The Axiom IFS Update 22nd April 2024

The prospect of interest rate cuts in Europe happening earlier than in the USA or UK is rising as economic prospects look likely to diverge.

 

The dual themes of a more hawkish Federal Reserve and increased geopolitical risk in the Middle East kept the dollar strong last week. Attention is focused on data releases this week and the extent to which consumers are weathering price increases. Signs of durability may add to the narrative that the US economy does not need immediate help in the form of interest rate cuts. The story on this side of the Atlantic is similar but the fears are focused on weaknesses instead – UK and Eurozone PMI data due tomorrow may emphasise slowing (or non-existent) growth meaning that central bankers (particularly in Frankfurt) may step in sooner rather than later and ahead of their peers in the US.

GBP.

Notable developments in the UK last week included Bank of England policymakers diverging from the message relayed by the economic data released recently. Both Governor Bailey and Deputy Governor Ramsden sounded less concerned about inflation pressures when speaking in the US, even as external MPC member Megan Greene warned of being complacent about inflation in the UK and data released that week continued to suggest inflation risks remain tilted to the upside for the BoE’s forecasts. As a result of the comments by the BoE’s top brass, sterling ended the week lower against both the dollar and the euro. In fact GBPEUR now trades at the lower end of its year-to-date range.

USD.

The U. S. Dollar fell slightly in Asian trade this morning but remained close to over five-month highs against a basket of currencies. The consolidative move comes as waning bets on a June rate cut boosted the dollar, especially after strong U.S. inflation readings and hawkish commentary from top Fed officials. Focus this week is on more cues on U.S. monetary policy, specifically from PCE price index data – which is the Fed’s preferred inflation gauge.

EUR.

The Euro began last week on poor footing amid dovish commentary from European Central Bank policymakers, hampering the common currency. In fact, ECB’s President Lagarde suggested that interest rate cuts will likely come in June. This puts the ECB in the unusual situation of acting ahead of the Fed, which is expected to keep the Euro under pressure.

CAD.

The Canadian dollar notched marginal gains last week following a weaker round of core inflation data on Tuesday. The move in the loonie reflected neither US rates, equities, or oil, with the former holding just shy of 5%, while the latter two recorded significant losses on the week. On a structural basis the Canadian economy is rapidly diverging from the US and this could be bearish for the loonie.

AUD.

The Australian Dollar ends its three-day decline on Wednesday, bouncing back from levels not seen since mid-November. Nevertheless, hawkish remarks from Federal Reserve officials and the influx of safe-haven flows could bolster the US Dollar and potentially limit the upside of AUD/USD in the short term. Australian Employment Change and Unemployment Rate data for March are scheduled to be released on Thursday.

GOLD.

Gold maintains its offered tone through the first half of the European session and is currently placed just above the $2,350 level, or a one-week low touched earlier this Monday as diminishing geopolitical tensions in the Middle East hit safe-haven demand. The precious metal had rallied in recent weeks as tensions between Israel and Iran flared, hitting an all-time high of $2,448.8 on April 12, but now trades well under the $2,400 mark.

STOCKS.

The New York Stock Exchange is polling market participants on the merits of trading stocks around the clock as regulators scrutinise an application for the first 24/7 bourse. The survey by the NYSE, part of Intercontinental Exchange, was put out by its data analytics team rather than its management, but it highlights the growing interest in trading overnight between 8pm and 4am Eastern time. The issue has become a hot topic in recent years, prompted in part by the 24/7 operation of cryptocurrency trading and the rise in retail investor activity first spurred by coronavirus pandemic lockdowns.

CRYPTO.

JPMorgan Chase and Deutsche Bank have weighedhttps://www.bloomberg.com/news/articles/2024-04-18/bitcoin-halving-seen-mostly-priced-in-by-jpmorgan-deutsche-bankin on the potential impact of the Bitcoin halving on BTC’s price and ecosystem. The Bitcoin network completed its fourth halving on April 19. Despite agreement on the halving’s impact being priced in, the two banks diverge on bitcoin’s post-halving price trajectory. A recent survey by Deutsche Bank revealed that more than half of respondents anticipate cryptocurrencies to evolve into an important asset class and a method of payment. Furthermore, 10% of those surveyed expect BTC’s price to surpass $75,000 by the end of the year.

OIL.

Oil prices fell by more than 1% on Monday morning as the market focus switched to fundamentals after Israel and Iran played down the risk of an escalation of hostilities following Israel’s apparently small strike on Iran. Both benchmarks spiked more than $3 a barrel early on Friday, after explosions were heard in the Iranian city of Isfahan in what sources described as an Israeli attack. Gains were capped after Tehran played down the incident and said it did not plan to retaliate.

 

 

 

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