekly Recap: Gold prices, US stocks surge amid rate speculations

In the face of geopolitical events and macroeconomic variables, the financial scene is nevertheless dynamic. Wall Street’s risk appetite persisted despite high rates, as evidenced by the performance of the Dow Jones Index and gold. While Bitcoin saw brief fluctuations, oil prices stayed steady. The US Dollar Index had a neutral week’s end.

Fresh China Tariffs

Although there may be consumer dissatisfaction, the US Administration intends to put new tariffs on China’s electric vehicle and medical supply industries in an effort to shield US manufacturing from low-cost competitors and promote job growth.

Investment flows are redirected based on geopolitical tensions. The White House after elections will see the US-China trade war escalate, but the inflationary pressures that go along with it won’t force the Fed to adopt a more hawkish position on policy, Fed chair reiterated this week that Fed’s next move won’t be a hike.

Policymakers will be forced to lower interest rates in an effort to avoid a new phase of the Sino-US trade war if the hits to employment and economic growth from higher tariffs are greater than the damage to import prices.

China will undoubtedly reply in kind, escalating concerns about a spiraling inflation rate. However, studies reveal that tariffs also harm Wall Street, the labour market, and the economy, so much so that the Fed may decide to loosen regulations in response.

Economic Resilience:

The Federal Reserve’s cautious stance has led to mild gains for the Dollar, following statements by Chair Jerome Powell and FOMC voting members. Philadelphia’s Fed surveyed 34 forecasters, predicting a better near-term US economy outlook, with an annual expansion rate of 2.1% this quarter and 2.0% next, and real GDP growth at 2.5 percent in 2024 and 1.9% in 2025.

Key Data for the Week

US jobless claims reached their highest level since August 2023, affecting interest rate expectations. The Fed may need to address inflationary pressures in monetary policy decisions. CPI inflation decreased to 0.3% in April, causing a rise in rate cut hopes as investors demand a Fed rate trim.


US Stocks:

US stocks closed lower on Thursday after the Dow reached an intra-day high of 40,000 for the first time ever, as investors continued to recalibrate their rate-cut expectations following data showing a slowdown in inflation, as well as strong corporate earnings results.

The US stock market continued its upward trajectory, achieving an 8-day consecutive gain—the longest winning streak of 2024. The Dow Jones Industrial Average led the charge, approaching all-time highs.

Sector Performance:

Notably, communication services, energy, and utility stocks contributed significantly to the year-to-date gains, resulting in an overall 10% increase in US stocks.

Earnings Season: While reporting season winds down, earnings reports from companies like Home Depot and Walmart remain significant for market sentiment.

Eurozone GDP:

The Eurozone’s GDP and employment increased by 0.3% and 0.3% respectively, indicating a weak recovery. This could impact the Euro currency against major counterparts, particularly the EUR/USD pair. The recent breach of the $1.0870 level by the EUR/USD pair has put the 1.1000-1.1100 target range in focus. The first quarter of 2024 showed growth of +0.3% for January to March, suggesting an end to stagnation and increasing evidence of this.

Gold’s Performance

Geopolitical tensions in the Middle East continue to underpin demand for safe-haven assets like gold. Gold had a strong week, gaining 2.2%. Its year-to-date return of 14.8% indicates steady growth, and the 5-year return of 84.3% underscores its long-term resilience. Spot gold comfortably surpassed the $2,417 mark on Friday, and gold futures surpassed the $2,418 mark.

Oil Prices

Oil prices remained stable during the week, with no significant change, as WTI crude closed around $79.45 per barrel. However, its year-to-date return of 11.3% indicates modest growth.

Bitcoin:

Bitcoin experienced a decline of 5.3% in the past week. Nevertheless, its impressive year-to-date return of 37.5% and remarkable 5-year return of 770.9% highlight its volatility and potential for substantial gains.

BoJ

The Bank of Japan (BoJ) is grappling with the weakening Yen, which has depreciated by around 10% against the US Dollar since the beginning of the year. This is exacerbated by Japan’s weak consumption and higher import costs. The BoJ is monitoring consumption, wages, and service inflation data to determine the timing of the next rate hike. There are also suspicions that authorities are using yen-buying interventions to prevent further currency declines. The JPY/USD exchange rate decreased by 0.02% last week.

What to watch in the new trading week:

The economic calendar will feature Canada April CPI report, RBNZ May monetary policy decision, UK April CPI report, US April existing home sales, FOMC May meeting minutes, France, Germany, Eurozone May preliminary PMIs, UK May preliminary PMIs and US May preliminary PMIs.

In addition, the week will witness the release of US weekly initial jobless claims, US April new homes sales, UK April retail sales data, Canada March retail sales data and US April durable goods orders

G7 Meeting, Global Trade Implications:

The G7 meeting in Italy next week will focus on US tariffs on China and Russian frozen assets, with significant implications for global trade. US Secretary Janet Yellen will push for a plan to bring forward interest earnings on frozen Russian assets to provide more money to Ukraine. Yellen’s May 21-25 trip to Frankfurt will ensure progress towards consensus on a plan to harness $300 billion in Russian sovereign assets frozen since Moscow’s February 2022 invasion of Ukraine.