The dollar index saw a sharp increase against a basket of currencies, rising 0.5% for both the dollar index and dollar index futures. This jump was largely attributed to the surge in oil prices following the OPEC+ announcement, which could result in higher fuel costs globally, potentially feeding into inflation over the coming months.
These concerns have led markets to price in a greater likelihood of the Federal Reserve maintaining an aggressive tone and potentially raising interest rates in the future, which could lead to further dollar hikes.
Most Asian currencies experienced a decline as mentioned previously due to a surprising OPEC+ production cut, which sparked a rally in oil markets but also raised concerns that high fuel prices could lead to sustained inflation. In addition to the OPEC+ announcement, weak economic data from China further weighed on Asian markets, as a post-COVID recovery appeared to be losing momentum.
As a result, EUR/USD and GBP/USD edged lower, whereby we witnessed a drop of almost 0.5% in both pairs.
Despite the release of Friday's data showing a slightly greater-than-expected easing in U.S. inflation in February, this week will focus on the nonfarm payrolls data for March, due on Friday, as investors look for further clues on future monetary policy.
Gold achieved the best monthly performance since July 2020, with an increase of 8.6%. This increase came as a result of the increase in demand for gold with the expansion of the banking crisis around the world.
in addition to the increase in the personal consumption expenditure price index, which is the Fed’s favourite indicator for measuring inflation by 0.2% less than expected, and this indicates On slowing inflation, which may prompt the Federal Reserve to end the policy of monetary tightening to support the banking sector.
However, OPEC + surprised the markets at the beginning of the week, after several countries announced a reduction in oil production in order to achieve balance in the oil market, and thus concerns about inflation returned, which affected positively on the dollar and negatively on gold prices.
Technically: (Figure 1): Gold is trading within a triangle pattern between support near $1950 an ounce and resistance near $1987 an ounce, if gold succeeds in breaching the pivot point near $1966, this is considered positive for prices, and we will watch if it succeeds by targeting the important resistance area at $1987 an ounce.
Figure 1: XAUUSD, Metatrader5, CFI Brokerage
During the quarter, the Nasdaq Composite index experienced a significant increase of over 16%, whereas the S&P 500 Index had a comparatively modest rise of about 7%. However, the Dow Jones Industrial Average, which is narrowly focused on large-cap stocks, saw only a slight increase.
In the previous week, the Dow Jones Industrial Average experienced a gain of 3.2%, the S&P 500 Index gained 3.5%, and the Nasdaq 100 had a gain of 3.4%. Last week, the market received some encouraging information regarding inflation, as the U.S. core personal consumption expenditure (PCE) price index for February was reported at 4.6%, slightly lower than the anticipated 4.7% consensus forecast. That suggested the Fed may be close to ending its rate-hiking campaign.
Small caps outperformed large caps, and value stocks advanced modestly more than growth stocks. The S&P 500 is above pre-SVB levels. According to Bianco Research, META, AAPL, AMZN, NFLX, GOOGL, MSFT, NVDA, and TSLA account for all of the S&P's YTD return. They are up +4.6%. The other 492 stocks collectively are down for the year (-.99%).
At a time when investors had started to move past the banking crisis, the unexpected production cut by OPEC+ has revived concerns about enduring consumer cost pressures. This move also raises the risk of a delay in the conclusion of central bank hiking cycles.
Over the weekend, OPEC+ announced a surprise reduction in oil production by more than 1 million barrels per day, which will limit output starting in May. The initiative was led by Saudi Arabia, which pledged to reduce its own production by 500,000 barrels. Other members, including Kuwait, the United Arab Emirates, and Algeria, also joined in the effort to reduce production.
Following the surprise output cuts by OPEC, oil prices soared by 8%, leading analysts to caution that prices may reach $100 per barrel. Goldman Sachs Group Inc. revised its price forecast for Brent crude on the output cut, projecting it to reach $95 per barrel this year-end and $100 in December 2024, analysts including Daan Struyven and Callum Bruce wrote in a note. Energy stocks rallied in Europe, with BP Plc and Shell Plc climbing more than 4%.
The content published above has been prepared by CFI for informational purposes only and should not be considered investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.