Gold:
Gold prices experienced a notable surge late in the North American session on Friday, climbing by more than 1% despite U.S. Treasury bond yields maintaining high levels. The rise coincided with a University of Michigan (UoM) survey revealing a significant downturn in consumer sentiment, plunging to its lowest level in six months.
The XAU/USD pair traded at $2,369 after rebounding from daily lows of $2,343. The latest sentiment data, coupled with weaker labor market figures reported since the beginning of May, painted a gloomy picture of the U.S. economy. While concerns about a severe economic slowdown remained relatively low, investors seeking safety flocked to both gold and the U.S. Dollar, driving prices higher.
Federal Reserve officials remained in the spotlight, offering contrasting views on monetary policy. Atlanta Fed President Raphael Bostic maintained a hawkish stance, suggesting that the Fed is likely to implement only one rate cut in 2024. Conversely, Fed Governor Michelle Bowman emphasized the need for policy stability and dismissed the possibility of rate cuts this year. Dallas Fed’s Lorie Logan echoed similar sentiments, refuting the idea of interest rate reductions.
Looking ahead, the U.S. economic calendar for the upcoming week will feature the release of inflation figures, retail sales data, building permits statistics, and speeches from Federal Reserve officials. These events are expected to provide further insights into the trajectory of monetary policy and market sentiment.
Oil:
Last Friday, oil prices experienced a notable decline of nearly $1 per barrel following remarks from U.S. central bank officials hinting at the possibility of sustained higher interest rates. Brent crude futures settled at $82.79 per barrel, marking a decrease of $1.09, or 1.3%, while U.S. West Texas Intermediate crude settled at $78.26 per barrel, down $1.00, or 1.3%.
Throughout the week, Brent crude registered a marginal 0.2% loss, while WTI managed a modest 0.2% increase.
Dallas Federal Reserve President Lorie Logan underscored uncertainty regarding whether current monetary policy measures were sufficiently tight to curb inflation to the central bank’s 2% target. Higher interest rates typically correlate with decreased economic activity and reduced oil demand.
Adding to this sentiment, Atlanta Fed President Raphael Bostic expressed his belief that inflation was likely to decelerate under existing monetary policy, potentially paving the way for the central bank to initiate rate cuts in 2024, albeit tentatively and possibly by only a quarter of a percentage point toward the end of the year.
The U.S. dollar strengthened following these statements, rendering dollar-denominated commodities, including oil, more expensive for buyers using other currencies. The prospect of prolonged higher U.S. interest rates also raised concerns about dampened demand.
Looking ahead, U.S. inflation data scheduled for release next week could further influence Federal Reserve decisions on interest rates.
Despite the decline in oil prices, the U.S. oil rig count, an indicator of future supply, showed little impact. Energy services firm Baker Hughes reported a decrease of three oil rigs to 496, the lowest count since November.
Meanwhile, money managers reduced their net long U.S. crude futures and options positions by 56,517 contracts to 82,697 in the week ending May 7, according to the U.S. Commodity Futures Trading Commission.
China’s April oil import data, which exceeded last year’s figures, provided some support to oil prices, as did news of China’s rebounding exports and imports after a previous month of contraction.
In Europe, tensions escalated as a Ukrainian drone attack ignited an oil refinery in Russia’s Kaluga region, as reported by the RIA state news agency. Additionally, conflict persisted in the Middle East, with Israeli forces targeting areas of the southern Gaza city of Rafah on Thursday, according to Palestinian residents, amid stalled negotiations to halt hostilities in Gaza.
Cryptocurrency:
Last Friday, Bitcoin exhibited a modest uptick, marking a slight rebound from recent losses, as traders-maintained caution amidst soft U.S. labour data and looming concerns over regulatory actions in the cryptocurrency space. The dollar’s decline following lacklustre labour figures lent some support to Bitcoin, which traded up 3.5% over the preceding 24 hours at $63,243.4.
Fears of intensified regulatory scrutiny weighed heavily on cryptocurrency markets throughout the week, fuelled by reports of impending actions by the U.S. Securities and Exchange Commission (SEC) against major players in the crypto sphere. The closure of a prominent privacy coin trading platform further exacerbated market sentiment.
Despite the recent rebound, Bitcoin’s performance over the past week remained largely unchanged, residing within a trading range established since its descent from record highs in early March. The cryptocurrency had dipped as low as $57k the prior week, signalling a technical bear market from its March peaks.
Ongoing regulatory concerns stifled any significant upward momentum, with the SEC delaying the public listing of crypto wallet operator Exodus Movement and reportedly investigating various aspects of the crypto market, including spot Ethereum ETFs and the classification of Ethereum as a security.
The broader cryptocurrency market saw mixed movements, with Ethereum rising 1.9%, XRP climbing 0.3%, and Solana outperforming with an over 8% increase.
Dogecoin (DOGE), the renowned meme cryptocurrency, showcased signs of repeating a bullish “golden cross” technical pattern reminiscent of its early 2021 surge. With a market capitalization of approximately $22 billion, DOGE has exhibited remarkable performance this year, surpassing Bitcoin’s gains by surging over 70%.
CoinDesk reported that DOGE’s 50-week simple moving average (SMA) is on an upward trajectory, poised to intersect the 200-week SMA shortly, signalling a golden cross. This pattern historically precedes significant bullish movements in cryptocurrency.
While weak jobless claims data fuelled speculations of potential interest rate cuts by the Federal Reserve, such actions are not anticipated until September, exerting short-term pressure on crypto markets. The regulatory landscape remains a focal point for market participants, shaping sentiment and driving volatility in the cryptocurrency space.
Upcoming Events in the Financial Markets: Next Week’s Outlook:
UK Jobs Report (Tuesday): Analysts anticipate the unemployment rate for the 3 months ending in March to rise slightly to 4.3%, while headline wages are expected to dip to 5.5% from 5.6%. The prior report saw unexpected increases in the unemployment rate and declines in employment, with notable fluctuations in regular pay. The focus will be on wage growth and its potential impact on policy decisions, particularly regarding expectations for a June rate cut.
US CPI (Wednesday): Headline CPI is projected to rise by 0.3% month-on-month in April, with core inflation also expected to increase by 0.3%, cooling from the previous month. Despite recent upticks in inflation, Fed Chair Powell has ruled out immediate interest rate hikes, suggesting a longer-term approach to address inflation concerns. Analysts view a CPI rise of 0.3% as potentially delaying rate cuts, reinforcing expectations for the Fed to maintain current interest rate levels for an extended period.
US Retail Sales (Wednesday): Headline retail sales are forecasted to rise by 0.4% month-on-month in April, with the core rate expected to increase by 0.2%. Consumer spending and wage momentum, particularly among lower-income cohorts, have shown resilience, albeit against a backdrop of rising property insurance costs. While lower-income spending growth remains robust, concerns persist regarding potential impacts on spending momentum due to labor market fluctuations and increased debt payments.
As markets await these key data releases, investors will closely monitor economic indicators for insights into future policy decisions and market sentiment.
